This is my guide to contracting in the UK. Its based on my experiences, and to be honest yours might be different. But maybe this guide will help someone who is thinking of going contracting, and it might help you understand the pros/cons and what to know about it before you begin.
What is contracting, and what is involved?
Contracting is where you work for a company, without being a permanent employee.
This means you get no benefits (like holiday pay), should expect no training, are expected to 'hit the ground running' and should know your tech stack pretty well. And the main benefit for this: much higher pay.
Someone earning £70-80k could easily get a contract paying £400-500 a day. Even on the low end of £400, £400 * 22 days worked a month = £8k/mo = £96k a year. Plus, you end up paying less tax due to the different structure.
Most contractors will work for a company for something like 6 weeks to 6 months. Then you set LinkedIn to 'looking for work', speak to agency recruiters, and you tell them your date rate. They'll match you up with potential roles.
The interview process for contract roles is really straightforward. They'll do some basic checks, but if it takes more than an hour or two you can sometimes even just refuse, and they'll accommodate that.
If you turn up and are rubbish, your contract will be terminated really quick. And if there are layoffs, contractors would (sometimes) already be well gone already.
During first COVID waves (and first lockdowns) the UK software engineer contract market completely dried up. There were almost no contracts going around (definitely not many published publicly or on LinkedIn).
Note: none of this is legal or tax advice. This is just based on my experience, and is entirely my own opinion on how the UK contract market works. Before thinking of going contracting, please do further research. Speak to other contractors, speak to recruiters and get a feel for the contract market near you
Most of this guide also assumes you are set up as a limited company, and contracting within that but the guide is also relevant if you are contracting via an umbrella company or sole trader.
Pros/cons of contracting in UK
Pros of contracting in UK
- You are your own boss (but you have clients who you have to keep happy),
- you can select your own work hours. The contract might say something like you have to do 40hrs work a week or 8hrs a day, you can choose when they are.
- You will not be on-call
- You will not have to attend company off-sites (in fact you probably legally won't be able to)
- You can have as much holiday as you want (but you only get paid for days you work)
- For some contracts, you can work weekends (at your choice) which is great if you need to earn more money
- It is easy to get a contract and start work within a day or two. I've never found it hard to find a new contract immediately. You normally know when you will be moving to a new role, so you normally have at least a few weeks.
- You are always seeing new companies, new tech, new tech stacks, and the job never gets boring
- More exposure to different ways of working and different frameworks
- No performance reviews, no feedback cycles
Cons of contracting in UK
- A lot of people say job security, however I do not believe this. It is so easy to find new contracts, and even perm employees are layed off.
- the paperwork, legal and tax side is not fun. Tip: pay an accountant to do everything
- no sick pay. You don't work, you don't get paid.
- No benefits. No insurance, no gym, etc. But you earn a lot more so its not a huge deal, except for the pension contribution.
- more complex to get mortgages
Job security as a contractor
A lot of permanent employees think their jobs are much more secure than contractors. I very much disagree. Contractors can get a new role almost immediately (the only time this hasn't been true was during COVID first lockdown)
I think there is a bit more stress when interviewing all the time, but after a while it becomes quite easy. Landing the next role can be as easy as calling up a few recruiters and seeing what roles they have right now.
I am not an accountant. Please consult with an accountant to understand the tax implications. This is just a very high level overview of tax in UK when contracting
IR35 and other tax issues
- If you have your own ltd company, IR35 is a very important tax law that all contractors should be aware of. I don't want to give bad advice here, and I would recommend that every contractor fully understands the IR35 laws, so please Google it and read up. This cannot be skipped, and if you do not know about IR35 recruiters and hiring managers will not take you seriously.
Is it worth getting an accountant when contracting?
- 100% yes!
- Get an accountant/bookkeeper to deal with all your tax things. Don't go with one of the cheap online ones, go to a proper accountant and pay them to handle everything.
Expenses and tax deductible things
- Most business expenses are tax deductible.
- Food is not! despite what many contractors will like to tell you.
- Laptops, monitors, travel (in most cases when contracting) are all expenses
- If you register for VAT, you may be able to set up for flat rate VAT. This means you can't really claim back any VAT (as a contractor you probably won't have many purchases) unless its over £2k. But you can charge VAT (at 20%) but you send HMRC a smaller %. The details of this, in my opinion, are best left for an accountant to explain to you. But basically you can make another couple of % (especially in the first year, where you get an extra 1%).
Getting a mortgage as a contractor
- Getting a mortgage is only slightly harder as a contractor. There are specialist mortgage advisors who can find providers that give a mortage to contractors and self employed.
Limited companies, umbrella companies, sole trader
- Limited companies are what most contractors are. Some companies will only work with contractors who have a ltd company. If you have this then the contracts are between the business you're contracting at, and your ltd company. If you are earning a decent day rate and are busy most months, then it is probably better in terms of tax to be set up as a limited company. It also means you can substitute yourself with someone else (just like if you hired a plumbing company, they can send who they want as long as they are qualified)
- Umbrella companies will be set up by agencies. They charge for this, and you make less due to worse tax structure. I cannot see why people do it, except it is easier
- You can also do contracting as a sole trader, although you will be more limited with what companies will work with you. I did it as a sole trader for quite a while, until my accountant told me how I would be much better off with a ltd company.
Business bank accounts
Getting a business bank account is easy.
One of the most commonly used ones that I've seen other contractors set up is with tide (www.tide.co). Do your research and see what is the best available one for you.
Most business bank accounts have a cost (you can probably get them for £10/mo). I think the reason tide are popular is because they charge no monthly fee (and very minimal fees for doing things like certain withdrawals).
You will need your business bank set up before you can accept payments from companies. Do not accept bank transfers to your personal current bank account.
If you are setting up a ltd company: You will be unable to set up a business bank account until you have your company set up, and have the documentation to prove it.
Other tax/business related tips
Get insurance when contracting.
As well as it covering you in case something goes wrong (or you get sued), some companies won't work with you if you don't have insurance. It is quite quick to get insurance, and you can use price comparision sites for business insurance.
There are a few types, including public liability insurance, professional indemnity insurance, employers' liability insurance (important if you employ others in your business)
Day rates as a contractor
In the UK everything contractors do are based on day rates. Contractors are often quite happy to share what sort of day rates they're getting with other contractors.
In my experience there is only a slight correlation between how good someone is at software engineering and the day rate they are getting.
UK London software engineer contract day rates
- London software engineering day rates are around £400-500 (outside IR35)
UK (non London) software engineer contract day rates
- Outside of UK they can be lower, £300-400
- Sometimes they can be the same as London rates.
- Many are remote, so the location doesn't matter as much as it did a few years ago
How to calculate contractor day rate, from a perm salary
This is a funny subject, as there is no easy comparison. A perm employee is going to have benefits, sick pay, holiday. But I think from experience £70k = £400, £80 = £500, £90+ = £600+. Maybe this isn't too accurate, and might be on the low end of perm employee salary ranges.
Skills and attributes as a contractor
Contractors are not always very skilled! I've worked with highly paid contractors who knew only the basics of how to code. But generally great engineers can command a higher price and after working with a recruiter, the recruiters will hear only positive feedback and will be keen to place you again in another role.
I've always specalised in certain languages and frameworks. Knowing them really well has always meant I could just present myself as an expert in whatever tech the role was for. (I'd only apply for those roles).
For SaaS and other typical tech startups, as well as knowing your programming language & frameworks, I'd suggest you know these really well:
- experience with something like jira
- (if for a FE role) experience with something like Figma or Sketch
No one will be around to show you how to use git if you are a contractor and turn up without knowing how to use it.
How skilled do you have to be to be a contractor?
It helps to be very skilled, but really I think anyone with more than a few years of working in a perm role could land contract jobs. Most contract jobs are quite simple. They want you to quickly turn out a new feature or build something. Often its from scratch, which is nice. Sometimes its not from scratch, but you can pick and choose what contracts you work with.
What sorts of teams will you be working with as a contractor?
A wide mix! It could be almost just you by yourself, or working with a typical cross functional squad. You won't have a manager (you might have someone to report to - but they won't be your manager)
You may be expected to turn up and get set up almost immediately. Unlike a perm job, there will probably be very mimimal onboarding, and if you do have to do onboarding you will not do the same as normal permanent new starters.
Getting contractor roles
In the UK the best way I've found to get contract roles is to simply speak to recruiters. The best place to find them is on LinkedIn. Set yourself to 'open to work', add some experiences, and contact recruiters who are posting contracts. The best way to find them is to search for things like "London JS per day" or "London JS contract" or "London JS outside ir35", and you'll find a bunch of recruiters posting their roles.
I read online before I started contracting like this that it is super competitive, you have to phone them the second you see them put an ad up. I never experienced this. There is enough work and there are enough roles posted that you can ignore all that. I have a feeling that recruiters might spread these lies in order to get you to only work with them.
What companies are looking for when hiring contractors
I've worked mostly with startups, but orgs of all sizes hire contractors (including FAANG).
Interviewing for contract roles
Interviews are generally quite simple. There might be some simple tech test (if it takes long, you can sometimes refuse and just say you don't have time - some companies will still continue the interview process with you.)
There will probably not be a full behaviour type interviews, or them seeing how well you will fit in culturally.
If there are behaviour/culture interviews, then they will not see you as a contractor - they see you as someone they can try and turn into a perm employee. This is good - but they'll expect you to take part in everything normal employees take part in.
Speaking to recruiters
- Know your date rate. If you don't know, do some research and pick a number. Don't go low.
- Get a ltd company set up, it makes it easier and you can start working ASAP
- Get insurance. Its not too expensive, some companeis will require it
- Tell recruiters what rate you're looking for, what your expertise or specality is (maybe this is just what languages you have been using)
- If you go via a recruiter, they will tell you a rate (e.g. £500) but they charge the company much more (e.g. £600+). If the company really wants to work with you, and you have other roles you're considering you can negociate. The agency will get a smaller cut, but they are competing against other agencies and would prefer a smaller cut than no cut at all.
- Know market rate. If you don't know market rate, just say your rate is market rate.
- Negociations will be with the agency.
- If you go direct: they save quite a bit by not paying recruitment agency fees. You may be able to demand a higher day rate.
How to find work
- LinkedIn! I know other contractors find work in other ways, but linkedin has really good success rate
Writing a CV as a contractor
- 1 or 2 pages max
- You can just put short summaries, and write what tech you used.
- recruiters don't care about your personal bio. They care about what tech you know.
- create a version of your cv for each role you apply to. Highlight/make bold the tech stack that you know & is used for that role
Going from perm to contract
- Legally it is questionable if you go from perm at a company to contracting at the company - especially if you do it under your own ltd company. I would not advise it. Go contract at another company.
Going from contractor to perm
- Its common to be offered a perm role. Companies sometimes see contractors as a part of recruiting long term perm employees.
- The salary will be rubbish compared to your day rate, but they'll try to convince you that the benefits are worth it
Does education/university matter for getting contractor roles in UK?
I have never been asked about qualifications or university. I don't think it matters for software engineering contractors.
When hiring contractors it is a little like hiring a plumber. They just assume you know how to do the job and your experience are your credentials.
Going direct vs finding work via an agency
Going direct can be harder, as you have to approach CTOs (small startups) or hiring managers. But it can pay off, as a lot of companies are always hiring software engineers and often need contractors to fill up capacity.
- Avoid having to find new contracts in late December or January - get it sorted and planning in advance. In my experience the contract market dies down a little in these months.
- Before starting contracting, have at least some amount of savings that you can rely on if you had to have some time off between contracts (or if you get ill)
- Always charge for day rates. Don't bother doing hourly charging.
- Keep up to date with the ever changing IR35 laws.