The short version: A contractor is someone who provides services to clients, usually businesses, without being their employee. You might work through your own limited company, as a sole trader, or via an umbrella company.
How is it different from being employed?
Contractors have more freedom. You choose your clients, set your rates, decide when and how you work. But you don’t get holiday pay, sick pay, or other employee benefits. You’re running your own business.
How does tax work?
It depends on how you’re set up. If you work through your own limited company, you might pay yourself a mix of salary and dividends. If you’re a sole trader, you pay Income Tax and National Insurance on your profits through Self Assessment. If you work through an umbrella company, you’re technically employed by them and pay tax through PAYE.
What about IR35?
IR35 rules are designed to catch people who work like employees but call themselves contractors. If you’re caught by IR35, you’ll pay similar taxes to an employee. The rules have changed recently, putting more responsibility on the end client to determine your status.
Starting out as a contractor and want to get your taxes right from day one? Talk to us before you start.
