It was less than two months ago that the International Monetary Fund modified its forecast regarding the levels of economic growth for the United Kingdom. According to the experts, the British economy will only grow by a minimal 0.2 per cent during the remainder of 2012, and the prospects for 2012 remain bleak, as economic growth is not expected to exceed 1.4 per cent.
These figures are undoubtedly having a negative impact on the workforce. As jobs continue to be slashed and redundancies become increasingly more common, many workers are considering becoming freelancers or independent contractors.
An overview of contracting in the United Kingdom: advantages and disadvantages
According to a study carried out by Kingston University, in 2008 the number of registered freelancers and contractors in the UK exceeded 1.4 million. This figure represents an increase of 14 per cent when compared to the numbers of 1998, and it is safe to assume that the current numbers are in the region of 2 million.
While it is not an easy transition, becoming an independent contractor has several advantages. One of the most commonly cited benefits has to do with increased flexibility, as contractors have more opportunities to choose their own working hours and conditions. Secondly, as contractors get to work for many different clients (as opposed to working for just one company), they tend to have more chances of developing new skills and building strong professional networks. Lastly, there are several financial advantages associated with becoming an independent contractor. Contractors command higher rates of pay than salaried employees, and it is not unusual to find contractors who earn at least twice as much as full time employees.
However, there is also a downside to the financial aspect of being a contractor. Workers who choose to go down this route are required to file their own taxes and to keep their national insurance and VAT contributions up to date. In addition to this, contractors are required to operate either through a limited or an umbrella company, which initially will entail a considerable amount of paperwork. This is why more and more contractors are choosing to use the services of a specialised umbrella company.
Umbrella payroll companies: an effective solution for freelancers and contractors in the UK
Umbrella payroll companies are an excellent option for contractors and freelancers who are looking to maximise their income in a hassle-free and efficient manner. Trading through one of these specialised companies can also relieve contractors from having to research and deal with IR35 issues and other complex tax matters.
As there are more than 250 umbrella companies offering their services in the UK, choosing the most adequate can be challenging. The best umbrella companies offer a comprehensive range of services without setting up or leaving charges, capped fees, competitive health insurance, income protection, and pension plans, the option to claim sick or holiday pay, as well as professional and independent financial advice. In addition, the best umbrella companies will offer contractors a range of flexible plans, to ensure that no contractor pays for services that are not required.
To sum up, trading through one of the many reputable umbrella payroll companies can guarantee that contractors will take home more pay, with the added advantage of not having to deal personally with the burdensome aspects of being an independent contractor.
David Webster. David has worked at Dasa Consulting Ltd, in Borehamwood, United Kingdom from 2008. He currently manages their contractor’s accountancy department. David studied finance at university and is currently studying to take an ACCA qualification; he hopes to become a chartered accountant.