I had about three years of professional experience before I started contracting. My career began in marketing for the British Lung Foundation, followed by a short stint in government as an analyst, and then a role as a project manager at Cognizant.
However, the reality is that I had been working for many years before that. I helped my parents at their farm shop from the age of about 10 and started getting paid for the work when I was around 13 or 14. Before university, I also spent 18 months working as a sales negotiator at a local estate agent. So, I wasn’t new to office etiquette, office politics, or the working world. When I took the job at Cognizant, I knew what I wanted and was ready to crack on.
When Are You Ready to Contract?
The reason I share this context is that it’s hard to pinpoint exactly when someone is “ready to contract.” All I know is that if you’re okay with not being handheld, can ramp up extremely quickly without excuses, and are determined to figure out the job at hand, you’re ready. If you don’t think you can handle this type of pressure, contracting might not be for you.
Contractors are paid to deliver results and for their specific skill set—not because they fit culturally into an organization or because the role offers good career progression. Quite simply, there’s usually a temporary need, and it needs to be filled quickly.
The Pros and Cons of Contracting
If you’re ready to make the jump, contracting can be lucrative for early-career or mid-senior-level workers. However, beware of the instability that comes with contract work. If you’re in a permanent role with generous benefits, bonuses, or equity shares, these comforts can make contracting seem less attractive or even inferior in comparison.
On the upside, running your own limited company comes with great advantages, such as optimising your tax position and paying for things like houses pre-tax through inter-company loans to a separate property company. However, these strategies require careful planning, and your accounting will incur additional charges. If you prefer to close your eyes and just get paid, contracting might not be for you. The administrative tasks—like filing quarterly VAT and yearly corporation and personal tax returns—are a consideration, though a good accountant can make this manageable.
Adapting Your CV for Contracting
You’ll likely need to adapt your CV for contracting roles. Contractor CVs tend to be highly focused on the specific area of the role you’re applying for. For example, if you’re applying for a project manager position for a software development project, you’ll need to have relevant experience in that field. Otherwise, your chances of getting through recruiters are slim.
That said, if you’re well-networked and know decision-makers, or if there’s a desperate need and you’re in the right place at the right time, it’s possible to secure roles without 100% direct experience. I’ve seen it happen, and I’ve even done it myself! However, you’ll need to sell your relevant and transferable skills during interviews and ensure you can deliver what’s being asked. If the role isn’t a good fit, don’t waste people’s time with applications and interviews.
Finding Contract Roles
When searching for contract roles, you’ll need to look for jobs with “contract” in the title or use filters to search specifically for contract positions. Typically, a day rate is provided instead of a permanent salary, and that day rate is all you’ll earn. The only additional charge is VAT, currently at 20%, which is paid to HMRC quarterly.
It’s worth noting that schemes like the flat rate VAT allow you or your company to keep a small portion of the VAT, such as 4% of the 20% total VAT bill. This is a nice little perk and always makes me happy to see the additional income from simply charging VAT!
Tax and Financial Considerations
Deadlines and Payments
The tax year runs from 6 April to 5 April of the following year, with a payment deadline of 31 January for any tax owed from the previous year. Your company tax return depends on when you started your business. For example, I started mine in December, so my company tax year runs from January to December.
A nice advantage of starting a business is that you don’t pay tax right away. You get about nine months after your first financial year to pay it, which takes some getting used to when you have money sitting in your account that isn’t technically yours!
VAT is payable every quarter, but you can opt for monthly or yearly payments—do check what works best for you.
Tax Efficiency
From a tax efficiency perspective, make sure you’re maxing out your ISA where possible (good advice for everyone) and contributing to your pension, as this reduces corporation tax. Also, check how much in dividends you’ve taken around March, as you might be near a threshold like the upper tax bracket at £50k. Staying below this threshold can help you avoid paying unnecessary taxes.
There are many interesting manoeuvres you can pull to stay within certain thresholds, which is why it’s crucial to have a good accountant who doesn’t just manage your books but also helps you optimise your personal financial situation.
Crafting a Strong Contractor CV
Your CV needs to show that you’ve held the role you’re applying for at least once before—preferably several times. Hiring is all about risk management, and the person hiring wants to be sure you can handle the work.
It’s worth investing in a professional CV writer who understands what makes a good contractor CV or spending time and energy crafting one yourself. CVs that are two to four pages long generally work best for contract roles, as they allow you to showcase your experience, achievements, and contributions. A one-page CV isn’t as effective for contracting.
Application Strategy
When applying for contract roles, follow these steps to avoid wasting time:
Contact the Recruiter: Call or send a direct message (via email or LinkedIn) to the recruitment contact listed on the job posting to confirm the role is still available.
Ask for Specifics: Inquire about what they’re looking for in a candidate. If they mention good communication skills or specific system experience, ensure these are highlighted in your CV.
Send Your CV: Submit your CV directly to the recruiter.
Follow Up: Always follow up within a couple of days. You never know what might come of it!
This approach is also a great way to grow your professional network
Building Your LinkedIn Presence
LinkedIn is just as important as your CV—if not more so. Make sure your profile includes recommendations, a clear career history with achievements, and regular posts about your area of expertise. Engaging with others helps build your personal brand.
The Social Selling Index on LinkedIn is a useful tool to gauge the strength of your LinkedIn presence. Ensure you include relevant keywords and skills in your profile, as this is how recruiters search for candidates. If you’re not using the right keywords, you could miss out on opportunities for recruiters to find and contact you directly.
Setting Up a Limited Company
My honest recommendation is not to set up a limited company until you’ve secured a contract role. It doesn’t take more than 30 minutes, and you don’t want the hassle if you never land a contract. If a recruiter asks, simply say your limited company setup is in progress and you’ll provide the key details (like your company number and VAT registration number) as soon as possible.
You’ll also need public liability and professional indemnity insurance, which typically costs around £200 a year. This covers you in case you’re responsible for anything catastrophic while at work.
Understanding IR35
Unfortunately, I can’t write a blog about contracting without mentioning IR35. In short, I recommend only taking roles that fall outside IR35. These roles are less common than they used to be, but they’re still out there.
IR35 is a government policy designed to ensure contractors don’t stay in roles for too long, capitalising on the benefits of self-employment while enjoying the security of a long-term gig. While the principle of IR35 is sound, it has scared the market, and “inside IR35” contracts have become popular. I’d steer clear of these, as they offer none of the benefits of contracting and all the disadvantages—like being taxed at source, having no job security, and no commitment from the client. Personally, I think permanent roles offer more than inside IR35 contracts.
Fixed-term contracts (FTCs) are different and closer to permanent roles while still being temporary. You don’t need a limited company for anything other than outside IR35 roles, so focus on these if you want to truly freelance.
Resources and Next Steps
I’ve created a downloadable resource with key links and sign posts relevant to the topics covered in this blog, including:
CV tips
LinkedIn optimisation
Companies House / Company Set Up
Accountants
Job boards
Business insurance
If you’re interested in project management training, check out my course page.
Good luck, and feel free to get in touch if this article has helped you decide whether contracting is right for you!
