But moving from permanent employment to contracting involves much more than simply handing in your notice and finding your first contract. You need to decide how to contract, set your rates, ensure you’re meeting your tax obligations and take out the right business insurance.
So, if you’re looking to make the switch from permanent employee to contractor, read on as we break down everything you need to know about how to become an IT contractor.
Why are IT Professionals Switching from Permanent Employment to Contracting?
There’s a reason why so many people choose the contracting route, with many agreeing that the pros certainly outweigh any cons!
Here are just a few examples of the benefits:
- Contractors are often able to command higher rates of pay compared to their permanent counterparts, and the more experience and skills you gain along the way, the more you can potentially charge. Our Rates of Pay for IT Contractors page provides helpful information on this.
- Contractors can claim back business expenses, which helps to make your business as tax efficient as possible. Read more about this on our IT Contractor Expenses page.
- You’ll have the freedom to negotiate things like your pay, working hours and location.
- You can choose your clients, and if you’re not happy, you have the freedom to change contracts if you wish (this is a lot easier than changing jobs!).
- You’ll gain a wide range of skills and experience by having the opportunity to work with different clients.
- Many contractors report they prefer the ‘feel’ of being a self-employed worker – often being brought in as an expert in your field, you can find you’re treated more like a professional.
Permanent Employment vs IT Contracting
| Permanent Employee | IT Contractor | |
|---|---|---|
| Income | Salary | Day rate/contract income |
| Holiday | Paid | Self-funded |
| Pension | Often employer contribution | Contractor arranges themselves |
| Job security | Generally greater | Contract-dependant |
| Flexibility | Usually lower | Potentially higher |
| Administration | Employer handles most | Contractor/business handles it |
| IR35 | Not generally relevant in the same way | Potentially highly relevant |
| Business structure | None required | Limited/umbrella/sole trader – depending on circumstances |
Finding Work as an IT Contractor
Many businesses will opt for hiring an IT contractor over a permanent employee.
This is because they benefit not only by taking on someone who offers specialised skills and new ideas, but it often makes more sense financially to hire a contractor as and when required.
According to the UK Government’s Skills England Annual Skills Report 2026, the digital and technology sector will require 731,000 additional workers by 2035, with the report predicting that in the next nine years, there will be:
- 192,000 additional programmers and software development professionals
- 70,700 additional IT business analysts, architects and systems designers
- 67,400 additional IT managers
So, with the demand there, how do you go about finding work as an IT contractor?
- Recruitment agencies. Searching through jobs on recruitment sites and signing up for their job alerts can be useful for finding contract work. Look for agencies that specialise in IT contracting too.
- LinkedIn. It’s most certainly worth signing up to LinkedIn so that you can network with those in your industry who may either be hiring or know of any jobs going. Our Finding Work on LinkedIn page is full of useful advice on this.
- Networking. It’s important to build your contacts as you go along and keep in touch with anyone you have worked with or met through others, who may be handy to know when it comes to finding work.
- Previous employers. It might even be worth seeing if your previous employer would hire you as a contractor, but you would need to consider whether this might place you inside IR35 and put you at risk of losing self-employed benefits. Read more about this on our What Does Inside IR35 Mean? page.
Should I Set up my Own Limited Company?
One of the first decisions you’ll need to make as an IT contractor is how you’re going to work, with the most common routes being to contract as a sole trader, through a limited company, or through an umbrella company.
Each one comes with its own pros and cons; it’s just a case of working out which one better suits your lifestyle and career path. Our Choosing a Company Structure page provides a breakdown of each route to help you decide.
While contracting through a limited company has the most benefits, it’s not the best option for everyone.
It’s ideal for those who are in it for the long term, expect to earn over £50,000 per year and are happy to take on the additional admin and responsibilities that come with it.
Many contractors choose this route because:
- It’s more tax efficient – there’s the opportunity to combine a lower salary with dividends to maximise your tax home pay.
- You’re able to claim on a much wider range of expenses.
- You have limited liability. By setting up a limited company, you create a separate legal entity from yourself so that any responsibility and risk under a contract belong solely to the limited company, protecting your personal assets.
- A limited company is often seen as having greater credibility, which can make it easier to secure contracts.
Depending on your area of IT expertise, you may find the following pages useful:
- Becoming a Freelance AI Infrastructure Architect
- Becoming a Freelance AIOps Engineer
- Becoming an AI Engineer Contractor
- Becoming a Data Scientist Contractor
- C# Contracting
- Becoming a Freelance HTML Developer
- Becoming a .NET Contractor
We hope you found this page helpful. If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100, or email jaime.thorpe@dolanaccountancy.com. Alternatively, contact us via live chat.
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