How to become a contractor in the UK

Many professionals are drawn to the flexibility and earning potential of contracting; however, the journey to working as a contractor involves important decisions and thorough preparation. From researching and understanding the responsibilities of a contractor to deciding and registering your business structure, becoming a contractor involves a range of steps and decisions to follow.

Continue reading to discover how to become a contractor, the benefits of working as a contractor and answers to frequently asked questions.

What is a contractor?

A contractor is an individual or business who works or provides services for an organisation or client under the terms of a contract. Unlike permanent employees, contractors are typically self-employed or operate through their own limited companies, meaning they are responsible for managing their own tax, insurance, and business expenses. 

How to become a contractor

Becoming a contractor involves planning carefully, understanding the responsibilities, and taking strategic steps to establish your business.

1. Research responsibilities
2. Prepare to leave your full-time job
3. Understand tax obligations and IR35 position
4. Decide your business structure
5. Register your business
6. Set up your finances
7. Build your contractor portfolio 
8. Consider insurance
9. Begin working as a contractor and find new contracts

1. Research responsibilities

Before becoming a contractor, it is crucial that you research what working as a contractor entails. Once you have found your professional niche, explore the typical responsibilities in your sector, regulations to follow, industry expectations, and the skills required. An article from indeed shares how researching will help you to determine whether contracting suits you and whether there is a demand for contractors in your desired field.

2. Prepare to leave your full-time job

If you want to pursue a career in contracting, and if you are currently in a permanent role, you need to make sure your contract allows for you to work as a contractor alongside. Once you have built up your contracting career, and once you feel confident to do so, you can prepare to leave your permanent role to dedicate more time and resources to contracting. Consider your notice period, contractual obligations, and the best timing to make the transition.

3. Understand tax obligations and IR35 position

Contractors in the UK must be aware of IR35 legislation, explained by GOV.UK as rules focusing on making sure that a worker (sometimes known as a contractor) pays broadly the same Income Tax and National Insurance as an employee would. A client is typically responsible for determining a contractor’s IR35 status – your IR35 status will also inform you of your tax obligations, for example if you are operating outside of IR35 then you will be responsible for paying your own tax and claiming expenses. To discover an indication of your tax liability, use an IR35 calculator. 

4. Decide your business structure

You will need to decide whether to operate as a sole trader, form a limited company, or join an umbrella company – each structure has advantages and disadvantages regarding control, liability, and tax efficiency. Many contractors choose to set up a limited company for greater flexibility and potential tax benefits; however, this structure does come with increased administrative responsibilities. Read our dedicated article to understand more about business structures.

5. Register your business

Once you have decided on a business structure, the next step in how to become a contractor is registering your business. To register as a sole trader, you must contact HMRC and fill in a form. If you would like to set up a limited company, you will need to choose a name, the people who will have control within your business, prepare various forms, and then register with Companies House.

6. Set up your finances

As a contractor, you are responsible for managing your own finances. Whether you oversee your records yourself, or by using accounting software or outsourcing to a professional accountant, it is vital that you set up systems for invoicing clients, tracking payments, and managing expenses. Enlisting an accountant may also be beneficial when exploring which business bank account will suit your business.

Consider planning for VAT registration if your turnover is predicted to exceed the threshold. 

7. Build your contractor portfolio

Creating a strong portfolio, CV, and online presence is a necessity as you begin to work as a contractor. Use a portfolio to highlight your skills, experience, and any previous projects you have completed which may be relevant to your desired field. You should also use your CV to display evidence of any relevant certifications or qualifications, helping to set you apart from competing contractors. Our article, how to write a contractor CV and secure your ideal role, details the best practices and examples of an effective CV. 

8. Consider insurance

Insurance is an important consideration for contractors. Depending on your sector, you may want to invest in professional indemnity insurance, public liability insurance, or cyber insurance. Some clients may require evidence of specific insurance before working with you, as insurance is there to protect you from financial risks and demonstrates professionalism and credibility to potential clients. To discover more information about what insurance contractors may need, read our article, here.

9. Begin working as a contractor and find new contracts

Once you have finished setting yourself up as a contractor, you can begin to network within your industry, sign up with recruitment agencies specialising in contract roles, and use online platforms to find new contracts, such as LinkedIn. Be proactive by regularly updating your portfolio, seeking referrals, and attending industry events to meet potential clients and important contacts – building a successful contracting career takes a confident approach, persistence, and ongoing effort. Learning the most effective strategies for how to find contract work in your field is essential for maintaining your career.

The benefits of working as a contractor

There are many reasons as to why individuals choose to enter a career in contracting, including the below prospective contractor benefits:

• Greater work flexibility, allowing you to choose when and where you work, depending on which contracts you choose to apply for.
• Potential for higher pay compared to permanent positions, as contractors sometimes have the chance to negotiate better rates.
• Opportunity to work on a variety of projects, increasing the likelihood of keeping your career interesting and broadening your experience.
• Better work-life balance, with the possibility to take breaks between contracts or adjust your schedule as needed, as well as choosing your own hours, depending on the contract.
• Chance to develop and refine new skills by engaging in different industries and assignments.
• Benefit from strong market demand, as many sectors are actively seeking skilled contractors.
• Gain a greater sense of independence, managing your own business and career path.
• Take advantage of tax efficiency through allowable business expenses and your own financial planning.

How to become a contractor FAQs

Do contractors need professional indemnity insurance?

No, contractors are not legally required to secure professional indemnity insurance in the UK. However, some industries or clients may prefer you to secure this insurance before beginning a professional relationship.

Are contractors self-employed?

A contractor is self-employed in their contracting role; however, they may still be employed as a permanent worker alongside working as a contractor. 

Do contractors get holiday pay?

As a contractor, your access to holiday pay will depend on whether it is outlined in your contract with your respective client.

Discover help & guidance for professionals or read more about our small business insurance. To explore tax solutions, visit Markel Tax, or find out more about tax defence insurance.

Please note: This article provides guidance for information purposes only. It should not be relied upon wholly when making or taking important business decisions – always seek the services of an appropriately qualified professional. The views expressed by websites referenced to are limited to those of the websites, and do not necessarily reflect the views of Markel Direct. Markel Direct is not affiliated with any of the brands, companies or websites mentioned in this article.