How to become an IT contractor 

In this guide:

• Is IT contracting right for you?
• What does an IT contractor do?
• How to become an IT contractor
• Managing the realities of IT contracting
• Getting the right insurance

For many, being an IT contractor is the dream when it comes to working.  

But making the leap from working for someone to working for yourself can be scary. All of a sudden, everything’s on your shoulders.  

Whether you’re moving from a permanent IT role or considering your next career move, this guide takes you through the pros and cons of IT contracting.  

We’ll also include a step-by-step guide to help you set up your business and get started. 

Is IT contracting right for you? 

Before you get into the nitty-gritty of starting your business, you need to make sure contracting is right for you. 

Because there’s lots of benefits to being an IT contractor. You’re your own boss. You get to decide what clients you work with, what projects you take on, and how much work you go for.   

You also get a key thing that a lot of jobs don’t have: variety. As an IT contractor, you can work across a huge range of industries.  

It’s a job that suits experienced professionals with lots of in-demand skills. Things like cybersecurity, data engineering, and AI development will give you a higher chance of landing clients.  

You need to be adaptable enough to pick up a client’s processes and systems quickly and to deliver measurable results without much training or supervision.  

Being able to communicate clearly is important too. In the end, it’s your responsibility to flag up any requests that you think have gone beyond the contract of work you agreed with the client. 

Finally, you need to be comfortable with a variable income. Some months, you’ll complete several projects and others you’ll be between contracts.   

Although as you build up your expertise and reputation as a contractor, you may find your earnings potential increases. Technology recruiters estimate that contract positions usually pay between 30 to 40% more than permanent roles.   

What does an IT contractor do?

A lot of your day-to-day as an IT contractor will depend on the project you’re working on. And your area of expertise. 

You’ll probably be hired to deliver something specific. Like build a new feature for an app. Or test a client’s cybersecurity capabilities and produce a vulnerability report. Or assess a business’ IT systems and make recommendations for improvement. 

But here are some typical daily activities that most IT contractors will do: 

• Check project updates – reviewing emails, tickets, or chat messages for updates to your project or new tasks that need to be completed.  

• Attend project check-in meetings – these help you stay on the same track as the client, and make sure you’re progressing with your project as expected.  

• Working on tasks – coding, testing, configuring systems, setting up infrastructure. This will depend on the kind of IT contractor you are. 

• Documenting your work – whether it’s updating documentation, making sure your code comments are on point, or creating system diagrams, everything you do has to be documented so the client can keep benefiting from your work once your contract ends. 

• Collaboration – you might be asked to answer technical questions or work with other contractors or in-house staff. Especially if you’re brought in on a bigger project. 

• Handover prep – you’ll need to actively prepare for when your contract ends. Working on a proper handover document in advance will make this easier. 

How to become an IT contractor

Now you’re on board with the idea of becoming an IT contractor, here’s a step-by-step guide to setting up your business. We’ve kept it simple so you can get to day one and start operating straight away.  

1. Decide on your business structure

Before you start looking for work, you need to set up your company. And that involves choosing an organisational structure. There are a few ways you can do this, each with their own pros and cons.    

As you can see, each option will be better or worse, depending on the type of work you want to do. And how much risk and admin you want to take on yourself. 

As a quick rule of thumb, though:

• A limited company is often the preferred option for working “outside IR35” (we’ll explain exactly what that means in the next section).  
• For “inside IR35”, an umbrella company is usually the simplest choice.  
• Testing the waters or doing occasional freelance work? Consider sole trader status.  
• Want no business admin at all? Look at employment through agency PAYE or an umbrella company.  

For more info to help with deciding how to structure your business, check out the government’s Help To Grow guide.  

2. Inside or outside IR35?

We’ve mentioned IR35 throughout the table in the section above. In short, it’s the name commonly used for the UK’s off-payroll tax rules.  

These help determine whether an independent contractor working through an intermediary (usually as a limited company or sole trader) should be treated like a regular employee by their client.  

If you’re “inside IR35”, you pay income tax and national insurance, like any employee. If you’re “outside IR35”, you’re treated as a business for tax purposes. So, you can pay yourself a mix of salary and dividends, keeping more of your take-home pay.  

Your IR35 status can and will change between contracts. Because it depends on the nature of the work you’re doing for each client.   

For more info, take a look at the UK government’s IR35 guidance. It goes into all the rules you need to be aware of. It’s a worthwhile read because it’ll affect your choice of structure when setting up your company. 

3. Register your business or sole trader status 

Either register your business via Companies House, register for self-assessment as a sole trader, or research and get started with an agency or umbrella company. 

If you’re interested in joining an agency or umbrella company, make sure you know your rights. Focus on finding reputable businesses with verifiable reviews. Unfortunately, there are a lot of fraudulent businesses operating in the contractor recruitment space, so it pays to be careful. 

4. Set up a business bank account 

If you’re going down the limited company or sole trader route, you’ll want to set up a business bank account. Limited companies have to do this for legal reasons. But it’s a great idea for sole traders too, as it helps to keep your personal and business funds separate. 

This resource from MoneySavingExpert has all the info you’ll need on the dos and don’ts of business bank accounts. 

5. Figure out how you’re going to handle your finances 

For agency or umbrella workers, you’ll be paid as normal via PAYE. Simple.  

For limited companies and sole traders, you’ll have a lot more admin to do. Depending on your projected take-home pay, you can either hire an accountant or use reputable bookkeeping tools, like Sage, Xero, and QuickBooks to stay on top of your invoicing and other finances. 

Remember, if you opt to become a sole trader, you’ll need to complete a self-assessment tax return every year. This guide from HMRC explains all your tax obligations and rules you’ll need to be aware of. 

For limited companies, you’ll have to prepare an annual accounts report and tax return. 

6. Build your CV, portfolio, and online presence 

As a contractor, your reputation is everything. You can start building that from day one. Craft a CV and portfolio that showcases all your experience. An online portfolio is a great idea, as it’s easy to link prospective clients to, and can be an extra example of your technical prowess. 

You can use simple website builders like Wix or Squarespace for this. Or create it yourself. 

You’ll also be responsible for your own marketing, at least until you’re situated. Working on your personal visibility via websites like LinkedIn can help you meet new clients and showcase your knowledge. 

Don’t forget to utilise any contacts you have from your pre-contracting days. These word-of-mouth recommendations can be a great source of repeat business and make it easier when you’re starting out. 

7. Join job boards and contractor networks 

There are a bunch of places where contracts are advertised. Traditional job seeking websites, like Indeed and Monster, are a good place to start. 

There are IT-specific job boards too, like TechnoJobs and CWJobs, that might offer more specialised contracts.  

You should also make contact with IT recruitment agencies. By building relationships with recruiters that cover your niche, you’ll be able to land jobs before they even hit job boards. 

You’ll need to immerse yourself in the world of networking. Attending conferences, tech summits, and contractor forums are a great way of making contacts that can lead to jobs.

Managing the realities of IT contracting

First, get used to the realities of working for yourself. If you’re going down the route of a limited company or sole trader, you won’t get any sick pay or annual leave.   

Make sure you plan for this, both financially and practically. Leave gaps between contracts if you want to take some time off and save enough money to be able to comfortably afford your expenses before you pick up your next contract.  

Lining up contracts far in advance can be a great idea too. It helps you plan your year out and opens up natural periods of time for holidays or breaks.  

Another aspect of working alone, especially if you opt to work remotely, is the mental side of the job. It can be easy for negative emotions like stress, loneliness, and exhaustion to build up when you’re only accountable to yourself.  

Take regular breaks, allow yourself time to decompress from contracts, and set work-life balance boundaries. Prioritising your mental and physical health will only help you succeed in the long run. 

Getting the right insurance

Your business is set up, you’ve got your finances sorted, you know what to expect as far as working solo goes, and you’ve started your contract search.   

Wait. Before you press send on that first application, there are a few bits of housekeeping you need to do. 

First, make sure you have your IT contractors’ insurance in order. 

Accidents happen. At some stage, you’ll make a mistake. Or be accused of one. Depending on the size of your contracts and your clients, that could mean a big bill landing squarely on your doorstep. 

Especially if that mistake leads you to breach a contract you’ve signed. It could be a missed deadline, a client accusing you of not meeting a project’s requirements, or infrastructure failing after you’ve worked on it. 

As you grow and start working on bigger projects for more prominent clients, this risk only becomes more pronounced.  

Here’s the insurance you’ll probably need to protect yourself: 

• Professional indemnity insurance – this covers you when you’re accused of negligence, dishonesty, libel, slander, or breach of confidentiality. It covers your legal fees and any compensation you might owe. Whether it’s your fault or not. 
• Public liability (PL) insurance – if you visit clients, including working on their premises, or they visit you, you’ll need PL insurance. It covers your legal fees and any compensation you might owe if a client injures themselves on your premises or you cause an injury on their premises. And it’s deemed to be your fault. 
• Portable equipment insurance – if you have to use your own equipment when working on a client’s premises, like your mobile phone or laptop, then portable equipment insurance pays to repair or replace it if it’s damaged, lost, or stolen. 
• Cyber insurance – if you ever use your own devices to complete work for a client, or store/process client data on your own systems, you’ll want to consider cyber insurance. It helps you recover if you’re hit by a data breach and will handle any legal fees and compensation you might owe to the client. 

An exciting journey ahead

Moving into IT contracting can be an exciting and stressful time. The pressures of setting up your business and working for yourself can feel overwhelming. 

Take it step-by-step. Prepare as much as you can before you leave your permanent position and, if possible, line up some contracts to get you started before making the leap. 

Looking for some more help with your IT contractors’ insurance? That’s our area of expertise. If you’re ready to talk to a broker or have any questions, give us a call on 0345 222 5391. 

Image used under license from ShutterStock.