How to become a contractor

However, even if you have outstanding industry skills, a strong work ethic and the ambition to make it, it’s not always easy to know how to get started. This is your guide to starting a business as a contractor.

What does a contractor do?

Typically, a contractor works for a company for a limited timeframe, carrying out a specific project or piece of work. The nature of the work varies – though popular sectors include IT, consultancy and creative services. The contractor’s working week differs from that of the average employee in a number of ways:

• Work may take place on or off-site, or a mixture of the two.
• Contractors may develop their skills through ‘learning on the job’ or through formal learning routes.
• Payment may be by retainer (an ongoing contract with service level agreements that the contractor must stick to), or one-off payments for set projects.

Becoming a contractor

If it was easy to become a contractor, everyone would do it. The lifestyle it offers has major advantages in terms of time and professional fulfilment. To get started, you need determination, a solid skill set and the capacity to connect with new people quickly and easily.

Finding and applying for work

Finding contracted work differs significantly from full-time employment. Follow these steps for starting a business as a contractor.

Search for a contract

First step for starting your contractor business is creating and expanding your networks through:

Online searches

As a contractor, websites listing contract opportunities are a major tool in your arsenal. However, online searches should be focussed – know the best sites to search and don’t waste time on irrelevant ones.

Existing contacts

Capitalise on your existing industry contacts to generate work.

Networking and new contacts

Find new contacts at real world networking events and use LinkedIn to forge new connections.

Expanding existing work

Once you’ve won work, use it as a starting point for further contracts. Make a good impression, connect with key individuals and you’ll earn further business.

CV tips for contracting

As a contractor, an up-to-date CV is essential. This means two things:

• Firstly, you should invest in your own continual personal development
• Secondly, you should let people know about your growing skills base.

For IT contractors, for example, this means staying up to date on industry accreditation, regularly investing in relevant training courses and recording all this activity on an professional, well presented CV.

Applying for a contract

Once you find a contracting role that’s suitable, get in touch to apply. Remember, as a contractor, you’re always having to juggle time commitments – an interesting three-month opportunity may mean turning down a more lucrative six-week job. Let the prospective employer know your availability, prioritise contracts as you apply and be prepared to start at short notice. ContractEye have a dedicated resource with tips for securing your next contract.

Making it official – setting up your company

With the work rolling in, its time to take your contractor business to the next step and set yourself up as a company.

Sole trader or limited company? Choosing your business structure

As a contractor, you can choose the business structure that works best for you. Different business structures give you different legal responsibilities, specifically in the way you pay tax, so it’s important to give this some thought.

Sole trader

Setting up as a sole trader is the simplest choice and the one most people who are just starting out choose. HMRC requires sole traders to inform them when they started up and to file an annual tax return. As a sole trader, in the eyes of the law, you are the business, which can be problematic as it means business debt is your debt. This puts your own assets (including your home) at risk should the business run into debt.

Limited company

Limited companies are considered a larger concern than sole traders are. They’re registered with Companies House and have to complete more paperwork, including an annual return, annual accounts, a company tax return and a personal tax return. As a limited company, your business’s figures are also available for the public to read.

How IR35 reforms affect contractors

IR35 is a piece of legislation that prevents individuals from minimising tax and National Insurance payments by forming a limited company. Before IR35, an employee could theoretically leave their job on a Friday (paying tax and National Insurance) and go back to exactly the same role on a Monday as a limited company (not paying tax or National Insurance). The new IR35 rules place the responsibility for a contractor’s tax and NI being paid with the employer, rather than the contractor.

Planning and management

The best contractors have excellent time management and planning skills. They’re also good at controlling cashflow and managing finances. Looking after clients properly is key to the role too. Leaving a job well done, with a client satisfied is the best way to make sure you’re asked back to complete another contract.

Safeguarding your reputation

As a contractor, your reputation is what you trade on, so it’s essential to protect it. If something goes wrong and your reputation is damaged, it can have a detrimental impact on both your business and your personal income. Additionally, clients will expect you to have the right insurance in place before you commence work for them.

If you’re an IT contractor or are in any other contracting role that involves providing professional services, advice or designs to your client, professional indemnity insurance for example can help to safeguard your reputation and demonstrate responsibility. Similarly, for contractors who are trades professionals working on a construction site, holding contract works insurance can help to protect your reputation and your finances.

More information

When you’re thinking about how to become a consultant or contractor, there’s a lot of factors to consider. To explore the subject and learn more about the opportunities open to you, read our article on contracting.