A Step by Step Guide to Becoming an IT Contractor

As contractor accountants, we have seen more and more people take the plunge into freelance working, because life as a contractor can be very rewarding, both in terms of the sense of freedom you feel and financial gains as well. Having said that, contracting isn’t for everyone, but if you are thinking of becoming an IT contractor this year, then these are the things you will need to think about:

  1. Is Contracting for You?

This is the most important question of all! Are you a self-starter, who is willing to take a few risks? After all, you will no longer have the safety net of a regular pay check and all the other perks that come with having a ‘traditional’ job. However, you will have the chance to earn perhaps a lot more than you do at the moment and you will have more control over the work you take on and your work-life balance. It can also be more interesting, as you will probably experience a broad range of different industries and working environments.

Once you have decided that contracting is for you, the next steps are primarily administrative.

  1. Research Your Niche

Once you have decided to become a contractor, you need to see if there is actually a market for your skills and what sort of rate you may be able to charge. The best way to do this is to use the vast resources on the Internet. Many sites specialise in the contractor industry (including our own), and you can use them to gain a good impression of the overall contractor market.

  1. Find Work

As IT Contractor Accountants, we have seen that about 80% of contractors work via agencies, with the remaining 20% working directly for end-clients. However, there are many different routes you can go down to find your first contractor role. You can look at specialist contract job boards online, speak to a specialist IT contractor agency, be recommended for a position by someone you already know, or even talk to your present employer about the possibility of moving from a permanent position to a contract one with them.

  1. Incorporate Yourself

Once you have decided to strike out on your own, you need to decide whether you are going to be a limited company or if you are going to work with an umbrella company. These days it is unusual to see an IT contractor working as a sole trader, as this means your client or agency will be liable for certain employment rights. Therefore, most contractors tend to work as Limited Companies as it is a more tax efficient way to contract. Obviously, there are a certain amount of administrative duties that need to be undertaken for IT Contractor Accounts, but a good accounting company like ourselves can give you a hand with those.

There are umbrella companies out there who make it simpler for you to become a contractor, as you become their employee, they take care of all of your administration, and then they pay you a net salary each week or month. However, it is important to remember that if you go down the umbrella company route, you won’t get any of the tax benefits associated with being a limited company.


  1. Tax Issues

As a limited company, your IT Contractor Accountant will take care of all of your company’s tax affairs, although it is always wise to take a little time to understand how everything works. As a Company Director, for example, you will have to register for self-assessment, submit your tax return and pay any tax owed by the 31st January each year. You will also have to pay Corporation Tax on any profits your company makes, and if you draw a salary from the company, you may have to pay tax on that too.

If this all seems a little complicated, then don’t worry. As specialist IT Contractor Accountants, we are here to help. Please call us on 0161 456 9666 with any questions, or drop us an email to sarah@in-accountancy.co.uk for a speedy response.

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