An 8-step Guide to Becoming a Contractor

The prospect of ditching the corporate treadmill and going it alone as a contractor is an attractive one. With this model comes flexibility, the scope to work across multiple organisations instead of being tied to one firm – not to mention the financial rewards associated with being your own boss.

In an ideal world, the switch from an in-house role to becoming a contractor should be planned carefully. With this in mind, here’s a blueprint for making a smooth transition…


1. Your market: do your homework before you commit

Are you sure that clients are out there, or are you just assuming there’s a market need? It may be that you see a steady stream of contractors involved in project work within your current organisation, but don’t automatically take this as proof of the state of the market as a whole.

Take a good look at the places where contract openings are advertised (your industry press, for instance). Speak to contractors within your professional network, and better still, make tentative general enquiries with procurement managers or project leaders. Your objective is to determine whether it’s going to be possible to build a client base. Equally, you should try and gauge market charging rates to check that the contracting model is going to be financially viable.

2. Brush up your qualifications/accreditations

Your relevant professional body may stipulate that you must hold certain management qualifications or other certificates in order to operate independently. Potential clients may have similar requirements from self-employed contractors. Check the current requirements with your regulatory body.

3. Leave on good terms

Before you make the switch away from an in-house role, check for any non-compete clauses in your existing contract. Does such a clause purport to limit your pool of potential clients? This can be a tricky area; the enforceability of such a clause tends to depend on its scope and reasonableness, so seek legal advice rather than making any assumptions about what is and isn’t covered.

Especially if you’re operating in a niche area, your current employer may very well be a potential future client. At the very least, it helps to be able to rely on your old firm for endorsements and references in the early stage. As such, it pays to leave on good terms by tying up any loose ends on existing project work before you go.

4. Consider your business structure

Contractors usually have the option of operating as a sole trader or else under the banner of a limited company. Look carefully at what’s the norm in your profession. Also, bear in mind that the ‘corporate feel’ of a company name can help to show clients that you’re serious. Your choice of structure can also be determined by tax considerations so it’s worth seeking accountancy advice before you make your decision.

Independent contractor

5. Register with HMRC

Once you start operating as an independent contractor, you must register as self employed with HMRC. You will then be registered for Self Assessment Tax Returns and Class 2 National Insurance.

6. Focus on building your profile

Now comes the task of building up your client list. In simple terms, this involves finding out where potential clients look for contractors and making sure your profile is visible in those places. This may include industry-specific directories as well as more general profile hubs such as Linkedin.

Having your own website can be invaluable too: you can include a link to your site from your directory listings, thereby providing a hub for displaying your portfolio and endorsements from previous projects. All of this helps to give your fledgling contractor business a professional feel.

7. Put professional indemnity insurance in place

In many professions (accountancy and certain branches of engineering, for instance), professional indemnity insurance (PII) is a regulatory requirement. For contractors in other niches such as programming or management consultancy, it is highly desirable.

No contractor is immune to mistakes. You may also come across clients who allege fault on your part even when you’re in the right. As well as covering you for professional negligence claims, a contractors insurance specialist should also be able to take the hassle out of responding to such claims. Clients may insist on PII cover as a prerequisite for hiring you, so it’s worth putting it in place from the outset.

8. Set out a workflow

One survey of organisations who rely on consultants showed that 90% had experience of being let down by them; the problem very often being over-promising and under-delivering on timing and quality. In the early days especially, you should resist the temptation of saying ‘yes’ to each contract that comes your way. The consequences could be under-delivering across the board.

Instead, have a simple workflow in place. For your first contracts, realistically assess workload and duration while factoring in contingency time. Set your timetable accordingly. When new work comes along, the time estimates you give should always take into account your existing commitments.

Following these steps should ensure that your up-and-coming business as a contractor starts on the right footing.