Insights into IT Contracting: Navigating Rates, IR-35, and Career Decisions

Back in end of year 2018, while preparing for my Indefinite Leave to Remain, I had only heard the stories of how awesome IT contracting was!

Indefinite Leave to Remain (ILR) is a type of immigration status in the United Kingdom that allows a person to live and work in the country without any time restrictions. It is also commonly known as permanent residency. ILR is typically granted to individuals who have been living in the UK on a temporary visa for a specified period and have met certain eligibility criteria.

Several of my colleagues have been contractors in the past and the sense of financial independence was evident from the way they carried out their affairs. From buying things to making decisions. They also expressed the aspect of not being tied to a company or a product and sometimes people. Holidays were often brushed over as, "Hey when we take time off it is time off!"

After getting my ILR, I had 2 sensible choices. Begin IT contracting or get into a start-up where I hold some form of equity which I can cash out of at some point. 

Well, I hope you know that the start-up didn't end well for me! 😁

I learned a lot and that is what matters.

Right after having our 2nd child, I thought we could do with some extra cash and instead of looking at the start-up route I looked for software development contract jobs.

I am going break the following down into check points that I had to face.

  1. Hourly or Day rate
  2. Inside IR-35 vs Outside 
  3. Recruiters and notice Period 
  4. Preparation
  5. Accepting the contract
  6. What matters the most?!

For starters let me paint a sample snapshot of Mr Aspiring Contractor (AC)

AC's current salary is £90,000 with 7.5% pension contribution and 28 days of annual leave, with benefits like medical insurance and free beer. Their monthly take home pay for the year 2023-24 will be ~£4,766.
Between 1st April, 2023 and 31st March, 2024 there were 252 working days. They took all their annual leaves, so technically only worked for 224 days. Being in the UK affords them to free sick days as well and he was sick/caring for someone for 4 days. Taking the working days count down to 220.

Annual Salary: £90000
Take home: £57,203 (~63%)
Days worked: 220

Hourly/Day rate

A good starting point is to take your current yearly salary and divide it by 220 to get your day rate. So for someone earning a £90,000 that would be £410 per day. Now that is simply replacing your monthly salary and not the perks that you get along with the permanent employment. So add that on top too.

  1. Family private medical insurance: £150/month = £1,800/year
  2. Family Dental Plan: £50/month = £600/year

PS: I can only think of 2 atm. Feel free to DM me to add more

The total of that would be £2400 per annum adding £11 (2400/220) to your daily rate. 

Now the above is how a recruiter will justify your daily rate!! lol

If you're earning 90K, I would suggest asking for anything above £500(Within IR35) or £650 (Inside IR35)

Inside IR-35 vs Outside 

I will start by telling you what it is in my head!

Inside IR-35 means you are technically an employee of some company wherein you are paid a salary and have some rudimentary employment protection along with a pension and whatnot.

Outside IR-35 means you open a company and become its director, who also works for various companies taking projects. What you get paid is income for the company and whatnot. You as a sole employee can either pay yourself or not pay anything at all. One uses their company as a tax vehicle almost.

Practical implications:

Someone inside IR35 will likely earn over £100,000 and, in turn, lose all the childcare benefits. Were they outside IR35, they could declare their salary as £99,999 and still claim all the government benefits. Someone who is inside IR-35 gets treated almost like an employee; however, outside IR-35 is often not treated the same.

For me, I focused more on how much I wanted to earn and based my rate on that. It was ambitious but well worth it!

Realistically, this is the first conversation you will have with any recruiter.

You: £500 a day outside and £700 a day inside
Rec: What is your current perm salary?
You: How does that matter? This is what I am selling my soul for today! 🤬



One of my babies started crying, and after coming back, I thought this post is getting rather long!!

If you like what you're reading then please give me a 👍 somehow.
I will continue writing regardless 🤣