Becoming an IT contractor in the UK – a quick-start guide

IT contractors are a key part of the UK’s industries. They’re in high demand, and they can command very competitive wages.

• A guide to going self-employed in the UK
• The self-employed guide to Self Assessment tax returns
• What is public liability insurance?
• How to start a business

So how do you become an IT contractor in the UK? Read on for our quick-start guide.

What is an IT contractor?

IT contractors are contract workers (therefore not traditional employees) specialising in different fields related to information technology.

IT contracting has boomed in the last two decades, beginning in earnest with the turn of the Millennium and the Y2K ‘bug’. Today, IT contractors in the UK provide valuable services to businesses of every size, although most of the work is concentrated in medium or large firms.

If you’re thinking about becoming an IT contractor, it’s important that you understand the nature of the relationship with your clients.

You won’t be an employee, so you won’t get the benefits enjoyed by employees such as pensions and sick leave. However, contract work can be significantly better paid than conventional employment, particularly if you have an in-demand specialism.

In addition, you can choose when you take on work, and you can take time off between contracts if you wish.

As an IT contractor you may work directly with a client, or you may find work through specialist recruitment agencies. IT contracts tend to last several months, with around six months being the norm.

We’ll explore how to find work as an IT contractor in more detail later in this article.

How much do IT contractors earn a year in the UK?

IT contractors are generally paid a day rate, and this can vary quite significantly depending on your specialism. Some specialisms are particularly in demand, while others are practiced by comparatively few professionals.

According to contractor resource Contractor UK, the top-paying IT contractor discipline is head of security, a role that requires extensive knowledge and experience. IT contractor heads of security can earn up to £1,000 a day. Heads of data architecture (£900 a day), quantitative risk analysts (£870), and Chief Technology Officers (also £870) are not far behind.

By demand, however, Contractor UK suggests that the top disciplines are very different. Leading the field are general analysts (£400 a day), followed by Java, SQL, and Linux specialists, at £500, £420, and £480 respectively.

There are also some emerging specialisms that are increasingly in demand. The biggest of these today is blockchain and its attendant technologies, but many medium-to-large companies are also looking for GDPR specialists since the announcement and introduction of the new rules.

Read more about GDPR for small businesses.

How do I become an IT contractor – step-by-step

Ready to become an IT contractor in the UK? We’ve put together a step-by-step guide to getting started.

1. Find your niche

If you’re considering starting up as an IT contractor, it’s likely that you already have extensive experience in the field. But IT contracting is a competitive field, and you need to find your niche.

Are you a Linux specialist? Do you have particular skills in infosec? Are you a burgeoning blockchain expert? Identify your strengths, and build a CV that illustrates them as well as you possibly can.

2. Get the legal side sorted

Most contractors work either as a limited company or via an umbrella company. If you choose to work as a limited company you may decide to pay a portion of your income to yourself in dividends, as this can be more tax efficient – although bear in mind that the tax breaks for dividend payments have been cut significantly in recent years.

Starting a limited company is fairly simple, but you’ll need to remember to keep on top of your filing obligations at Companies House. Read our guide to starting a limited company in the UK.

Alternatively, you may choose to operate under an umbrella company. Under this arrangement you would become an employee of a dedicated umbrella firm. They take care of all of the paperwork, and deduct any tax payable at source. This can save you a lot of time (and headaches if you don’t budget for your tax bill properly), but remember that umbrella companies will take a cut of your earnings to pay for their services.

Make sure that you speak to an accountant before deciding which legal structure to choose for your IT contracting business.

3. Understand IR35

IR35 is a controversial rule designed to clamp down on ‘disguised employment’ – that is, people who are actually employees, but are operating as contractors for tax purposes. However, there have been widespread complaints that genuine contractors are falling foul of IR35, and that HMRC have cast the net too wide when enforcing it.

Employees of umbrella companies shouldn’t be affected by IR35. However, if you choose to operate as a limited company, it’s vital that you take professional advice to understand whether you are within the scope of the rules. The penalties can be very significant, so make sure that you seek advice from an accountant at the earliest possible stage.

3. Get insured

Insurance can be crucial for IT contractors. Even the most experienced contractors can make mistakes, and the financial cost of those mistakes can be enough to put an end to a business. A tailored insurance policy can help to protect you against this.

In some instances, firms may require you to have public liability and professional indemnity insurance before offering you a contract.

Your core covers as an IT contractor are likely to include public liability, which protects you against claims arising from injury or loss suffered by someone in the course of your work, and professional indemnity, which protects against claims stemming from financial losses suffered as a result of a mistake you make. You might also choose to include business equipment insurance and, if you employ anyone, remember that you’re legally obliged to take out employers’ liability insurance.

Simply Business offers dedicated insurance for IT contractors, which bundles all of your chosen covers into a single policy with a single renewal date. Compare IT contractor insurance quotes.

4. Find clients!

Now that you’re up and running, it’s time to find your first clients. Read on for a dedicated section on this below.

How to find IT contractor work

As we explored earlier, IT contractors generally either work direct to a client, or through a recruitment agency. There are advantages and disadvantages to both.

Working direct to client can be a great option if you already have a good network of contacts who may be looking for your services. Alternatively, you might be introduced by someone at another firm, or you may find roles on IT contractor jobs boards – although some of these may be posted by agencies, rather than clients.

Recruitment agencies also play an important role for IT contractors. A good, specialist agency can help you find work that you wouldn’t otherwise secure, and they should be keeping their ear to the ground and letting you know when interesting opportunities come up.

It’s thought that the vast majority of IT contractors find most of their roles through recruitment agencies, partly because many IT contracts are not widely advertised, but instead are filtered through specialist agencies.

Are you thinking of becoming an IT contractor in the UK? Are you already set up? Tell us about your experiences in the comments.