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Moving from permanent employment into contracting can be a bit of daunting undertaking. There’s a lot to think about, as well as important lifestyle and financial decisions to be made. But, as most contractors will tell you, there are a great many benefits too.

To help guide you through some of the key considerations, we’ve put together this guide to becoming an IT contractor in the UK.

 

Why should I become an IT contractor?

There are two main reasons why you might want to consider a move from permanent employment into contracting: more money, and a better work-life balance.

As an IT contractor, you have the potential to earn a significantly higher income than your permanently employed counterparts. Of course, you won’t have perks such as sick pay or company bonuses. But, generally speaking, contractors find that they are financially better off outside the traditional employee framework.

Equally important is the independence that contracting provides. You get the freedom to choose your working hours, where you work, and who you work for.

 

What personal qualities do I need?

It’s important to remember that contracting isn’t for everyone. Some people simply prefer the comfort of a monthly paycheck and the familiarity of a permanent job.

But if you’re independent, organised, and tenacious then there’s no reason why you wouldn’t suit life as a contractor. You’re going to be speaking to new clients regularly, so you’ll need to be confident too.

Remember, it’s completely normal to worry about missing the security blanket of full-time employment at first. But with hard work and determination you could experience a whole new level of freedom.

 

What are the pitfalls of contracting?

Okay, we’ve looked at the benefits of contracting but there are some pitfalls to be aware of, too.

As we’ve already mentioned, as a contractor you won’t have the job security that you would enjoy as a full-time employee. That includes benefits such as a work pension, holiday pay, and sick pay.

You’ll also be expected to start new contracts at short notice, and without good diary management skills you could find things spiralling out of control. Likewise, projects could get shelved or halted without prior warning, meaning you are left without that income stream.

This all sounds slightly scary. But as long as you are diligent with your cash flow and keep a close eye on your calendar it’s nothing to be afraid of.

 

How do I find IT contracts?

Until you are an established contractor, you’ll need to put in some legwork in order to get your first few contracts. Luckily, there are several different ways to go about it.

Many contractors get their early contracts via recruitment agencies. A good recruiter will know how to match your skills with the right client, and they can act as a buffer should you have any issues.

A more direct approach is via industry job boards such as Jobserve and Technojobs. Sign up for alerts to save time searching every day.

You’ll also find opportunities via LinkedIn and, increasingly, industry Facebook groups. Finally, there is no substitute for getting out there and networking with prospective clients as well as other contractors. Industry events and social gatherings are perfect for this.

 

How should I set up my company?

There are two main ways that IT contractors tend to set up their businesses: as a limited company, or via an umbrella company.

Setting up a limited company is fairly straightforward, but you’ll need to make sure you’re on top of all paperwork and filing at Companies House. You may want to hire a specialist contractor accountant to help you with the legal side of things, especially when you’re just starting up.

Operating under an umbrella company is the other popular option for contractors. You’ll essentially be seen as an employee of the umbrella company, meaning you won’t have to stress about paperwork and your tax will be taken care of. However, umbrella companies will take a cut of your earnings for their services.

If you’re unsure about which route to take, try our best option tool to identify the best solution for your requirements.

 

What do I need to know about IR35?

IR35 is a piece of tax legislation that directly impacts contractors. It basically exists to stop employees disguising themselves as contractors for tax purposes.

As an employee of an umbrella company, you won’t need to worry about IR35. But if you set up as a limited company it’s important that you take the legislation seriously.

Get professional advice if you’re at all unsure about IR35, the fines can be pretty serious if you get it wrong.

 

In summary

There can be no doubt that moving from permanent employment to IT contracting can be stressful. But if you’re willing to put in some hard work, and you do plenty of research, you’ll find that contracting can be an exciting and rewarding career choice.

Take a look at our take home pay calculator to see how much you could earn as a contractor.

 

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