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Steps to becoming an IT contractor

Once you’ve decided to become a contractor, there are a number of steps you will need to take before you can embark on a successful contracting career.

In a previous article, we looked at the differences between permanent and contract work, and how you exchange a world where you are told when, how and where to work, to a new world where you are more in control of your own destiny – and the potential lifestyle rewards it can offer.

Having considered the pros and cons of traditional and contracting work, and decided on becoming an IT contractor, there are a number of choices you’ll need to make before you start your first contract.

Finding Contract Work

  • Contract work availability is subject to the normal supply and demand equation we see elsewhere in life.
  • The more scarce the skills you possess, the higher the rate you can expect to be paid.
  • Before leaving your permanent role, you should ensure that you have sufficiently marketable skills to secure a steady supply or contract work.
  • Create a concise CV, listing your most relevant skills and experience near the top.
  • Set up a LinkedIn account and create an online resume, as contract recruitment is increasingly being conducted online.
  • Register your CV with the leading IT job boards, such as Technojobs and ITContractJobs.
  • Find out which recruitment agencies specialist in your skill area(s), and register your CV with them, and let them know your availability.
  • As a contractor, networking is the main source of contract work, so get in touch with other contractors to let them know you’ve joined the club!
  • For more ideas, try our dedicated article on finding IT contract work.

Limited or Umbrella?

  • The most tax efficient business structure to use is the limited company, although an umbrella company may be more suitable for short-term assignments, or if you are unwilling to take on the administration associated with being a company director.
  • You will need to choose a contractor accountant to look after your tax affairs, however this need not be an expensive commitment. You will typically only need to spend an hour per month keeping records and dealing with correspondence.
  • Find our more in our guide to limited vs. umbrella companies.

IR35 Considerations

  • IR35 is a piece of tax legislation aimed at contractors who leave permanent jobs one day only to return shortly afterwards as limited company contractors, but who work in the same or similar roles to the ones they held as permanent staff.
  • In order to fall outside the scope of IR35, limited company contractors need to demonstrate that they are working in a ‘self employed’ manner, and that their contracts are IR35 compliant, and working practices match the terms of the contract.
  • Read our IR35 guides for more background information, and how to ensure that your contracts are not caught.
  • Umbrella company contractors are not concerned about IR35, as they are taxed as ’employees’ of their umbrella company.

Other steps to take

  • If you are a limited company contractor, you must set up a dedicated business account, as you and your company are separate entities.
  • You should consider taking our adequate insurance protection – particularly professional indemnity insurance (to protect you against claims for negligence, or damage to client’s systems or data), and IR35 insurance (to cover the cost of representation if you are investigated by HMRC).
  • Remember that long-term contractors will experience times when contract work seems to be in endless supply, but less productive times when the economy is weak, so make sure you put away some of your revenue to tide you over if you ever find yourself ‘on the bench’.
  • Keep in touch with other contractors you meet along the way, and be the first to find out when a new contract role becomes free.

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