Contractor doctor: can I go contracting even though I might become unwell?

Dear Contractor Doctor,

My long term aim has always been to go from permanent to contracting and felt the time was just right recently, having worked hard to find my 'niche'.

However, I have now just been diagnosed with a degenerative disease and can't be sure from one day to the next whether or not I'll be off sick. Thankfully I have only taken 4 days off sick this year, but some days at the office are quite a struggle due to my illness.

Is contracting just a dream now?

Thanks,

Peter

Contractor Doctor says:

There is no obstacle to your becoming a contractor. But you must be willing to lose pay for time out when you are ill.

Almost by definition, contractors do not get sick pay from the agencies and clients they work for. They work on their own responsibility, and they are supposed to substitute for themselves at their own expense if they become ill for long periods. This ''right of substitution'' is a key element in proving that you are outside IR35, a piece of tax legislation that applies to some contractors which results in them paying considerably more tax.

You could become a contractor on the basis that you will lose money each time you go out sick by paying for a substitute. Obviously you will have to decide for yourself if you can earn enough this way.

There is, of course, income protection insurance available to contractors which covers them when they are out sick. ''This insurance is extremely valuable because the one thing that a contractor must do is to turn up at work for every day of the contract,'' insists Angela James, a Financial Adviser at Contractor Wealth. ''When the contractor misses work, all of the other parts of that contractors finances are at risk, like the pension, the mortgage, etc. This insurance is central to contractor financial planning.''

You would, however, have difficulty in obtaining this kind of insurance because you have a pre-existing condition. Interestingly, James points out, you could obtain the insurance against other reasons that might make you miss work, but not for what you have now.

You will want to take into account that as a permanent employee you are probably covered by your employer's health plan for this illness. This is important to take into consideration when weighing the implications of becoming a contractor.

We are sorry for your difficult plight, and hope that your health improves.

Good luck in making your decision.

Contractor Doctor

Updated: Tuesday, February 3, 2015

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