Few who decide to become an IT contractor live to regret it thanks to the greater financial and personal freedom they enjoy but that doesn’t mean there aren’t any risks involved. So how exactly do you go about it and what are the main points to consider? Here is our 10-step guide to help prepare you for what lies ahead.
1. Make sure it’s for you
Whether you’ve just started thinking about it or been mulling the move over for a while, it’s important to be clear about what becoming a contractor involves. A permanent job comes with a regular salary and other benefits whereas life as a freelance offers fewer certainties. You can certainly earn a lot more as a contractor and enjoy being your own boss, but to succeed you’ll need to be good at what you do, be a self-starter, and be willing to accept more risk. Be honest with yourself before deciding whether or not contracting is for you.
2. Do your market research
How much demand is there for contractors with your skills and experience and what rate can you command for your services? You may already have a good idea about rates from speaking to other freelancers, if not, check out the various contractor websites for opportunities, where the jobs are, the types of contract available, and the rates of pay.
3. Get your CV in shape
It’s hard to overstate the importance of having an up-to-date CV that highlights your skills and experience. This is the first thing recruiters will look for, so make sure this information is prominent and clearly presented. A well- presented, professional CV should be grammatically correct, free of spelling mistakes, typed using a uniform font and (ideally) no more than two pages long. By all means, include a covering letter with your CV but keep it concise. Remember, recruiters often do their own pre-screening of potential candidates so if you are on LinkedIn, for instance, make sure your online profile and CV is also up to date and presents you in the best possible light!
4. Where will you find contract work?
There are a number of ways to secure contract work and it’s important to consider all options. Most contractors (some 80%) find work through an agency while the remaining 20% work directly for end-clients. It makes sense to register with more than one agency, especially those who specialise in your skills or sector, as this increases your chances of being offered work. Job boards are another source of opportunities, just make sure you choose the relevant filters to ensure you get postings that are relevant to your skills and location. LinkedIn and other social media sites are widely used to advertise jobs and by contractors looking for work. They can also be a great way to network and get word-of-mouth recommendations for contracts. As a freelance, there’s nothing to stop you from cutting out the middle man (recruitment agency) and approaching a client directly for contract work, or you could try and negotiate a freelance contract with your present employer if that’s an option.
5. Choose a company structure
Most IT contractors set up their own limited company or an umbrella company. Under umbrella, you are treated as an employee of the umbrella company or scheme. The client pays the scheme upon receipt of your invoice (weekly or monthly), tax and NI is then deducted as well as any other expenses plus umbrella fee, before you are paid your salary. With a limited company, you are responsible for all the paperwork as well as paying tax and VAT.
6. Administrative responsibilities
As mentioned above, as a limited company director you will be responsible for keeping accurate accounts, completing an annual company tax return and paying corporation tax on profits. Even if you employ an accountant to do this for you, you should still make sure you understand how everything works and about what tax relief you can claim as a director.
7. Are you available?
Typically, clients will want you to start as soon as possible and being able to do so clearly gives you an edge over other candidates. It’s your call when you decide to give up your permanent position but you can always start applying once you’ve handed in your notice. Your employer may also allow you to leave before your notice period is up.
8. Beware of IR35!
A complex rule that covers your employment status as a contractor (and tax liability), make sure you understand the implications of IR35 before signing a new contract. Even better, recruit the services of an IR35 specialist; this won’t cost much but could save you a lot of hassle and mean you avoid losing certain tax benefits.
9. What else?
In addition to the above, you will also need to open a business bank account and register your company (as a limited company), ensure you have professional indemnity and any other relevant insurance cover. You may also want to set up and maintain your own business website.
10. Going forward
Make sure you’re aware of any new technology and informed about what’s going on in the industry and keep your skillset up to date by taking advanced courses if necessary. Sharpen up your interview skills and network with fellow contractors to learn about new opportunities and put your name forward. In short, do all you can to put yourself in prime position to land those lucrative contracts.
Protection Essentials for Limited Company Owners
Relative Life Cover - Save up to 50% on life insurance
The premiums are paid by your own limited company, resulting in a large tax saving. Read our guide here.
Private Medical Insurance - Essential health cover
Avoid NHS queues. Private treatment at a time that suits you and your family. Read our guide here.
Income Protection - What if You're Unable to Work?
Monthly income to cover expenses until you are well enough to return to your business. Read our guide here.