How to Become an IT Contractor in the UK: Complete 2025 Guide

Thinking about becoming an IT contractor in the UK? This 2025 guide walks you through the decisions that matter — from choosing between a Limited company and umbrella, to navigating IR35, day rates, getting paid on time, and landing your first role.

The April 2021 Off Payroll IR35 reforms have made contracting more complex for the recruitment market. Most of the market is now in IR35, but there are still many roles that are 'outside IR35'.

Demand is fairly static for IT roles, but with the increase in employers National Insurance contributions, demand is increasing for contractors and reducing for permanent employees.

Day rates have been under pressure due to the number of available IT contractors following layoffs in the industry last year, a rebalance of the over hiring of IT professionals in the UK, following COVID-19.

Who this guide is for

• Software engineers, DevOps, data and platform professionals
• Permanent employees exploring higher pay and autonomy
• Contractors returning to the market post‑IR35 reforms

1) Is contracting for you?

• Can you walk on site with your knowledge and experience to back you up
• Do you have a cash buffer? Day rates are better, but in the beginning it is hard
• Grow your career without line management?

If you're not sure, start by asking yourself these questions: Are you a self-starter? Will you be okay without the perks that come with employment? Are you looking for a challenge, a new opportunity, or a way to grow your career?

As a Contractor, you'll need to be able to work independently and manage your own time. You'll also need to be able to work with others, and be able to communicate effectively with your team.

2) LTD vs Umbrella — how to choose

• Expected IR35 status of target roles
• Admin tolerance (accounting, VAT, invoicing)
• Cash flow runway and payment timings

A UK Limited company gives you control, professional image, and potential tax efficiency, especially for outside‑IR35 work. Umbrella can be simpler for inside‑IR35 roles or when testing the waters. Many contractors use both: LTD for outside, umbrella for inside.

Initially, you can start working with an umbrella company, and then transition to a LTD if you find it more suitable for your needs. This

3) Day rates and value

• Higher day rate compared to salary, now includes employers costs
• Might have periods of unplaned "holiday"
• Specialise for the best rates

Typical UK rates range £400–£900/day depending on stack, sector and IR35. Anchor on business value and delivery outcomes, not just tools. Keep a simple portfolio of impact stories and references.

You will want to focus on a core deliverable/skill, such as Delivery Lead, Java Developer, Cloud Infrastructure, and build a portfolio of project impact stories. This will help you to sell yourself and your team to potential clients.

4) Finding your first contract

• Optimise a concise CV focused on outcomes and client benefits
• Build relationships with specialist UK agencies
• Tailor profiles on LinkedIn; be clear on IR35 preference and rate band

80% of contractors find a role through a UK agency. Agencies are more likely to offer you a role if you've worked in the industry before. Banking and insurance sectors pay the highest rates. You'll want to have 1-2-1 calls with agencies to ensure you stand out from the A.I generated CVs and applications.

5) Cash-flow basics

• Expect 30 day payment terms; agencies may batch approvals
• Raise invoices promptly with POs/Timesheets and correct references
• If LTD, set aside VAT and corporation tax in separate accounts
• Via Umbrella, you may still get extra income tax via Self-Assessment

Cash flow is critical for building confidence. You need to be able to manage your own finances, and be able to pay your own bills. Having a solid financial plan will help you to land your first role, and give you the confidence to move on to higher paying roles, rather than the first roles that are often overpaid.

6) IR35 in practice

• IR35 is a tax regulation the effects all UK contractors
• IR35 status is determined by the client in the contract
• Umbrella contractors are already 'employees' for tax purposes

IR35 assesses whether you operate like an employee for tax (disguised employment). In 2025, client determination remains common in medium/large organisations. If outside IR35, build evidence for genuine contractor working practices: substitution, control, and mutuality of obligation. Ensure your contract terms align with how you actually work day‑to‑day.

7) Compliance

• Self Assessment (SA) and Corporation Tax need to be reported to HMRC
• VAT and payroll are reported more often
• As a company director, you are responsible

Compliance is critical for staying in business. You need to be able to report your taxes, and be able to pay your own bills. LTD gives you the flexibility to decide how and when you get paid, which can be important for tax planning.

8) Insurance

• Professional Indemnity Insurance is a key part of the contract
• Public Liability Insurance is a legal obligation
• Via Umbrella? The rules are different

As a director of a LTD, you have some legal obligations for insurance cover. In addition, you have options too. Health Insurance is a good default, but you may want to consider other options, such as Life Assurance, Disability Insurance, or Car Insurance. Some of these are considered business expenses.

Next steps

Ready to assess your readiness? Try the Gap Analysis Quiz, or explore our 4‑week live course that covers contracts, compliance, cashflow and confidence with UK‑specific examples.