My Guide to Software Engineering Contracting in UK
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codedeepdives.com
1. Job security - you’re absolutely right. In my time I had 3 contracts that lasted longer than 6 years and I left 2 of them
2. Rates - you can earn north of £1000 a day with the right skills but there’s a big difference between inside and outside. Inside needs to be much higher to compensate for the additional tax.
3. Most contractors do 6 week to 6 month contracts - see above. And if you pitch your CV to me with a string of 6 month contracts I’ll assume you weren’t extended and look for reasons
4. All the stuff about choosing your hours, holidays, not being on call is not true. As a contractor your job is to fit in with the team and help them to deliver. If you’re swanning in at 10 when perms have to be in at 9 or going off in a long weekend when there’s a deadline looming you’ll be toast pretty quickly.
5. Mortgages - you usually just need 3 years accounts but some offer less but higher rates
6. Tax arrangements - don’t get sucked into schemes that offer you low single digit tax - HMRC will make your life hell. Stay above board and hire an accountant.
7. Insurance - I never had - complete waste of money. I know in some cases you may be forced to.
yeah if you work for a bank and have some rare skill, plus knowledge of finance + expereince in the field.
The rest of us get 4-500£ / day, like the OP mentions
The most inaccurate bit is day rates. They're underestimated by quite some way in my experience.
What I would say is contracting in the UK is a game with different layers. This is the basic "coder for hire" layer. There's levels above that, with contracts spanning 10 years+ and higher day rates, but it is much more like dark magic.
Number two skill is negotiating.
The technical stuff starts much further down the list.
> If you turn up and are rubbish, your contract will be terminated really quick. And if there are layoffs, contractors would (sometimes) already be well gone already.
This is one piece of advice I haven't found to be the case.
I have told the following lies as a contractor: "Sure, I know PHP", "Sure, I know Ruby", "Sure, I know Python".
The reality is that most of the time you're working on the shit that no employees at the company want to do, so no one is paying the least attention to you. Yes, you have to deliver functioning code on time, but you can get away with tap-dancing for a while until you learn the stack you're working on. In 13 years, I was never fired, and usually got my next clients via positive referrals.
The above explains why this statement IS true:
> You are always seeing new companies, new tech, new tech stacks, and the job never gets boring
That was the best thing about contracting: variety. Also the worst thing. I got about 3-6 months of experience on dozens of different technologies, but never mastered anything except the skill of learning skills quickly.
But in my experience, if you only worked on things for which you were already hot shit, you wouldn't get that level of variety, and you probably wouldn't get enough contracts to sustain a business. People do specialize, but the tendency in contracting is always to be a generalist because you have more options.
The two biggest skills in contracting are communication and faking confidence. They are paying you to deliver something, but really they're paying you to happily accept some of the stress they feel. If you practice saying "That shouldn't be hard, let me handle it" you are well on your way to being a success.
I also had a brief contract to teach Excel where I stayed a chapter ahead of my students in class, and similarly got great feedback...
So much contract work has a really low bar.
But then on the other side of the difficulty, I also delivered a library to provide a reliable data transfer layer on top of GSM data for use between two ships in motion (just adding some retries and automated redial etc. the only hard-ish part was minimizing the time to catch up after a redial where you might be suddenly lagging 40+ seconds behind), one of which was tracking an unmanned submersible. That certainly involved taking in their stress - they were demoing the system for US Navy brass, and my part was what'd relay the demo data from the tracking ship to the workstation they'd show it on, and it was clear a large part of the pay was so there was someone to shift blame to if needed (thankfully everything went smoothly).
But that variety was fun. I much preferred the short contracts like that - didn't appreciate the stress of finding new ones which came with the short projects though.
Spits out coffee. Beautiful. If you made that you deserve a prize.
I thought the times were good, but even then the old timers were talking about the good old days with some nostalgia.
UK labour market is dire. UK GDP growth is stagnant and border line non-existant
Eg https://www.itjobswatch.co.uk/contracts/london/software%20en...
But now, I've switched to a perm role and I'm enjoying it a lot more. There's a lot less admin and tax stuff I need to deal with - I can focus fully on being a developer - plus I'm working on more fulfilling projects over longer periods, and making longer-term plans.
Technically I guess I could be earning more cash, but that came at the cost of time and stress that I just don't worry about any more. I'd much rather be happy.
Tell me a developed western country where that's not the same.
Sure, it's expensive everywhere, and there are plenty of places in France too where the prices are UK level (I'd like to retire to the South of France, and e.g. Nice is near or even above London levels for some areas, and buying a house there also costs castle money if you want something central) and same for elsewhere in Europe, but UK house price growth has been something else.
There's a reason London is popular for skilled immigration and why that makes it so expensive, and it's not all speculation and wealthy petro/oligarch money. Same reason why Google, Meta, DeepMind, NovoNordisk, etc have offices there instead of in a nice castle in France.
Try looking at housing prices in Nice or Cannes and you'll see London prices with Southern-Europe wages. Same in nice parts of Austria near the Alps. At least in UK you can earn well in tech to actually buy a house close to the capital.
UK can also be cheap if you go up north around Scotland or above, but there's probably a reason why you chose to live in London and not in the north of Scotland and that's probably pay and opportunities, hence your higher house prices.
It was picked a bit tongue in cheek because I happen to know the price levels, and because the difference is so ridiculous.
Yes, I can get a bigger property elsewhere in the UK too but nowhere near the size difference. I've looked. 3x my current property is "easy" within the UK at similar prices in places - even "in the middle of nowhere" - that I'd be willing to consider. In France moving to the same level of "middle of nowhere" can get you anywhere from 5x-10x the size, and tens of thousands of square meters of land for the same price.
It'd be weird if there wasn't a price differential given the lower population density, and as you've pointed out salary differences. The price pressure is far lower.
> Wages and work opportunities in remote parts of France (and other such parts of southern Europe) are also much lower than in the expensive parts London, at least in tech, not counting minimum wage jobs.
And the same is true for the rest of the UK too - remember that before Brexit the UK had several of the poorer regions of the EU, large net recipients of EU development funds. Cornwall for example faced a massive income shortfall due to the loss of EU funds. Someone once suggested that the UK consists of a wealthy city-state surrounded by one of Europes poorer countries. France has a large differences too, but my impression at least is that it is not nearly as pronounced - I may be wrong (I am aware that France certainly has plenty lower income cities too).
And overall, France's PPP adjusted income averages compare as favorably as it does with the UK in part because housing costs in France have grown far slower than in the UK over a period of decades.
> Try looking at housing prices in Nice or Cannes
I literally named Nice and pointed this out. I keep a close tab on Nice as I plan on retiring somewhere in the region. Incidentally my "castle" quip is because I somewhat jokingly decided to look up what I could get as a "getaway" a bit more remote if I downgraded my demands for Nice a bit, and the answer is I can likely afford a well-renovated castle (fairly far away, certainly - there are not many castles in Provence in my price range). Doesn't mean I'll buy one, but I found it funny.
There is nowhere in the UK where I'd be able to afford something similar (even discounting the horrific weather) even as my sole property - job market entirely aside.
But while prices in Nice and Cannes are London level, these are also tiny little villages - I've walked across the town of Nice in "every" direction, because I like walking - it's only about twice the size of my single London borough. The time it takes me to get to the centre of London is about the same time it'd take you to get to, say, Cannes or Ventimiglia from Nice, or deep into the smaller surrounding villages. And I know plenty of villages within similar travel distance that are great at 1/3 of the cost of similar properties where I live.
To get similar prices in the UK I'd need to move somewhere far more remote, and nowhere I'd want to consider living.
> There's a reason London is popular for skilled immigration and why that makes it so expensive, and it's not all speculation and wealthy petro/oligarch money. Same reason why Google, Meta, DeepMind, NovoNordisk, etc have offices there instead of in a nice castle in France.
That's true. That does not change the fact the prices are massively different. It explains why prices in London are the way they are. I'm not arguing the reasons. I'm not even arguing it's all that much cheaper for locals, though the PPP adjusted disposable income for France does suggest it would be.
> UK can also be cheap if you go up north around Scotland or above, but there's probably a reason why you chose to live in London
Yes, family commitments. I wouldn't live here otherwise. London is great when you're young, and/or like doing lots of stuff. I was over "doing London" ~15 years ago. I have no need to live in London to earn what I do in the job I do.
If you’re going to work inside, just use an umbrella. The margin they take is minimal and they make life so much easier.
If you’re going to run a limited company, you have to actually run a limited company. There are horror stories on the contractor forums where HMRC have taken a dim view of contractors whose companies are essentially run by their accountants. I can’t remember what the term associated with it is but definitely an area to be careful with.
You can stay well within the tax code and avoid any grey areas, and will still get more income by operating as a limited company. Yes running a limited company requires some admin work, learning about the tax system but a few of hours admin a month is well worth the extra £20k net income (or whatever the figure happens to be)
Some are, certainly. Many are not.
The example I gave is people who setup a limited company in order to take on work as a contractor. They've gone to an accountancy firm who've told them we'll do all the work for you. HMRC have then turned around and said that the company is a sham. Again, I can't remember the name of that particular problem but it's well known on a popular UK contracting forum.
The deeper you dig into IR35, the murkier it becomes. Contracts are dismissed for instance and it's actual working practices that are reviewed. There are absurd rules around control which are far too vague and subject to opinion that it could easily be argued either way.
The Ltd rates can also increase noticeably if your revenues increase and your corp tax rate starts sliding up from 19% all the way to 25% (and that's not a marginal rate - your entire profit gets taxed at the increasing rate as you make more).
Of course as an employee you also get huge advantages like paid time off, employer pension contributions, a degree of automatic job security, and not having to file the paperwork and pay the fees for running an entire company. And via a Ltd you have a lot more flexibility to control both how and when you pay out your post-tax revenues that can sometimes be valuable. So it's never really an apples to apples comparison and there's always a lot that depends on your specific circumstances.
If the company earns £100k/yr, what matters is what you, the individual, actually end up with.
Corporation tax will take you down to ~£80ish but you still need to draw the money out of the company.
Most people will take a small amount as a salary through PAYE to use up their tax free allowances and get the NI stamp. The rest is then paid as dividends.
Your take home pay on £100k would be roughly £67k
Under PAYE, you'd take home 68500
With Ltd, on 100,000 the optimum approach is a PAYE salary of about 12500, which will incur about a 500 NI charge to the company. You then pay corporaton tax on the 87000 of 21750 leaving 65250. If you pay the 65250 as dividend, you'll incur 12500 in dividend tax.
So in total from revenue of 100000 you end up with 12500 (Sal) + 65250 (Div) -12500 (div tax) = 65260. Not better than PAYE.
Of course, the better approach might be to extract only 37500 dividends with a 3200 tax. The company keeps the 27760 residual and one day in the future you may be able to close the company and incur just 10% tax or £2776. This way you'd take home 71750.
Still better, you might choose for the employer to put money in a pension. Here, you could put 40000 in a pension, company profit now 47000 before 9000 tax. Pay the 38000 out as dividend with 3600 tax. You end up with 12500+38000-3600 = ~48000 plus a 40000 pension to be taxed at withdrawal (lets assume 20% so 8000) for about 23000, or 80k. This is the only way to approximate your 80k but a PAYE person could do exactly the same (with a friendly employer) for pension relief.
And the above is all outside IR35. It's worse inside.
The real reason Ltd is more profitable is based on all the hidden expenses of an employer. Rather than 30%+ of the customer fee going to employer expenses before they pay you a smaller salary, they now go to you as a business owner who can do much better than 30% business expenses (close to 0). You're trading that for paid time off, job "security", not chasing leads, etc.
After emigrating from the UK, I moved around in the EU (GMT+1/+2). It was the best of both worlds since IR35 cannot apply to non UK domiciled tax residents.
Rates around £450-500 per day for that I was doing. Finally settled in an EU country and then moved to a permanent role after twenty plus years of being a remote contracting bum.
If you have questions then ask away.
Started off working via recruiters but then just word of mouth. Ex colleagues would recommend me and they would move around. I’ve always been a good networker.
I recently switched back to a “proper job” in a company who’s goals align with mine. Now climbing the “corporate ladder” so to speak.
It’s where I spent most of my contracting life.
Does it involve a bit of stretching your experience?
If you’re smart, you’ll pick it up on the job or read a little about it before the interview.
In the last few years I've been exposed to enough Kubernetes, Terraform, Docker, Azure, Google Cloud, Dataform and BigQuery to feel comfortable putting them on CV.
Microsoft Dynamics and SharePoint too but I don't think I could face any more.
I have said yes to being able to deliver projects in languages I'd never even seen before, because the timeline was long enough that I was (rightfully) confident I could figure it out within the estimated time.
Often they just want to outsource uncertainty. Of course you then do need to take on the risk and make sure you deliver, or you won't get hired back and if it's a referral it can get ugly, but in the years I did contracting that was never an issue.
Knowing your limits is important, of course.
Yikes, really? In that case they’re unchanged in the last 12-15 years.
I was doing well living there and doing contract work out of US EST.
Perhaps inside IR35 and perhaps for a low rate. Big corps mostly do umbrellas these days.
Businesses either hire contractors for a liquid and expendable workforce...
Or they hire high skill people who take on more liability and charge for it accordingly.
Be in the second group. They don't use umbrella setups.
Also if you're inside IR35 then you're an employee for all intents and purposes but without the perks of a perm position.
Be a business, not an employee. If you look like an employee, regardless of the legal layout, you'll be remunerated like one.
Be a business. They make more money.
This just isn’t true. I’m currently with a FTSE100 financial institution and inside IR35 contractors make way more than perms at the same level of experience. They just don’t want headcount on their books, and still have work that needs doing, and they will pay to get it done.
The problem is job security at the moment.
If you don’t look like an employee, you’ll not get treated like one…
> Be a business. They make more money.
Completely agree, but most business owners make money by exploiting someone else’s labour.
That may be true but it's partly because financial services companies are infamous for not paying their PAYE developers very well and having very bad working conditions. Most people who can get £750+ assignment rates via an umbrella company in the financial sector weren't going to be making sub-£100k on salary in an open market either.
They often have salary caps which don't allow them to fill all vacant positions. Whereas the same company's caps for contractors are higher.
Also, being on PAYE through an umbrella is less admin, no worries about HMRC, and lower overheads compared to Ltd - no accountants, business bank account, xero/sage (if you’re a DIYer), insurances, etc.
£220/day?!
I've not paid a developer less than 600/day since like 2015 and that is outside London too.
Some people are being taken for mugs.
This comparison is more true than a lot of devs want to admit.
You can be a plumber or a safe cracker. A person who does, or a person that knows.
The latter pays better day rates.
This really doesn't hold for many cases, and especially for the rates mentioned in this article.
Are there any somewhat reliable sites that show median and other percentile contract rates? Something like levels.fyi but for contracting rates?
Your comment is an advanced version of "fake it till you make it". That's another red flag when I'm hiring disgustingly highly paid consultants.
Using genAI is fine, using it to bolster a lack of underlying knowledge as I read it, is a red flag.
It cant replace the mindset of a human, but what I'm basically saying here is with GPT-4 and good prompting skills, you can be alot more brave when it comes to new unfamiliar tech. That's an advantage in a fast changing tech landscape.
I can't think of a situation where you'd go from spending hours on Google to being unblocked in seconds. If you're spending hours on Google, then your first dozen search queries aren't turning up the information – in which case, GPT-4 wouldn't turn up the information immediately, either! (It would say something, but it's unlikely to be based on a true story.)
Also, its better in the hands of Senior Engineers who can evaluate answers for correctness, because just like Google/Stack overflow, it can be wrong.
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It is still helpful, but there's a big gap between how helpful it is, depending on the tech.
Ise use ChatGPT and Copilot all day, they're incredible useful! But let's not overstate their power.
As a software engineer/founder, I've used it to write all kinds of advanced queries for Tunnelmole that get all kinds of metrics which previously would have require a Data team. You can write a prompt like "here is my table structure, give me a query to get my abandoned cart rate".
If I ever hire engineers for my project, prompting is a skill I'll be looking for.
If you would do new things, it won't be able to help you.
I highly recommend using it. Think of it as a Google replacement. Every engineer out there uses Google. Instead of spending hours on Google, you can spend a minute or two doing something new with the help of an LLM. They can be wrong, which is why they are better used in the hands of Senior Engineers.
Just let it do something novel instead of something typical stack overflow.
Eg. Nest, a c# library for elastic search, is something it has consistent troubles with because it's not with "and" or "or", but should, must and filter.
But yeah, you won't get into those cases as a junior or doing typical stuff it has been trained on :)