Become an IT contractor – 10 things you need to know

If you are thinking about becoming an IT contractor, but don’t know where to start, our guide to getting started in the contracting world should give you some useful pointers.

We’ve been writing about contracting for over 20 years now – so the tips and ideas below are based on our own experiences.

1. Is life as a contractor right for you?

Ask most contractors if they regret their decision to leave the world of permanent work behind – and most will say a resounding ‘no’.

If you decide to take the plunge, there are lots of great things about being a contractor – the freedom, the chance to experience new things, and better financial rewards.

On the flip side, you need to be self-starter, think more like a business person, and be able to adapt when the going gets tough.

For more ideas, read our article on the pros and cons of IT contracting.

2. Is there a market for your skills?

If you decide that life as a contractor appeals to you, you need to work out:

  • Is there a market for your skills?
  • What contract rates are you likely to be offered?
  • How strong is the general contracting market at the moment?

Numerous key factors will affect your contract rate, including:

  • The scarcity of skilled contractors for a given role.
  • Your own skills and business experience.
  • The location of the contract role.
  • How much commission the recruiter makes.

3. Get used to the changing contract market

The overall demand for IT contractors sank significantly during the recession in 2007/8 and for several years afterwards.

The market rebounded strongly from 2012/13 onwards, and contracting was in a healthy state in the late 2010s.

However, Brexit and general economic decline have dampened the market.

The April 2021 ‘Off Payroll’ (IR35) rules have also made life more complicated for both recruiters and contractors.

As a contractor, you will become used to dealing with the boom and bust cycle, and dealing with events which inevitably impact the market every few years.

4. Get ready to quit your current job

The nature of the contracting market means that clients often want contractors to start right away or within a few weeks at most.

This means, as a permie, you need to give notice to your current employer before you can accept a contract role.

You can either give notice and wait until the notice period has expired before seeking work or more likely start to apply for roles while serving your notice period.

Your current employer may have a flexible approach to your decision to leave, allowing you to leave early. In other cases, you may have to ‘do your time’.

5. Find your first contract

Broadly speaking, there are 4 main ways to find contract work.

  • Contractor job boards, like Jobserve.
  • Directly – via recruitment agents.
  • Via LinkedIn.
  • Via recommendations from people you know.

Take time to create a compelling LinkedIn resume, and keep in touch with former colleagues. They may have access to the juicy roles which never even make it to recruitment agents.

Ensure you have a professional-looking contracting CV, and brush up on your interview techniques.

Once you pass the interview stage, it is time to negotiate your contract rate, and discuss other matters related to the actual role.

6. Read up on IR35 (Off Payroll)

IR35 is a piece of legislation which has a massive impact on the contracting world. The IR35 rules apply if you work via a limited company, but carry out your contract work in the same way as a normal ’employee’.

In other words, if you are under the control and supervision of your client, and don’t show any signs of being in business in your own account, the IR35 rules may apply.

For this reason, it is worth contacting an IR35 specialist to make sure that the wording of your contracts and working conditions keep you outside the legislation.

IR35 is one topic you need to read up on before you get started.

7. How are you going to trade?

Another fundamental step to take before you start up is to decide which trading structure to use.

You either work via your own limited company, or through an umbrella company.

There are several factors which will influence your decision, such as:

  • do you want a ‘hassle-free’ solution?
  • which trading structure is the most tax-efficient for me?
  • do you want to control your business affairs?
  • are your contracts caught by IR35 or not?
  • how long you intend to contract for.

You can read our expert guide to limited company or umbrella, which will help you decide.

8. Do you need an accountant?

If you trade via a limited company, there are some very good reasons to hire an accountant.

There are many specialist contractor accountants out there – and a good accountant will save you time and money.

They will also be able to help you negotiate things like IR35, and deal with HMRC on your behalf.

9. Do you need a business bank account?

If you set up a company, it is a different legal entity from its owners. So, it must have a separate business bank account.

You can choose either a high street name, or one of the many challenger banks, such as Tide.

If you have an intial ‘free’ period, make sure you find out what fees apply when the introductory offer ends.

And, if possible, choose a bank account which automatically links to accounting software, such as FreeAgent.

As an umbrella company contractor, you are an ’employee’ so there is no need to open a business bank account.

10. Maintenance

The nature of contracting means that you need to keep on top of your game.

Here are some essential ongoing tasks to consider – when you become a contractor.

  • Keep in touch with people on LinkedIn – colleagues, clients and recruiters.
  • Make sure you pay for training if needed, and maintain your certifications.
  • Read up on any tax legislation which affects the industry, e.g. changes to IR35.
  • Keep funds aside for a rainy day – some suggest six months’ earnings, if possible.
  • If you’re a limited company contractor, file your tax returns on time.

Make sure you browse the 100s of articles on Contract Eye for further inspiration.

Partner Contractor Accountants

Last updated: 16th January 2024