Becoming a Contractor

Contractor Case Study – Moving from Permanent to Contracting

Permanent vs Contract

Moving into contracting can be financially rewarding with regards to take home pay, and mentally stimulating in terms of job satisfaction and overall control. However, the transition into the world of contracting isn’t without its own challenges.

Take for example James, an IT contractor who moved from a full time position in a large plc with a safe and reliable monthly salary and a plethora of employee benefits, such as: pension, life assurance, mobile telephone, 25 days ‘paid’ holiday (which he rarely got a chance to take) and Christmas parties!

However, the position also came with a fair sized helping of office politics, a huge blame culture, poor promotion opportunities, very little job satisfaction, a manager who worried more about his profile than actually completing a project or the welfare of his staff. Paralysis by analysis was also a major issue - it really did seem like they could talk themselves out of any job, if they really thought hard enough about what could go wrong.

Securing a contract and choosing between limited and umbrella.

So, after James had updated his CV, added up the cost of the benefits his current employer provided him with and registered with a few jobsites, he finally secured a position and was offered a role paying £400 per day.

James then had to make a decision and choose which way to operate, via an umbrella company or through his own limited company. He decided to work through his own limited company, this was based on:

  1. Control, he didn’t want to involve another third party which already included his recruitment agency.
  2. Financial reward - he would obviously take home more money.
  3. If after working through his own limited company for at least three months he then decided to go back to a permanent job, he would still earn more than working through an umbrella company over the same time frame.

Steps involved in going limited - What your accountant does and what's left for you to do.

Initially, James had lots of questions about exactly how he was going to work through his own limited company. SJD’s New Client Helpdesk answered all of his questions over the phone, via e-mail and even met with him in an office near to where he worked, all free of charge.

SJD helped James form a company, and provided James with advice regarding share allocation, directors, company secretaries and use of a registered office.

James also needed to open a business bank account, which we provided an application for using Metro Bank. The business bank account was in James’s name – SJD didn’t have access or have any control over this account whatsoever. SJD also provided James with information about VAT and helped him understand if the Flat Rate VAT Scheme would be the best way forward. James also took out professional indemnity insurance.

James’s recruitment consultant advised him his contract was outside IR35 we also reviewed his contract and confirmed it to be outside.

The company formation details, business bank account application and VAT registration documents were mailed first class that same night.

The only thing left was for James to do was to visit our site and click the ‘become a client’ button on our home page, completing these details only took a minute.

Working with your dedicated tax expert.

A tax expert from SJD, in this instance - Ryan Dempsey, then contacted James and ran through a few more details. Although James lived outside London he wanted his accountant to be based inside London near to where he was about to start contracting and most likely where future contracts would also be based (SJD has offices across the UK so this wasn't a problem). James could then see Ryan at lunchtimes if necessary, thereby keeping downtime to a minimum. Meetings are free of charge and email/telephone contact is unlimited. SJD’s fee starts from £120 plus VAT per month. Check our packages for more detail.

James was asked to keep a track of his incomings and outgoings, just as any Limited company would do and record the information on a spreadsheet provided by his accountant. This information was then used to help James understand how much to take in the form of salary and how much as a dividend. James raised his own invoices every week and received payment directly into his company bank account.

James was in full control of his company bank account, and was responsible for moving money from his business bank account into his personal account every month. His SJD tax advisor was always on hand to provide professional tax advice, help with corporation tax calculations, VAT and Revenue returns, payroll, companies house issues and compile James’s year-end accounts.

From time to time James would have to send a cheque to HM Revenue and Customs and sign a few documents, but after a while these became a matter of course and didn’t take up too much of his time.

Finally…was it all worth it?

James is earning more than he was before as a permanent member of staff, yes he misses some of the fringe benefits but is far more in control of his destiny. In fact he is now thinking of expanding the reach of his company and moving more into the consultancy market - he also has his own website which is attracting interest from prospective clients.

James comments “Contracting isn’t for everybody, neither is owning your own limited company. It has its fair share of up’s and down’s, but for me it has been the best decision I’ve taken in years. It would now be almost impossible for me to go back to work in the world of the permanent employee, what ever that really means, after all most people are only on four to 12 weeks notice, so it’s not really that permanent after all!

As for working with SJD I can’t compliment them highly enough, from my initial questions with Michelle in the New Client Team to my Accountant Ryan. They made what initially seemed like a long and complicated process, into something that was easy for me to understand and make sense of. I received a calendar of the important dates along with text reminders and telephone calls just so I wouldn’t miss anything, they even do my personal tax return as part of the monthly fee”.

If you have any queries or would like further advice please don't hesitate to contact us on 01442 275789 or email

We hope you enjoyed this article.

For all other life stories, visit our Life as a Contractor Case Studies hub here, or click on the links below:

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again!