Start-Up Guide :: How to become an IT contractor

Once you have decided that you want to become a contractor, there are a number of stages you will need to negotiate before starting work on your first contract assignment.

1. Make sure that contracting is right for you

Ask most contractors if they regret their decision to make the leap, and the vast majority will say no. Contracting offers far more financial freedom and independence than permanent work can every do.

On the other hand, there are a number of risks involved in starting up on your own, and the inevitable market downturns to negotiate along the way. To help make the choice, try our article on the pros and cons of IT contracting.

2. Research the market

If you decide that contracting appeals to you, you need to find out the strength of demand for your skills, what rates you are likely to command, and the strength of the general contracting market.

A number of key factors will affect your contract rate – your skills and experience, the strength of the general economy, the location of the contract role, as well as other things which you have a degree of control over – such as how much commission the agent charges, and which business structure you contract under.

The overall demand for IT contractors sank significantly during the recession in 2007/8 and for several years afterwards, before rebounding strongly from 2012/13 onwards, although average rates for core IT skills have not risen in real terms for quite some time.

The impact of Brexit and the underlying weakness in Eurozone economies hasn’t appeared to dampen the demand for contractors yet, however, seasoned contractors will be used to dealing with the effect of boom/bust economics on the market in general.

3. Quit your current job

The nature of the contracting market means that clients are often seeking contractors to start right away or within a few weeks at most. Clearly, most permanent employees will have to give notice before they are free to accept a contract position. You can either give notice and wait until the notice period has expired before seeking work or more likely start to apply for roles whilst serving your notice period.

Your current employer may have a flexible approach to your decision to leave, allowing you to leave early, or you may have to ‘do your time’ – this is obviously something which will vary from person to person.

4. Secure your first contract

To find your first contract, you will typically search for suitable roles on the major contractor job boards, by direct approaches to recruitment agencies, or via recommendations from contractors you may already know.

Social networking sites, particularly LinkedIn, are playing an increasingly important role in the contract search process. You should take time to create a compelling LinkedIn resume, and keep in touch with former colleagues – as they may have access to the juicy roles which never even make it to recruitment agents.

Although web-based resumes may become the prime way of connecting with prospective clients, you also need to ensure you have a professional-looking contracting CV, and brush up on your interview techniques.

Once you have negotiated the interview stage, and have been offered a position, you will need to negotiate your contract rate (with the agency or client if you’re working direct) and any other matters such as how you will perform your contract.

At this stage, you should consider contacting an IR35 specialist to help you comply with the notorious IR35 tax rules, and help ensure that the wording of your contracts and working conditions keep you outside the legislation.

5. Company Structure

You will also need to decide whether to work via your own limited company, or via an umbrella company scheme.

There are several factors which will influence your decision – do you want a ‘hassle-free’ solution, do you want to control your own financial affairs, are your contracts caught by IR35, and how long you intend to contract for. You can read our expert guide to limited company or umbrella, which will help you decide.

If you decide to set up your own company (as most contractors do), you will also need to find an accountant, get familiar with your new responsibilities as a company director, and make sure you also submit your company paperwork to HMRC and Companies House on time. Although you will typically use an accountant to deal with most of your company paperwork – it is the directors who are ultimately responsible for any mistakes which may be made.

If you have taken all five steps in this guide, you will be about to start your first IT contract, which for many contractors turns out to be the best thing they have ever done.

About the Editor

  • James Leckie

    James is an experienced business and finance writer. He studied economics and worked for large companies including British Airways, Citi and JP Morgan before working as a data analyst IT contractor in the late 1990s and 2000s. He founded Contract Eye in 2006 and also writes widely for a number of popular business sites. Connect with James on LinkedIn.

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Last updated: 9th August 2023