Media Release: Contractor or PAYE? Making the right choice

Clive Randall and Mike Howard

WITH an estimated 29 million-plus people employed in the UK and only 1.4 million understood to be contractors, freelancers and self-employed, this is not a choice most of us will ever need to make, due to the type of work we do.

As employees, we are paid by our employer who will be using the standard Pay As You Earn (PAYE) methodology to calculate our tax and National Insurance payments and we then receive our net pay with our employer having paid our contributions on our behalf.

No hassle. Straightforward when it comes to budgeting, as our monthly pay is always pretty much the same (excluding commission-based income).

But what about those people who are in roles that lend themselves to working as a contractor – engineering positions with the oil and gas industry being a typical example?

The major oil and gas companies and engineering contractors have, for many years, needed to use contract resources due to the constant rise and fall in demand for personnel as projects come and go.

“As specialists in placing high calibre project controls people within oil and gas companies, we tend to deal mostly with people who have gone down the contractor route,” explains Mike Howard, joint partner in Project Excellence.

As a contractor in the oil and gas industry, it is highly likely that you will be required to set up your own limited company.

Incorporation of your company is a relatively simple process as are most of the administrative elements, such as filing company accounts, payment of Corporation Tax and filing regular VAT returns – especially, if like many contractors, you employ an accountant to perform most of these tasks.

According to the Companies Act 2006, all private limited companies must have at least one director.

“Typically, you will perform this role yourself,” enlightens Mike.

“Being the director of a company brings considerable responsibility and a number of administrative tasks however, there are also a number of benefits such as being legally protected should things go wrong and presenting a professional image with the potential to grow your company further if you desire.”

Clive Randall, joint partner in Project Excellence, adds: “The downside of going freelance is that you are out of the career ladder structure in an organisation.

“Certainly you can progress in your field of specialism but it tends to be difficult to break out of that specialism should the opportunity arise.

“Staff however are often transferred to completely different areas enabling them to become more generalist in their skills.”

So is setting up a limited company the right option for you?

“If you are comfortable with the extra responsibility, committed to working for yourself and attracted to the alternative style of earnings then you may seriously like to consider this option,” concludes Clive.

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Contact: Chris McRobb
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