The IT sector is a highly lucrative arena for contractors to step into, but is it for you?
Skilled professionals step into contracting for a number of different reasons, flexible hours and increased earning potential being two good examples. However, before entering the contracting world it is wise for freelancers to make sure that they understand their sector properly in order to correctly maximise the use of their skills.
The UK currently has one of the largest ICT sectors in Europe due to a sophisticated consumer base and a focus on new technology and design.
With evolving markets such as cloud and data centres presenting huge opportunities for growth in the UK's ICT sector, professionals with the relevant technology skills are likely to be needed moving forward into 2014.
Benefits of contracting in the IT sector
As businesses come to rely more and more on technology and advanced computer systems to operate, IT contractors' services are becoming a highly sought after commodity. It is easy to see, then, why more freelancers are going down this lucrative career route.
In fact, October saw the demand for IT contractors reach 62.9 index points. This figure marks the highest reading for 28 months, according to Contractor UK.
According to the most recent Labour Force Survey Employment status by occupation breakdown there are currently 839,309 information technology and telecommunications professionals currently working in the UK.
Of this figure, 115,671 are self-employed freelancers with the remainder employed by someone else or a large corporation.
These figures do not take into account IT directors, of which there are currently 8,649 operating on a self-employed basis in the UK.
Perhaps the biggest reason people turn to IT contracting is the significant tax benefits that freelancers are afforded.
Typically an IT contractor who is operating through a limited company will take their pay from a combination of a salary and dividends (a payment made by a corporation to its shareholders) as this allows for the best tax savings.
Dividends are exempt of National Insurance Contributions (NICs) and are taxed at a much lower rate than standard income. Due to the fact that they come out of income that has already been taxed, dividends received a tax credit ensuring they will not be taxed more than once. However, they must still be declared through your self-assessment tax return.
In order to take full advantage of these it is sensible to seek out professional advice. Online contractor accountants offer both a secure and relatively hassle free way to manage your money, combining the benefit of a cloud-based application with the support of a dedicated accountant.
Being a contractor can also be a positive in times of economic uncertainty. In its 2011 report, management consultants Regus found that recruiting freelancers in difficult economic times was a common trend due to the flexibility offered by such workers. While this is not a guarantee of a job during an economic downturn, it does suggest that some companies may look to contractors as opposed to hiring permanent staff. µ
This article was written by Boox, a firm of online chartered accountants