SERVICE LEAVERS

CONTRACTING OR PERMANENT

We’re often asked for advice from candidates considering a move into contract employment. Ultimately, this decision always comes down to personal choice and suitability of the individuals circumstances, but we wanted to share a few areas to think about when considering contracting vs permanent employment.

Pros of Contracting

1. Flexibility

Contracting can provide a degree of independence which many enjoy. You can be your own boss and take on projects when and where you choose, often allowing gaps between contracts for travel, training or personal hobbies and commitments.

2. Variety

Many people feel they get bored, stale or too comfortable working with one company for an extended period. Contracting offers the possibility to work for several companies and even different industries.

3. Financial

Contractors generally have the potential to earn significantly higher hourly or daily rates compared to permanent employees, but this comes without the benefits package that's enjoyed by permanent employees. Your rate would depend on several variables including experience, contract duration, whether it sits inside or outside IR35, the specific industry / market conditions etc.

4. Lack of Corporate Politics

Not everybody feels the need to climb the corporate ladder to further their career. As a contractor you can often be spared much of the corporate politics and focus on the project that you have been hired to help succeed.

5. Building Your Business Network

By changing your workplace on a regular basis, you quickly build the number of people who have first-hand experience of your work and therefore your business network can grow at an exponential rate.

6. Entrepreneurial Freedom

Contractors have the freedom to manage their own business, set their rates, negotiate contracts, and choose the clients you want to work with and the projects you want to work on. This level of autonomy can be appealing for those with an entrepreneurial mindset.

Cons of Contracting

1. Lack of Security

Looking for a job is almost a full-time job in itself! As a contractor you have to be prepared to regularly do this (in many cases, contractors are continually searching for the next project) and the consequence of not managing this properly, or a change in market conditions, is often gaps between contracts with no money coming in. You also need to be prepared to be replaced or let go once a project is completed or if there is a change in the client's requirements or budget.

2. Additional Headaches

As a contractor you will either need to set up and manage your own limited company or employ an umbrella company to do this for you. Whilst this should not be an overly onerous or expensive task, it's something else that needs to be considered. The admin that goes along with this includes managing your own taxes, accounting, invoicing, and legal obligations, which can be time-consuming and might require help from a professional.

3. Lack of Training

As a contractor there will rarely be the opportunities for training and development which would be open to permanent employees – as a contractor the expectation is usually that you will do this in your own time at your own expense, which can lead to a lack of career progression.

4. No Additional Benefits

As previously mentioned, contractors will expect to receive a higher basic rate of remuneration, but then will have to make their own provision for pension, healthcare and life assurance, and will often not receive any annual or project based bonus which a permanent employee might.

5. Higher Expectations to Perform

Permanent employees are normally afforded a longer period of time to settle into a new role, but the expectation of a contractor is normally that they would need to hit the ground running and be effective from day 1. Make sure you know your specialist area well enough to be able to do this.

6. Difficult to Return to Permanent Work

Once you have chosen to pursue contract work, it’s often then quite difficult to go back to permanent employment if you need or want to for personal reasons or are forced to by market conditions. Employers are often reticent to take on ex-contractors for the fear that they will get bored in a longer-term role, or that the reasons that made the candidate go contracting in the first place may reappear if personal circumstances or market conditions change.

We’d generally advise junior candidates to consider staying in permanent employment for the first few years of their careers. The average career lasts in excess of 40 years, allowing ample time to explore contracting opportunities later on. By spending the formative years of your career in a good permanent environment you’ll have access to training and support structure for you to not only hone your technical skills, but also to develop confidence, discipline, business acumen and communication skills, all of which will be needed if you’re to take on contract positions.

IR35

What’s IR35, and what does it mean for contractors?

IR35 is a set of rules in the UK that determine whether a contractor should be treated as an employee for tax purposes. It helps the government ensure that contractors are paying the right amount of tax and not avoiding their responsibilities.

If a contractor is "inside" IR35, it means they’re considered like an employee. They have to pay taxes and National Insurance contributions, just like employees. The government looks at factors such as the level of control the contractor has over their work and who decides when and where they work to determine their status.

If a contractor is "outside" IR35, they’re treated as self-employed for tax purposes. They have more control and independence over their work and are responsible for managing their own taxes.

Contractors need to understand IR35 rules to make sure they’re following the law. It's important to consult with accountants or tax professionals to ensure you’re paying the right amount of tax and complying with the rules.

Please note that IR35 rules are specific to the UK, and other countries may have different regulations for contractors.

UMBRELLA vs PSC

As business owners, contractors have the freedom to decide who they work for, when they work and the contract vehicle you use to provide your services to clients. Arguably the two most common ways that contractors do this is via a Personal Service Company (PSC) or an umbrella company.

Umbrella Company

An umbrella company is a useful halfway house, it has all the flexibility of working for yourself but with the benefits of being an employee. 

By signing up to an umbrella company you become the umbrella’s employee, but you still have the freedom to work how, where and when you choose.  As well as employing you, the umbrella will handle all of your financial admin, insurances and other matters.

Pros of an umbrella company

Becoming an employee of an umbrella gives peace of mind. As an employee, you will have access to employee benefits such as pension, holiday pay, sick pay and more. You can focus solely on your work as the umbrella will handle admin, paperwork, tax contributions and more. 

The full amount of your income received via an umbrella company should be subject to PAYE.  This usually means that you do not need to submit a self assessment tax return to HMRC, depending on any other sources of income that you receive. 

Cons of an umbrella company

As an employee, contractors’ income is subject to employment taxes and NICs.  These costs should be factored into the assignment rate that is paid to the umbrella, and the umbrella also retains a margin for it’s services too. 

Personal Service Company (PSC)

A personal service company, or PSC, is simply a limited company through which you provide your services. 

The PSC invoices your client for the work done, and your client pays for the invoice into the PSC business bank account. You then access income from the PSC bank account usually by a combination of employment income and dividends. 

Pros of a PSC

If you register as a PSC, then you can take advantage of the limited liability which means that your business is entirely separate from your personal assets. 

This means that if your business is sued then your house is not at risk.  Also, many clients prefer to engage individuals via PSCs rather than as a sole trader for the same limited liability reason.

It also protects the client from an employment tribunal if you decide you are not genuinely self-employed, but more akin to a worker or employee – as a sole trader you could bring a case against your client but as a PSC you could only bring about a case against your own limited company.

In addition, the PSC income is subject to business taxes (rather than personal taxes), and business expenses can be offset from your taxable profit.

You will need to have a separate business bank account, and you will also need to have business insurance which often brings additional peace of mind to your clients. 

Finally, some people feel that operating through a limited company gives extra credibility and professionalism to the business. 

Cons of a PSC

The most significant drawback to operating through a PSC is the legal obligations that are part and parcel of being a director of a limited company. 

Although you can engage the services of an accountant, you remain legally responsible for the financial affairs of the business. This means that any errors in submissions to HMRC or Companies House are firmly your responsibility not that of your accountant. 

The responsibilities of running a limited company can be time consuming, and you will need to get to grips with business tax responsibilities such as corporation tax and VAT, as well as personal taxes in how you draw money from the company – usually a combination of salary and dividends. 

Of course, an accountant will be able to provide you with support in all of the aspects of running the business, but you should bear in mind they are only ever acting on an advisory basis, and that the responsibility remains with you. 

If you do engage an accountant, we recommend choosing one that has plenty of experience in advising PSCs as it is a different niche to standard business accounts.

SECURITY CLEARANCE

What is Security Clearance?

Security clearance is required by the Government to ensure that people working with ‘sensitive assets’ do not pose any risk to national security by having access to this information.

There are four levels of security clearance:

Baseline Personnel Security Standard (BPSS) - This category includes the Baseline Personnel Security Standard and the Enhanced Baseline Standard (EBS). These are generally used as pre-employment checks. The first simply ascertains the trustworthiness and reliability of a prospective candidate and the second acts as a pre-cursor to more in-depth security clearance levels.

Counter-Terrorism Check (CTC) - This clearance is for candidates who will be working with sensitive data or materials, or who are vulnerable to terrorist attack or whose work will involve unrestricted access to certain government or commercial establishments.

Security Check (SC) - This is the most common level of clearance and is for those candidates who would require access to ‘SECRET’ assets or occasional controlled access to ‘TOP SECRET’ assets.

Developed Vetting (DV) - This clearance is the highest level of security clearance, which is for candidates who will have substantial unsupervised access to ‘TOP SECRET’ assets and/or will be working with intelligence and security agencies.

How do I get Security Clearance?

If a role requires you to be security cleared, the necessary checks will be arranged by the hirer and carried out through a Government agency. As a minimum, you will be asked to prove your identity (including your nationality and immigration status) and complete a Criminal Record Declaration Form. Higher levels of clearance may require more intense background checks on your criminal record, a credit reference check and a security service check.

The Security Clearance Process

If a role requires you to be security cleared, the relevant security checks will be arranged by the person hiring you but will be carried out by a Government agency. As a minimum, you’ll be asked to prove your identity (including your nationality and immigration status) and complete a Criminal Record Declaration Form. Higher levels of clearance tend to require more intense background checks on your criminal record, a credit reference check and a security service check.

Depending on the level of vetting required, security clearance can take anywhere between 1 day and 9 months.

BPSS: 1 to 2 days

CTC: 6 to 8 weeks

SC: 4 to 12 weeks

DV: 6 to 9 months

The forms can be complicated, especially if you’re filling them out for the first time. Our advice is to read the guidelines thoroughly and complete the security paperwork as soon as possible – if you delay on this, it will only make the process longer. Lastly, be sure to triple-check the forms before processing them; mistakes or missing information will extend the time it takes for clearance to be processed.

If you’re interested in applying for one of our security cleared jobs and/or have some questions about the security clearance process, please contact us.

Security Clearance Retention

Once provided, a clearance last 5 years (typically for a contractor) or 10 years (for a permanent member of staff). It is important to understand that once a contract is finished or permanent employment is left that the clearance will be retained as live for 12 months. After 12 months the clearance will lapse. If you wish to retain the clearance you should obtain employment that utilises/needs the clearance and ensure that the relevant part of the new organisation you work for has taken on ownership of the clearance either by “transfer” or “sharing” to keep a clearance live.

You must not assume, even if it is expected, that your clearance will be properly processed once you take a new role which needs your clearance. It is vital that you confirm yourself that his has happened.

For many years, we have enjoyed helping Service Leavers to transition from military to civilian life, and have provided the opportunity for veterans to develop rewarding careers within our clients. Our role in helping ex-military personnel to work within the commercial sector, is recognised by the UK MOD. We are exceptionally proud to say that we are signatories to the Armed Forces Covenant which demonstrates Evodia’s commitment to support the Armed Forces Community, recognising the value Serving Personnel, both Regular and Reservists, Veterans and military families contribute to our business and our country. Evodia is committed to:

• Promoting the fact that we are armed forces-friendly organisation;

• We actively seek to support the employment of veterans young and old and work with Career Transition Partnership (CTP) to provide opportunities for employment;

• Strive to support the employment of Service spouses and partners;

• Endeavouring to offer a degree of flexibility in granting leave for Service spouses and partners before, during and after a partners deployment;

• Seeking to support our employees and contractors who chose to be members of the Reserve forces, including by accommodating their training and deployment where possible.