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back to article So you want to be a contractor? Well, here's how it works

Back in the heady days of 1984, working on the development of Microsoft Unix (yes, that was a real product, AKA Xenix), we needed to write an Ethernet driver, but none of us really felt up to that. We needed to hire an expensive specialist. And so I met my first contractor, who turned up in a far better car than anyone else and …

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Women Contractors

I would guess they are less common due to the problems of combining any type of freelance work with childcare - there are very few options that are flexible enough to fit around periods of working/not working. And as women still do most of the child care...

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Mushroom

Re: Women Contractors

Accountants dont need to 'sign off' your accounts unless your turnover is over £6.5M.....

https://www.gov.uk/audit-exemptions-for-private-limited-companies

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Re: Women Contractors

I met a female in the networking security field that could give anyone a good run for their money - when I asked her why she wasn't contracting it was basically down to fear - she couldn't handle the idea that she might be out of work for a couple of months without notice.

It certainly wasn't down to lack of skills and flexibility.

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Re: Women Contractors

I have met a fair few guys who have the same fear.

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Joke

Re: Women Contractors

£6.5M is a typical contract rate.

(see icon)

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Umbrella

You forgot to mention umbrellas. For first time contractors, going through an umbrella is an ideal way to get the business side of things sorted out for you for very little money. They are also pretty good if you dont know how long you want to be a contractor for.

Some people (quite rightly) scared of getting into contracting, so this saves having to get an accountant and set up your own company etc.

If you are starting out, but dont want an umbrella, then you need to make this clear to the agency hiring you, often they have their own in-house umbrella, or have a deal worked out with one. They may try to get you on the books that way to make extra money from you, that is something you need to understand perfectly well - the agency you go through is making money off you. Unless of course, you get a direct contract, I don't know how common that is when working for larger companies.

Interim's are a nice gig to get as well, once you have gotten lots of lovely experience as a work-a-day contractor.

Either-way, is the contractor market back on its feet again? I see a lot of contract gigs pass through my inbox, but they are either fixed price (i.e. crap) or at around £400 per day, which isn't so great.

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Re: Umbrella

The only problem being that I haven't found an umbrella company yet that isn't a steaming pile of unhelpful, money-grabbing, incompetence.

Working through your own incorporated company is the best option for any contract duration imo, as the initial setup costs are easily outweighed by the additional tax benefits that your own accountant can bring; as distinct from the broad-brush and overtly cautious approach adopted by umbrella companies.

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g e
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Re: Umbrella

I used 'Contractor Umbrella' for my first couple of years (probably seven years ago now) and would actually recommend them, based on my experience then, they made life easy and hassle-free till I started my Ltd Co., have heard horror stories about others like Giant, though.

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Re: Umbrella

There are some complete cowboys out there. Plus, in the long run you will make more money with your own company.

One thing to bear in mind is this, if you are just getting into contracting and dont have your own company, the agency hiring you will be able to advise you what to do next. It is very likely that they will get you on an umbrella until the first renewal of your contract, at that point they will talk to you about setting up your own company.

Again, depending on the size of the agency, they may very well have someone in house who's job it is to help you set up a company.

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Re: Umbrella

1Rafayal, you caused me to read my article and yes I did mention umbrellas and I quote "If contracting is a short-term expedient for you, an umbrella company or being an employee of an agency are valid options, since there’s none of the hassle and expense of starting up a company and shutting it down again. You will, however, earn substantially less money and there is no more security than if you’re running your own company."

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Re: Umbrella

oops, sorry!!

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Anonymous Coward

Re: Umbrella

« you caused me to read my article »

Now don't make an habit out of it. :)

[ And yes, you did mention them. ]

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Ltd Co. ?

This is spot on the money. Although I would argue that a Limited Company these days in the UK is more trouble than it's worth.

Up until a few years ago I contracted for over 12 years (at most of the major UK financial houses), and the overhead of running my Company (all the tax paperwork etc) became so burdensome and expensive in accountants fees, that it was one of the main drivers to become a poor permie. For anyone thinking of going contracting I'd seriously suggest the Umbrella/Managed-Service company route - yes, you'll lose about 10% of your max earning power, but not having to worry about an IR35-style knock on the door makes for less sleepness nights.

-Jar

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Anonymous Coward

Re: Ltd Co. ?

Agree, "more trouble than it's worth", as I know to my cost. All it takes is one relatively minor (as it seems to you) infraction of the rules that HMRC set and police themselves to land you with a fine that makes your eyes water.

If you are going the Ltd route, get an accountant who has been recommended to you by someone working in a similar fashion (not all accountants are equal), listen to what they tell you, and never, ever go to see HMRC by yourself to try to sort out what you think should be a minor problem (or if you do, take spare underwear, and be prepared to pay for a taxi home, as you may not be in a fit state to drive).

For me, even though I lose some allowances and a monthly fee equivalent to about an hours work per month, the umbrella company I use makes my life a much more relaxed working experience.

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Re: Ltd Co. ?

I use a firm of accountants that does it all on-line now, with a lot of great management reporting.

You download your bank statement and upload it directly into their site and it will guess the reasons for most of the transactions.

OK @£144 (inc VAT) pcm it ain't cheap (+£130 for your SATR), but if the alternative is leaving contracting, I'd say I'm still making a surplus by joining them & staying.

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Anonymous Coward

Re: Ltd Co. ?

>listen to what they tell you,

The thing about accountants is that they can tell you anything they want yet it is still you who is liable if you listen to their creative advice.

Do your homework and your own accounts, it's not difficult, they only need to be signed off by a qualified accountant.

Oh, and I've gone to HMRC by myself of my own accord to clarify a doubt and when called in, unless you are a real idiot trying to claim everything under the sun as an expense then there is nothing to be afraid of. They really are only human and are there to understand not trip you up.

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Anonymous Coward

Re: Ltd Co. ?

never, ever go to see HMRC by yourself

In my experience HMRC are fine, as long as you're not obviously taking the piss with what you claim. When I was contracting there was a query over VAT, and I made an appointment at the local HMRC office. The inspector was amazed that I wasn't pulling all the usual contractor shenanigans of paying my spouse a salary, claiming for use of a bedroom as an office, etc. As a result they were very understanding about the fact that I'd not charged for VAT in the previous six months despite going over the turnover threshold.

Now accountants on the other hand - in my experience they're all shysters and almost as bad as solicitors.

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JDX
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more trouble than it's worth

Get your contracts reviewed and insurance against investigations through PCG and you're set. Many also get PI cover.

Definitely still worth going Ltd.

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Mushroom

Re: Ltd Co. ?

A Ltd co is no trouble at all. For instance these guys will do everything including opening the company and the bank accounts for £69.50 a month - no minimum term. All you have to do is sign the forms that they fill in for you...all other company and VAT paper work is taken care of.

http://www.boox.co.uk/

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Re: more trouble than it's worth

My experience, too, is that HMRC are very helpful as long as you're playing straight. That can perfectly well include a reasonable amount to cover the 'cost' of using a spare room as an office (there are guidelines for such things, I think it's ~£750 pa, but I let my accountant look after that). Similarly, there's nothing wrong with paying your partner a reasonable amount for work that they genuinely carry out - it's 'paying' them £50k just for posting a few letters that will get you into bother.

Limited liability is an important consideration. My work has the potential to (say) crash a public web server generating substantial costs. I've got (what I believe to be) a solid contract to cover that, and PI insurance too, but I don't want to bet my house on them - that's what limited liability is for.

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Anonymous Coward

Re: Ltd Co. ?

In my case, I don't think I was taking the piss, although I admit in hindsight that I was an idiot. I was told I had to redeclare a years income because of a simple administrative error when filling in the dividend certificates (caused partly by the accountant I was then using being a real arse, but mainly by me not doing what he said - BTW, I was not happy using all the loopholes we wanted me to, and I was actually trying to pay more tax than he wanted).

I went in to see HMRC to discuss what I could do. The tax inspector took a hard line immediately, and would not allow the corrected certificates to be re-filed late, and as my wife was a director, they would not allow me to declare what was paid to her as salaried income, as she had not (in their words) done enough to earn that amount of money. They also would not allow me to claim that the income was paid to me not her, as it was clear that the money had been paid into her account.

When I left the confrontation, having not come to any agreement about what should be done, I was half expecting to be arrested for tax evasion (it was mentioned explicitly by the tax inspector). I had to wind down (without a drink) before even getting into the car to go home, because I would not have been safe to drive.

Fortunately, I was recommended a new accountant who came to an agreement on my behalf with HMRC, but I still ended up with a £1200 time and materials bill from the new accountant, a severance payment from the old accountant to release the books(!), and a demand for tax and NI on the redeclared income, plus a fine of the same order of magnitude as the tax bill.

Expensive, but less unpleasant than a charge of tax evasion. Whether it was a real possibility, or just a threat I do not know. This is why I say listen to your accountant and never meet HMRC by yourself. I don't blame anybody but myself (not even the bad accountant), because I know that, ultimately, the blame was mine, both legally and morally. I don't try to run my own company now, because I obviously suck at it.

I think it may be different if you are trying to sort out a problem before HMRC have actually noticed it. It may also depend on the mood and workload of the tax inspector you're seeing.

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Re: Ltd Co. ?

Good article, all good stuff.

Accountancy firms tend to advocate the limited company approach, because if you have one, they can charge about £1500 per year to help establish and run it. As contract rates dropped, I switched from umbrella to Ltd but I am not so sure it pays better. Probably does.

If you go Limited then take it seriously. Don't go in for any wild expense claims or anything remotely near the knuckle. Claiming every crumb would only earn you a pittance anyway. If anything I under claim.

Insurance vendors tend to talk up the risk of IR35. PCG also sells insurance and so its independence is compromised.

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Bod

Re: Ltd Co. ?

A Ltd Co is there to separate your personal affairs from your business affairs and protects you to a degree.

Some agents and indeed clients insist on only working with a Ltd Co. anyway.

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FAIL

Re: Ltd Co. ?

Nope, I'm pretty sure PCG doesn't sell insurance, you can get discounted insurance from companies if you're a member but that's different.

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The one basic attribute ...

If your CV says you're over 40, then every contract becomes 10x harder to get.

Not because the end-company, who will be using your services necessarily has any problem with "oldies" (they may even have one or two of their own), but because the agencies won't put you forward - unless they have literally no other option.

Phrases like "I don't think you'd fit in", or "The client wants a dynamic team" will be stock replies to your enquires as to why you haven't heard back from the latest application, that was a perfect fit to your CV and what you can actually do.

Whether the client did brief the agencies to "lose" all the applications from more experienced older applicants , or whether they took it upon themselves to perform this extra service for free is something that will never be made known. But if challenged they'll tell you that contracting is a young-person's game. While this is patently bollocks, the hardest part of getting a contract for anyone with a grey hair is getting past the gatekeeper and actually making it to the client interview.

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Anonymous Coward

Re: The one basic attribute ...

who puts Age/D.O.B on a CV anyway?

I don't think i've done that since I started contracting, and I am well under 40...

But I have noticed plenty of 50-60+ contractors in my field...

But agents differ, there are those that really support you and try their hardest to get you work, and those that actually don't care and fish for anyone to send you over to the client...

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FAIL

Re: The one basic attribute ...

More fool you for putting your DOB on there. Why do that in the first place? They don't need your DOB, passport number, address or "Personal Interests", so you are wasting space with it existing anyway.

I have done CV vetting for several places, either putting together a contracting team for a project or hiring permanent replacements (including my own: I'm not staying for a year to babysit a system, I prefer building them) and the truth is that few people, permanent or contract, are aware of how to put a good CV together.

It used to be that your address was there as contact info, to send out an acceptance/rejection letter. That isn't done any more, so take it off there. DOB baffles me. Is it there so we know when to send you a birthday card?

But the worst offender is "Personal Interests". This waste of CV space isn't going to impress or intrigue anyone, even if you put (I swear these are true) Bear Wrestling, and Spaghetti.

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Re: The one basic attribute ...

> who puts Age/D.O.B on a CV anyway?

There are three routes:

I've frequently submitted CVs with no age, or indication of age (such as graduated in 19xx) and found that I get called back by agencies very quickly. The conversation usually goes: "Yes you seem to have exactly what the client is looking for. By the way, you forgot to put your age on the form ... " followed quickly by "Ah!".

Alternatively by putting an age on the CV you save the less enlightened agencies from the cost of the call or any further contact. You could always lie, but is that any way to start a business relationship?

Or just go direct to someone from your long list of previous, satisfied, clients.

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Re: The one basic attribute ...

The oldest contractor I worked with was Dan, who was 86. Front office trading system for banks. He had built the first Unix system in the UK.

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Anonymous Coward

Re: The one basic attribute ...

Ha! Just wait until you are over 60! That is when the fun begins. I lost count of the number of times an agency told me that the client had no problem with an older person and then..... nothing! The contract that I have now was originally advertised over a year ago and I didn't get a look-in (they took on a young, dynamic person who ultimately couldn't hack it) - got it in the end through personal contacts.

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Re: The one basic attribute ...

I can't say that I agree with the age thing. A huge amount of contract work is dealing with stuff that isn't cutting edge, the nuts and bolts that keep companies going. Even if you're bolting in something new it is going to have to communicate with older tech and a mature contractor who knows that stuff inside and out is extremely valuable. COBOL is an easy example: Tons of COBOL work out there but you won't see many twenty something's getting that kind of high dollar work.

There's also the dreaded self presentation thing. If you're in your 40's you've got to act like a professional and command the respect of potential clients. Your suit is your battle dress and you're a grizzled vet who is there to solve their problems and leave. I hire a lot of contractors for specialized jobs we win and the seasoned professional is infinitely more valuable than a 40+ geek presentation: Contractors are not only subject matter experts they also operate their own businesses and if you don't present yourself as a business savvy peer who understands business and office politics you're doing yourself a disservice.

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Re: The one basic attribute ...

The question apparently isn't whether a contractor over 40 - or whatever number you pick - can do the job and earn their pay, but whether the company that's paying, or the recruitment agent, will give them the opportunity. This seems to be a domain where discrimination on age, sex, race, whatever, isn't prohibited at all - as it would be in the case of employment - and if that means that you're unfairly rejected, it's just too bad. It also means that your decision to turn contractor has to include this issue: the money you can expect to get depends on your age, negatively, as well as your skills.

I don't think we established whether there are thousands of greying and bald burned-out contractors in the market who really should be ignored in the name of efficient selecting, and too bad for the small handful who actually are still worth seeing. It's fun to read about the dynamic, young, pretty, plausible, and useless contractors that you may meet in your career, or may have to clean up after.

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Re: The one basic attribute ...

The first Unix box in the UK was at Queen Mary College, I'd be interested to know if he remembers me ?

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Re: The one basic attribute ...

Good article. I want to hear more about this first unix box in the UK.

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Anonymous Coward

Re: The one basic attribute ...

« The conversation usually goes: "Yes you seem to have exactly what the client is looking for. By the way, you forgot to put your age on the form ... " followed quickly by "Ah!". »

Or in my case, followed quickly by "No, I did not forget" (and I wasn't even at a "sensitive" age yet).

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Anonymous Coward

Re: The one basic attribute ...

« Contractors are not only subject matter experts they also operate their own businesses and if you don't present yourself as a business savvy peer who understands business and office politics you're doing yourself a disservice. »

Good post, actually.

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Anonymous Coward

Re: The one basic attribute ...

If an agency doesn't want to put you forward because of your age, go through a different agency....simples.

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Pint

Re: The one basic attribute ...

Good article. I want to hear more about this first unix box in the UK.

A DEC PDP11 (probably the CS Department 11/70), running Bell Labs Version 7. There were also an 11/44 (in my time, used for electronic engineering), and a few other miscellaneous '11s knocking around. We had the source code for everything - it was a bit like hacking Linux! - and brutalised everything in sight, including the ROMs in the Hazeltine 1510 "dumb" terminals. Happy days...

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Re: The one basic attribute ...

Yes it was the 11/70, as you may recall QMC ended up with at least 3 Computer Departments, the EE one which had the 11/44 and other stuff, the CompSci and Stats department with 11/70 et al, the Maths department who got a VAX 11/780 and the Machine Intelligence department who lived in the Chemistry building and had several quite weird things.

As it happens my next piece is about choosing a CompSci degree...

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Re: The one basic attribute ...

That's an important point and applies more generally, there are a lot of agencies, fewer than there were but quite a few, so feel free to help along market forces if one does not perform.

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Re: The one basic attribute ...

Where is QMC. What year ? And I thought VAX systems ran VMS, not unix ?

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Re: The one basic attribute ...

VAX systems did run VMS, but you could choose Unix.

DEC didn't like that and varied between trying to stop Unix and producing its own not very good non-standard version.

There now isn't a DEC.

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Boffin

Re: The one basic attribute ...

Where is QMC. Queen Mary College, University of London. These days, they omit the "College", and generally abbreviate to QMUL (http://www.qmul.ac.uk).

What year ? In my case, 1982-5; I think Dominic was in the year before me. We were both in the Computer Science department.

And I thought VAX systems ran VMS, not unix ? That was the standard provision, of course, in the same way that PCs are usually supplied with Windows. As Dominic said, QMC had one of the first - perhaps the first - Unix installations in the country, and Unix at that time ran mainly on DEC hardware: originally PDP-11 kit (and other PDP variants), but soon ported onto the VAX. George Coulouris, our illustrious and wise Head of Department, believed that Unix was the future, so most of our VAXen and PDPs ran that, rather than VMS or (for PDPs) RT-11, RSTS-E, RSX-11M+, and the other DEC stalwarts.

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Boffin

Re: The one basic attribute ...

An update for the amusement of Unix historians and the nostalgists amongst our number...

I just found George Colouris' own description of how he brought Unix to the UK.

Dominic is indeed correct: QMC did have - as far as can be determined - the first Unix installation in the UK. It initially ran on a PDP-11/40, and that version was Bell Labs Version 4. The first terminals used with Unix in QMC were ITT 3210 units. I'd forgotten them! They were dusty and unused by my time.

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Meh

Re: The one basic attribute ...

I don't have my age on my CV or DOB on my CV either, but a few degrees, and decades of industrial experience rather gives it away. Unless I do a major re-work, leaving a lot out, it would make make my CV borderline no longer quite true. Worst still is companies I worked for having vanished. I can confess to being a Logica employee for a good number of years, gone as of last year for example.

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Re: The one basic attribute ...

Scary to read your link about the "first 25 years of Unix" only to see it was written in 1994...

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Happy

Be flexible

I have been contracting for 10 years now and definitely my biggest asset has been my flexibility, not in providing a variety of skills in your CV, but showing them in the workplace. Those who you are working with, will not have seen your CV and if they can impress on their boss, all the additional work (different skill sets) you can do and use, then that may determine if the boss keeps you on for more.

It's not just skill sets either. In one contract, they were desperate and I got a the highest rate supplied. As the contract peaked and my primary purpose was dropping away, I was used in Support who didn't want to lose me and especially my knowledge in the system that I had helped put in place.

By dropping my rates, I managed to be kept on for another 3 months and then a further 2 * 1 month extensions.

I got lucky then, as the Vendor that was supplying the kit for install were sufficiently impressed that they took me on almost immediately.

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Amen to joining the PCG

I have the full ("Plus") membership of the PCG. It costs me £220 (plus VAT, which I reclaim) per year. It's superb value for money. That extra membership tier provides really comprehensive tax investigation insurance. Second-hand accounts tend to suggest that saying to HMRC that you're a PCG member with full audit insurance somehow reduces the urgency, and subsequently the necessity, of the investigation. Frankly, it's worth it just for the very well produced template contract agreements and the IR35 advice. Without the PCG, it would have been a lot more difficult to discover exactly how IR35's being operated /this month/, and how to ensure you're not falling within its evil clutches.

Honestly - if you're a contractor, join the PCG. Just do it, and accept it as a necessity, in the same way as statutory insurances and accountants' fees. HMRC's attacks on contractors are becoming more aggressive, and it's your best armour.

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Re: Amen to joining the PCG

I was tempted to join the PGC but sorry, aren't they really just an insurance broker ? Their newsletter devotes a lot of space to IR35 scare stories while also carrying loads of insurance adverts. If they were independent I would be happy to pay £220 a year.

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What about being a sole trader?

I looked at contracting a while ago, and the hassle of setting up a company put me off. What about acting as a sole trader? It seems much more straightforward and doesn't (AIUI) involve any dangers from IR35? What are the downsides to being a sole trader?

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