So, what is IT contracting?

If you’re looking for a change from traditional employment, or you’re a client looking for short-term professional help with a problem, IT contracting may provide the perfect solution.

IT contracting – the basics

IT contractors provide skills to clients on a business-to-business ‘contract’ basis, rather than becoming traditional employees.
Permanent staff work on an ongoing basis for their employers, whereas contractors are typically hired to fill short-term gaps within projects, although in practice they may end up working for the same client for an extended period.
Contractors either work directly for the end client (a direct contract) or find assignments via recruitment agencies. Contracts are typically 6 months in duration, although shorter contracts are not uncommon. With the option of renewals in many cases, some contractors work for the same client for several years.
Almost all contract work is conducted on a business-to-business basis, between the client and the contractor’s company (either a personal limited company or an umbrella company operated by a third party).
IT contractors are expected to arrive on site and begin work right away, so traits such as adaptability, the ability to work in a team, and a degree of self-confidence are important for long-term contracting success.
Although contractors do not receive any of the benefits afforded to employees, there are many good reasons (including financial) to consider taking the leap into the world of contracting – some of which we consider later in this article.

A brief history of contracting

Over the past few decades, the UK’s workforce has changed in nature almost beyond recognition. In the 1970s, almost all IT workers worked for large firms, but by the late 1980s and into the 1990s, the increased mobility of the workforce coupled with more flexible needs of companies led to an explosion in demand for short-term contract workers.

By the end of the 90s, with hundreds of thousands of contractors working in the UK, an entire ‘support’ industry evolved to support their needs – comprising accountants, umbrella firms, insurers and many other types of service provider.

The run-up to the Millennium saw contractors in particularly high demand as companies needed to update legacy systems to deal with the ‘Y2K’ issue.

The IT contracting market was hit by the credit crunch and subsequent economic downturn from 2007 onwards, and although the overall demand for contractors has recovered substantially, the competition for contracts combined with cost-cutting measures by companies and the public sector has had a downward pressure on average rate inflation.

Although estimates vary across the industry, the number of IT contractors currently working in the UK is likely to be around the 250,000 mark.

Benefits for clients

There are many benefits for end clients who hire contractors:

The recruitment process for permanent staff can be arduous, whereas contractors can often start work within days or weeks.
There may be budgetary or political reasons within client firms which encourage managers to keep a lid on the permanent headcount.
Contractors are hired on a business-to-business basis and all costs are deductible against the client’s Corporation Tax bill. No Employers’ National Insurance Contributions (NICs) are payable, nor any other costs associated with hiring permanent staff.
Contractors do not receive any ‘perks’ associated with traditional employment, such as enrollment in a contributory pension scheme, holiday pay, or healthcare.
Clients can hire and fire contractors far more easily than permanent staff, subject to the terms of the contract working.

Benefits for contractors

For many, contracting can be a satisfying and rewarding career choice. Some of the main benefits include:

Contractors can earn significantly more than permanent employees. Subject to breaks between work, sickness and unpaid holidays, contractors can often earn twice as much as they would as a permie.
You are in control of your own affairs and may decide to take some time off between contracts, or even consider overseas roles.
You have more freedom to decide where you work, and what type of client you work for, subject to market forces.
You can experience a wide number of industries and types of project.
Your contracting work may lead to further entrepreneurial ventures.

Next steps

If you are considering a career as an IT contractor, or simply want to find out more about the industry, you’ve come to the right place.

We recommend you read our 10 step guide to becoming an IT contractor as a starting point.

Recommended Contractor Accountants

SG Accounting - Join SG and get first 3 months @ £54.50pm
Clever Accounts - IR35 FLEX. Take on any contract you're offered
Aardvark Accounting - Complete service just £76/month
Integro Accounting - 6 months fixed fee accountancy service half price!