How to become an IT contractor 

In this guide:

• Is contracting right for you?
• The benefits of contracting
• What does a contractor do in a typical day?
• Contracting vs permanent employment
• Setting up your contracting business
• How to become an IT contractor
• Insurance you'll need
• Managing the realities of working for yourself

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

You get more control over your hours, can charge what you’re worth, and select your own projects and clients. It offers a way of working that provides a lot more freedom than the average nine-to-five. 

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

If you’re not sure where to start, that fear can stop you from moving out of the relative comfort of a traditional employee-employer relationship. 

In this guide, we’re going to walk you through the pros and cons of being an IT contractor. We’ll cover what you need to know to get started too – from business basics to the day-to-day realities of contracting. 

Let’s get started. 

Does the shoe fit? 

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

Because as much as the benefits of contracting are great, it’s not for everyone. 

To start, think about the skills and experience you have.  

Junior-level IT professionals will have a tougher time breaking into contracting. Companies often pay contractors for their expertise and experience in areas where they’re lacking. Unfortunately, less experienced professionals may not tick these boxes. 

The more experience you have, the easier you’ll find it to move into contracting. 

Contracting also makes sense if you have lots of in-demand skills. Things like cybersecurity, data engineering, and AI development will give you a higher chance of landing clients. 

Having the right mindset is crucial too. IT contractors must be able to deliver specific and measurable results without much training or supervision. So, you need to be adaptable enough to pick up a client’s processes and systems quickly, communicate clearly, and meet your contractual obligations. 

The hours can be long too. Especially if a client has paid over the odds for a quick turnaround. 

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

Having a strong grasp of your finances and the patience for lots of admin are a must for any contractor. 

The good stuff 

Okay, now we’ve got the reality check out of the way, let’s talk about the benefits of being an IT contractor. 

First and foremost, 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. 

This flexibility also goes into the hours and days you work. Prefer working on weekends and having time off during the week? Or maybe you’d rather work in the afternoons and evenings and keep your mornings free? As long as it works with your contractual obligations, you’re free to do that. 

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 and projects. After all, your skills are transferable, and you have the adaptability to pick up new processes and systems quickly. 

And there’s the main reason you’re probably thinking of leaving your nine-to-five and moving to contracting. The money. Technology recruiters estimate that contract positions usually pay between 30 to 40% more than permanent roles. 

As you build up your expertise and reputation as a contractor, the earnings potential you have skyrockets. If you’re willing to put in the graft and keep your skills fresh, you’ll probably be able to earn a healthy living. 

The nitty-gritty 

So, what does an IT contractor actually do? Well, a lot of your day-to-day depends on the project you’re working on. And your area of expertise. 

There 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. 

We’ve obviously been very general here. But these tasks, or variations of them, are the kinds of things you’ll be doing.  

Contracting vs permanent employment 

The day-to-day probably sounds familiar if you’re already working in IT, right? There are some pretty stark differences to being a permanent employee, though. 

To start, your focus will be a lot narrower. This is because 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. 

The general duties you’re used to as a permanent employee, like training, HR, and company-wide meetings, generally aren’t expected as a contractor. 

Remember that self-sufficient mindset we discussed earlier? It comes into play here as you’ll need to be your own boss.  

Clients will require you to organise your own work and meet your deadlines without the kind of close supervision you’d expect from an in-house role. 

Oh, and keep a close eye on the scope of the work you were brought in to do. It’s your responsibility to flag up any requests that you think have gone beyond the contract of work you agreed with the client. 

Setting up for success 

You’re convinced IT contracting is for you and you’re ready to get started? Unfortunately, this is where the boring stuff starts to creep in. 

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. 

We’ve mentioned IR35 throughout the table above. In short, it’s a UK tax rule that makes sure you’re actually working as an independent contractor and not as a permanent employee pretending to be a contractor. 

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. 

How to become an IT contractor 

We’ve barraged you with information to help prepare you for the realities of contracting, now it’s time to actually set up your business and get started. 

Here’s a step-by-step guide. Obviously, we can’t include everything. We’ve kept it simple so you can get to day one and start operating as an IT contractor. Skip ahead to check out the next sections if you’re looking for information on insurance, writing contracts, business tools, admin, and other more specific bits and pieces. 

1. Decide your business structure 

Use our guide above, alongside free resources like the government’s Help To Grow guide, to decide how you’re going to structure your business. 

2. 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. 

3. 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. 

4. 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. 

5. 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. 

6. 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.

Insure for success 

Your business is set up, you’ve got your finances sorted, 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 – the most important insurance you’ll need. 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. 

Not-so-optional extras 

Let’s finish up with a few extra bits and pieces that’ll help you hit the ground running. 

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. 

Be mindful of your mental health. It can be tempting to take on extra work to earn more money, but it can easily lead to burnout. 

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. 

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 an area of expertise for us. 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.