A Guide To Becoming A Contractor

A Guide To Becoming A Contractor

Have you ever thought about leaving your full-time job to become a contractor? There are some real benefits to becoming a contractor, however it is not a decision to be taken lightly. Deciding to move to contracting can be daunting and finding clear advice often proves to be a challenge. In this blog post, we will discuss the steps you should be considering before you jump into a new business venture.


What Is A Contractor?

A contractor is an individual who is hired externally and brought into a company to complete a specific task or service for a set period. Essentially, you are a self-employed specialist who is available to hire to tackle one-off projects in your area of expertise.

You can set up as a contractor in the sector of your choosing, whether it be IT, consulting or project management. As long as your skills and expertise are the type of role businesses are willing to pay for, then you can earn a good living as a contractor.


Pros and Cons of Becoming A Contractor

As with any career, contracting has both pros and cons.


  • Increased earning potential.
  • Flexible working hours.
  • More variety in day-to-day tasks.
  • More focus on the work you enjoy and are good at.



  • Less job security than a full-time role.
  • Fewer job perks/benefits that are offered by a permanent employer.
  • There isn’t the infrastructure of a HR department or IT team to fall back on.
  • Needing to source and secure work for yourself.


What Steps Should You Take To Set Up As A Contractor?

With all factors considered, if you think contracting is your next career move, these steps will help you understand what is involved in becoming a contractor.

1. Do Your Research

Research is essential. You need to know that you’re making an educated decision about whether or not this is the right move for you on top of whether there is demand for your skillset as a contractor. You can do this by checking available roles online, using salary checkers, or talking to recruitment agencies to see what kind of contracts are out there and would meet your needs as well as the recruiter’s.

You will find that contract pay rates depend upon your skill set and years of experience in your sector. If you’ve not been in the industry for very long or can’t seem to find many contracts for your specific skill set, it may be worth spending a few more years developing your skillset before pursuing contracting.

The main thing to gain from doing in-depth research is an understanding of what this new job path could throw at you and whether it is suited to your personal circumstances.


2. Be Prepared to Leave Your Full-Time Role

Due to the fast-paced and competitive nature of the contracting industry, great opportunities don’t tend to be available for long, so you’ll need to be ready to pursue them before other contractors do.

Having said this, you do not necessarily need to be unemployed while searching for a role, but keep in mind that interviews and start dates can be difficult to negotiate. The key is to be confident in your abilities even though the experience of becoming a contractor will be new to you.


3. Understanding IR35 and Knowing Your Tax Position

For some, delving into the world of tax can be a daunting, difficult and frankly an unappealing prospect. However, being knowledgeable about this is important.

IR35 is a piece of tax legislation which directly affects contractors. The IR35 tax rules are in place to ensure that no one takes advantage of companies by disguising themselves as contractors when they should be taxed as a permanent employee. Therefore, to stay within the law, if you are working as a contractor but with the same responsibilities and benefits as a permanent employee – you are not entitled to a different tax regime and should declare yourself inside IR35. If you are situated outside IR35, you are deemed as genuinely self-employed and can enjoy the tax advantages of being a contractor.

What makes this a little more complicated is that, as a contractor, your IR35 status will vary from contract to contract as it’s dependant on your working circumstances each time. The responsibility of determining whether your role places you inside or outside also depends upon whether you are working in the public or private sector.

If you declare that you are working outside IR35 but HMRC deems this to be untrue, you can face large tax and National Insurance bills.

As the rules regarding tax are complex, it’s important that you seek professional advice.


4. Forming Your Business

There are two different ways that you can operate as a contractor to get paid: as an employee of an umbrella company or by starting your own limited company and working as a self-employed contractor.

Contractors who do not want to be involved with administration or paperwork or are contracting for the short term often use umbrella companies. However, with the umbrella company model you do effectively become an employee again and are eligible for PAYE and national insurance contributions.

Alternatively, a limited company is beneficial in that it can yield a higher take-home pay by offering more tax planning options and allowing you to have complete control over your financial affairs. Limited company directors are also able to claim certain expenses not available through an umbrella company.

For those worried about the hassle of completing paperwork, there are professional contractor accountants who can assist with the majority of limited company administration.


5. Get Insured

It’s advisable to investing in business insurance to protect yourself financially from the common risks associated with contracting. There are different policies that you can look into, whether you opt to operate as your own limited company or under an umbrella company:

  • Specialist contractor policies 
  • Public liability insurance
  • Professional indemnity insurance 
  • Employers’ liability insurance 

Each type of insurance will provide you with different types of cover. Some are legal requirements to have because if a claim is placed against you, you will have some protection.


6. Should You Use An Accountant?

It may be beneficial to hire a professional accountant, if you decide to operate as a limited company as opposed to operating under an umbrella company.

A specialist accountant can easily assist with the financial administration involved in running a limited company, which can be handy if you would rather not do it yourself or are unsure about employment finance and tax.

When choosing an accountant, opt for a specialist contractor accountant, as they’ll have a broader knowledge on contractor-specific concerns.


7. Build A Good CV

Ensuring that your CV is up to date presents you as positively as possible and is marketing your skills effectively is a necessity in order to attract clients.

As most contractor work is done on a project basis, clients are often seeking someone who can advise on and fix a specific issue, so showcasing your skillset and tailoring your CV to target a job role is essential. 

But, do prepare to struggle for work in the early stages. Things take time, so don’t worry if things seem slow and interview offers aren’t coming your way right away.


8. Find A Contract

You can approach prospective clients directly or you can go via a recruitment agency.

It should be noted that when working as a contractor, more people find the majority of their roles through an agency than independently. As the contracting industry is largely fuelled by recruitment agencies who are good at placing skilled contractors into roles quickly, it is a great idea to get registered with as many as possible to put your skillset out there to start with.


Final Thoughts

We understand that starting a new journey with your career can seem complicated, daunting and difficult to organise. But keeping these steps in mind and doing enough planning and preparation will set you up well to reap the rewards of contracting in the long run.

Establishing a structured business plan is the ideal first step. If you would like help with putting together your business plan, get in touch today! Contact us online using the form on the right or call 01604 420 420.

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