Contracting – is it still worth it?

Autumn Budget 2024 – a mixed bag for the self-employed

Chancellor Rachel Reeves delivered her first Budget on the 30th of October 2024 and it was primarily based on driving growth and restoring the country’s economic stability.

It wasn’t all doom and gloom for the UK’s SMEs – for example, the sector very much welcomed the government’s decision to increase the Employment Allowance.

From the 6th of April 2025, the Employment Allowance will rise from £5,000 to £10,500 and the £100,000 threshold for eligibility will be removed, expanding this to all eligible employers with employer NIC bills.

However, a change that has been met with concern is the hike in Employers’ National Insurance (NI) rates.

Reeves announced that from the 6th of April 2025, the Employers’ NI rate will increase from 13.8% to 15% – a change that will come as a massive blow to small and medium sized business owners who are already struggling.

There are concerns that this could result in lower take home pay for some contractors as businesses adjust to higher employment costs, however, this might not be the case for all.

We also mustn’t forget that umbrella company contractors will be affected by these changes too; while an umbrella technically employs workers, this setup differs from a permanent employer format, and so the cost of Employers’ NI is passed on to the umbrella contractor.

It’s therefore worth considering making some adjustments to rates in order to create a fairer balance in take home pay.

What are the benefits of contracting?

While many contractors will be concerned about the rise in Employers’ NI, it’s important to remind yourself of the many positive aspects of self-employment.

Here’s a breakdown of the most common benefits:

Financial rewards

• Contractors are often able to command higher rates of pay compared to their permanent counterparts and the more experience and skills you gain along the way, the more you can potentially charge.
• For those contracting through a limited company, this is the most tax efficient method compared to other avenues, such as working as a sole trader or through an umbrella company. A contractor accountant can advise you on how to make a business the most tax efficient it can be, to minimise your overall tax liability.
• Contractors are able to claim back on business expenses, which can again, help to make your business as tax efficient as possible. To read more about expenses, take a look at our Limited Company Expenses Guide.
• You won’t find yourself in a situation where you’re carrying out unpaid work. Often, when you’re a permanent employee, you might find yourself, unfairly, having to put in extra unpaid hours. A contractor will charge for the exact amount of time it’s taken them to complete a task.

Freedom and flexibility

• You’ll have the freedom to negotiate things like your pay, working hours and location.
• You can choose your clients and if you’re not happy with a client, you have the freedom to change contracts if you so wish – this is a lot easier than having to change jobs should you not get on with your boss etc.

Personal benefits

• You’ll be able to gain a wide range of skills and experience that a permanent worker might not be able to. For example, you’ll find yourself in situations where you can take on new challenges; working across different sectors and industries, as well as gaining experience in new environments and getting to connect with different people.
• Many contractors report they prefer the ‘feel’ of being a self-employed worker – often being brought in as an expert in your field you can find you’re treated more like a professional.

Of course, the contracting lifestyle is not suited to everyone and can have some downsides, including:

• You are responsible for finding your own work and it won’t just land on your lap – you will need to put yourself out there and find contracts.
• There’s more personal financial responsibility involved. This means having to sort out your own tax, expenses, VAT etc. However, a good contractor accountant can help you out with this!
• You’ll likely need to negotiate your pay and conditions and if you’re not the type of person to confidently do this, you might find this difficult.
• There is less security compared to a permanent worker. It is likely that you’ll experience periods where you don’t have as much work on, plus you won’t be entitled to certain benefits such as sick and holiday pay.
• Depending on your situation, you might find yourself working solo a lot of the time, meaning you could feel lonely. You’re less likely to have ongoing working relationships with people when you’re going from contract to contract. Although, if you prefer your own company, this could be seen as a positive!

We hope you found this page helpful. If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com. Alternatively, contact us via live chat.