First Time Contractor Guide

Why Become a Contractor?  Imperative People Can Guide You Along The Way....

Reasons why you may be thinking about taking your first steps into IT contracting:

  • At a crossroad in your career
  • Financial benefits
  • Redundancy
  • Choose specific types of projects you undertake
  • To broaden your experience within different cultures or environments

    Advantages of IT Contracting

    Higher earnings:  Contracting gives you a higher rate (hourly/day) than an employee in the same permanent role. Your tax situation should allow you to take home increased net pay.

    Flexibility:  You can take time out between projects.  You can choose when you want to be in contract.

    More interesting/challenging assignments, wider variety:  Choose specific types of projects and pick your clients, so you can choose only to work on assignments that take your interest.

    No office politics:  You’re there for a short time on your project, and then you have left.

    Challenges of IT Contracting

    Staying in contract:  Whilst you have registered with Imperative People, you should also register with a number of agencies and specialist recruiters. Make sure you have researched your specialist market, so you know the demand for your services and skills.  You also may want to make use of job boards and social media.

    Downtime between contracts:  No work = No earnings!  However, keep downtime to a minimum, by continually keeping your specialist skills up to date on your CV and seeking new opportunities before your current contract ends.

    Training and personal development:  The responsibility is now down to you and not your employer.  You need to take time out for your training and development, to keep your skill set relevant. 

    Holidays and sick days:  You won’t get paid for those days off.  As your earnings will be higher, this hopefully shouldn't effect you financially.

    A Step-by-step Guide To Becoming a Contractor

    1: Do Your Research

    If it's your first time into contracting, it’s beneficial to research the market first.


    If you are happy to travel, the more opportunities there are out there.  Try and be as flexible as possible.

    Skills Demand

    How in demand are your skills?  Look at the job boards. How many new vacancies in your area are being posted each week for your skills? 


    Speak to Imperative People about the current market rates for someone with your skillset and experience to get a feel of how this could affect your financial situation.

    2: How To Contract?

    Limited Company

    You will need to set up your own Limited Company. There are a number of companies offering Limited Company contractor services, who can set everything up for you.  Imperative People recommend Churchill Knight 01707 871622.  

    Look to see what is included in the basic monthly fee. Generally, you can choose the level of service you need and that best suits you.

    You may also prefer to set up your Limited company yourself through Companies House.

    You will need to open up a business bank account, ask your accountant as to whether you should become VAT registered.  You should also have insurance in place such as Professional Indemnity and Employers Liability.

    Umbrella Company

    If you don’t want to set up and run your own limited company or are only looking to contract for the short term, then you may decide to choose this model. Essentially, your Umbrella company takes care of all the accountancy, taxation and administration matters for you and pays you a net salary after deducting national insurance contributions and income tax on all your earnings.

    It doesn’t cost anything to speak with these companies and they are able to give you advice on the various options available so you can choose what’s right for you. A lot of these sites also have rate calculators, where you can put in your expected day rate and see how much you take home after deductions.

    You don’t need to have a Limited Company or Umbrella Company set up prior to looking/securing a contract opportunity. You just need to have an idea of which model is best for you so you can quickly put your plan into action should you be offered a contract.

    IMPORTANT: it’s  Imperative’s company policy that we do not enter into any contracts with offshore limited companies (own or Umbrella).

    Step 3: Accepting a Contract

    What do you do once you’ve been offered a contract?

    Don’t panic. Using Step 2, go ahead and setup your Limited Company or contact the Umbrella Company that you have chosen to go through.

    Let your Imperative Consultant know which vehicle you are going through. They’ll let you know what information we require and what you need to do next.

    If you’re going through a Limited Company, we only need your Company registration number and copy of your Certificate of Incorporation to get your contracts drawn up. Business bank account details and VAT registration (should you decide to become VAT registered) can all follow at a later date.

    If you’re going through an Umbrella Company, they’ll get in touch directly with us to transfer all the relevant details over.

    Once we have your Limited or Umbrella Company details, satisfactory references, etc. on file, we’ll raise your contract for signature and return.

    Step 4: Making the Transition

    During your transition, your Imperative People consultant will be with you every step of the way, from resigning from your current position to actively securing new contracts for you.

    What you need to do:

    If you’re currently permanent, the first thing you’ll need to do is hand in your notice (see our ‘Tips for Changing Jobs’ guide).

    What we’ll do:

    Undertake any relevant vetting for the specific client (references, criminal background check, etc.)

    Keep In touch throughout the period from accepting the contract/resigning to starting your contract

    Provide you with first day details

    Call you on your 1st day, 1st week and 1st month to make sure you’re settling in well and address any queries you may have

    Meet with you on-site and, where possible, provide feedback from the client you’re working for

    Make sure your initial timesheets are all recorded correctly and approved in time for your first payment (and every other payment after that)

    Keep regular contact throughout your contract and actively work to extend your contract and secure future assignments for you

    Important Legislation

    IR35 IR35 legislation is used to determine whether you are considered a ‘deemed employee’ for tax purposes. Your IR35 status for each contract will either be ‘inside IR35’ or ‘outside IR35’ and depends on your contract and working arrangements with each of your clients.

    If you are inside (caught by IR35) then you are forced to take all your income as salary only.

    If you are outside (not caught by IR35) then you will be able to take advantage of a salary plus dividends route, reducing the amount of tax and NI you pay from your gross earnings.

    Please see the link for further information on the Regulations

    Imperative People strongly advise that if you are planning on providing services via your own limited company you consult with an independent advisor as to your IR35 status. It’s our understanding that the contract wording only forms part of the IR35 assessment and other circumstances must also be taken into consideration.


    The Managed Service Company Legislation was introduced in 2007. This effectively put an end to 'composite umbrella companies'. Composite schemes were effective for contractors outside the IR35 legislation that didn’t want to go down the route of setting up their own Limited Company, allowing all income to be taken as a combination of salary and dividends. Now, however, the only viable umbrella option is the PAYE Umbrella, where all income is subject to deduction of full PAYE and NIC’s at UK rates on the entire contract income with the exception of any HMRC allowable expenses.

    All contractors, whether Limited Company or Umbrella Company, are required to complete a short MSC questionnaire to make sure the company they are operating through is not a managed service company and that they are operating within HMRC guidelines.

    Please see the link for further information on the Regulations


    The Conduct of Employment Agencies and Employment Businesses Regulations (EAA regulations) came into force in 2003. Originally, these regulations were brought in to give temporary workers additional employment rights and were extended to Limited company contractors in 2003. However they aren’t really relevant for professional contractors, and as such you’ll be asked whether you wish to opt out of such regulations when you go forward for a contract position.


    The Agency Worker Regulations (AWR) brings the European Agency Workers’ Directive into UK law. They entitle certain temporary agency workers to equal treatment (with regard to pay and working conditions) as someone recruited directly by the client to do the same job.