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What Is Software Engineering Contracting?
Let’s start from the start. If you’re a contractor, you’re not being hired full-time. Instead, you’re being hired on an as-needed basis—three months, six months, maybe a year—to design, fix, or improve systems. You’re compensated for your time, not for your loyalty. You’re not required to stay with one company and can have multiple clients in a year. Think of it like being a tech specialist—you go where you’re needed, do the job, then move on.Why Do People Choose It?
The Good Stuff:- Higher pay: Contractors often earn significantly more than permanent employees—£400–£700 a day is normal, sometimes more if you’re in fintech or have niche skills.
- Freedom: Want to take a month off in summer? Do it. No HR forms required.
- Variety: Different projects, new technologies, fresh teams—no time to get bored.
- No job security: Contracts can end early. Sometimes suddenly.
- No benefits: No paid holidays, pensions, or sick leave. You’re on your own.
First Big Decision: Umbrella Company vs Limited Company
Typically you have two ways to work:
- Umbrella Company
They handle the taxes, National Insurance, payroll, and admin. You’re their employee technically, though you do work for someone else.
Pros:
- Very simple to arrange.
- No account to manage.
Cons:
- Lower take-home pay.
- Umbrella fees + employer NI will eat into your wages.
Good if you’re taking short-term contracts or don’t want the hustle of running a business.
- Limited Company
You create your own company (e.g., “CodeNinja Solutions Ltd”), invoice clients, and pay yourself through salary and dividends. You’ll likely need an accountant, but you can earn more after taxes.
Pros:
- More money in your pocket.
- Control over your finances.
Cons:
- More admin work.
- Requires understanding IR35 (more on that below).
Best for longer-term or high-paying contracts.
The Big Scary Word: IR35
If you’ve read anything about UK contracting, you’ve probably seen IR35 mentioned. It’s a tax rule that decides if you’re truly self-employed or just a disguised employee.
In Simple Terms:
- If you’re outside IR35: You’re treated as a genuine business. Lower taxes. Yay!
- If you’re inside IR35: You’re treated like an employee. Higher taxes. Less yay.
Since 2021, clients (not you) decide IR35 status in the private sector (if medium or large organisations). Public sector previously did this. If your contract is inside IR35, passing through an umbrella company will normally make sense.
Finding Contracts
Now the enjoyable part—getting work.
Your Key Sources:
- Recruiters: Still the most old-fashioned approach. Get friendly with a few good ones.
- Job Boards: Try CWJobs, JobServe, Jobsite, Indeed, LinkedIn and Technojobs.
- Direct Clients: Create a solid LinkedIn presence. Networking. Occasionally, firms come directly to you.
Tip: Always check for contract duration, day rate, start date, location (remote or on-site), IR35 status, and tech stack before applying.
Setting Your Day Rate
No one-size-fits-all, but here’s a loose guide:
- Junior contractor: £250–£350/day
- Mid-level: £350–£500/day
- Senior/niche skills: £500–£800/day+
Remote work or freelance work will probably be lower pay. Short deadlines, high-risk projects, or terrible ancient systems no one wants to use? Expect more pay.
And don’t forget: you’re not getting 260 days a year as a permie. Budget for gap jobs and unpaid holidays.
What You’ll Need to Get Started
If you’re going limited company:
- Company registration (via Companies House)
- Business bank account
- Accountant (get one that works with contractors)
- Professional indemnity insurance
- Public liability insurance (at times optional, at times mandatory)
- Good CV and LinkedIn profile
If you are contracting with an umbrella company, it is simpler to setup. Just sign up and provide them with ID, bank details, and a signed contract.
Getting Paid
For limited company individuals, you will invoice your agency or client (weekly or monthly). They pay your company; you pay yourself.
If you are under an umbrella company, it charges and remunerates you a salary minus tax and their charge.
Tip: Read the contract each time. 30–60 days is typical for some clients to pay. Invoice factoring or saving up for quiet months may be a consideration.
Tax Time!
If you are a limited company, you’ll need to deal with:
- Corporation tax
- VAT (if VAT-registered)
- PAYE (on your wages)
- Self-assessment (as a director/shareholder)
Don’t worry about it—a decent accountant will make life easy. You may also have to pay for hand software such as FreeAgent or Xero to keep you organized.
Last-Minute Tips Before You Make the Leap
Build a savings buffer—ideally 3–6 months of living expenses.
Start networking early—your first contract can take a while to happen.
Keep learning—contracting rewards those that are current and adaptable.
Keep everything in hand—mileage, software spend, courses, etc. Virtually all are tax deductible.
Train yourself to say no—not every contract is a good one.
The Bottom Line
UK software contracting is not for the faint of heart. It is a life of uncertainty and bureaucracy—freedom, diversity, and excellent money-making opportunities. If you are willing to take control of your career (and your finances), it can be one of the best moves you ever make.
Is it scary at first? Sure. But it’s also empowering. You’re no longer tied to one company or role. You’re in control. And in the world of tech, that kind of independence is golden.
