What is a contractor?

From the outset, it is important to understand that IT contractors are distinct from employees.

A contractor provides IT services to a specific client under specific terms. In contrast to being an employee, IT contractors can have control over when and where they do the work - subject to their contract - however the nature of the job usually involves working on a client site.

Contractors are paid for the work they complete, whereas employees are paid for the hours they put in. It is frequently presumed that contractors work on a never ending series of shortterm projects. However, that is not necessarily the case. It is not unusual for a contractor to remain with the same client indefinitely. Indeed, many contractors are actually employees in all but name.

While this has its upsides (the client need not make National Insurance or pension contributions, while the contractor retains some control over their schedule), HM Revenue and Customs take a rather dim view of these arrangements. The punitive tax implications of ‘disguised employment’ are explained later in this guide.

Is IT Contracting right for me?

Contracting has a number of significant benefits. For many people, the primary attraction is the ability to set their own schedule. Furthermore, contractors have significantly more freedom regarding the work that they do or do not take on; they are not obliged to accept a contract, and will have a precise idea of the work that is entailed before they begin the job. Finally, if the contractor manages their finances efficiently, they can enjoy significant tax advantages.

However, contracting also presents some drawbacks that must be considered. Primary amongst these is the lack of any employment rights. While employees are generally entitled to redundancy pay, holiday and paid sick days, contractors are very much on their own. Clients may choose not to renew contracts and, unless a breach of contract has occurred, there is nothing a contractor can do.

As such, contracting is a more precarious life than that of an employee. This lack of stability discourages many would-be contractors. However, with good organisational skills and a talent for marketing yourself, there is no reason why contracting should not be a perfectly viable choice.

Your decision as to whether or not contracting is the best option for you is likely to be dictated by your circumstances. For example, while many people make a very respectable living from contracting, you may feel that you require the security of conventional employment. This is particularly true for those with families and a mortgage.

That said, you can find long-term IT contracts that offer much of the security of conventional employment, along with the benefits of the contractor’s lifestyle. Often IT contractors can command a higher salary because the employer does not pay tax, national insurance or pension contributions and does not have to include other benefits that they give to employees such as car allowance or health insurance.

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