IT contractors must beware five big threats to freelance tech success

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Technology is one of the most in-demand sectors for freelance work.

With rapid advances in computing and IT, organisations across the UK need to be able to quickly tap into a strong pool of specialist talent to help them stay ahead.

That resource is expensive, and not necessarily required on a full-time basis, which makes IT freelancing a potentially lucrative option.

But with reward comes risk, to the extent that for technologists who wish to swap full-timing for freelancing there are five big threats to freelance tech success, writes Harry Gruffydd, limited company operations manager at specialist contractor accountancy firm Workwell.

1. Job security, what job security?

There’s no getting around it, working for yourself as an IT contractor or technology freelancer means your income may fluctuate, potentially drastically!

Comparatively less job security than when you were full-time is a challenge for everyone in the early days, with bills to pay and financial commitments to honour.

The main way to overcome this initial challenge is to ensure you have the skills that businesses need, meaning you must offer a sought-after skill (get yourself trained in one if not), or be prepared to put in the work to build the network of contacts (including recruitment agents) that will help you develop a pipeline of work.

It can take time to build momentum, especially if you’d prefer to ‘cut out’ the agent and work direct-to-client. That necessary time investment (at least initially) to build a network explains why many techies only go freelance once they have built sufficient savings to cover any temporary gaps in income which can crop up.

2. Confusion over freelancer set-up, or just finding the freelancer structure onerous

When you freelance in technology, you’ll need to understand how to pay tax, National Insurance, and you may have to get to grips with other financial matters you once could leave to your employer, like saving into a private pension.

On all these monetary and tax matters, it’s best to take tailored advice from a specialist contractor accountant, so that you get started in the right way.

Remember, being a sole trader is quick and simple – you register as self-employed with HMRC, do your work, invoice your clients then pay tax via the annual self-assessment tax return system.

A more popular option in the UK’s IT contracting market is to set up a limited company, usually referred to as a Personal Service Company (PSC) – ideal if you will be the only employee.

As you are subject to different business-related tax rules as a limited company owner, you may find that, with proper advice from a reputable accountant, you can enjoy a slightly higher level of take-home pay.

However, as a limited company IT freelancer, you’ll have the added burden of administering your limited company, HMRC compliance and filing with Companies House, among other duties as a director. So while your structure as a freelance techie can lead to efficiency and higher take-home, it can all also lead to headaches if it’s entered into lightly!

3. Long-term angst over finding work

Everyone who goes freelance worries about finding enough work in the early days but after the first few months, what about the long-term? You’ll need not just a network, but a proper business plan containing enough revenue-generation opportunities to support yourself, your business and your family.

Some IT freelancers we advise say they lined up work before they left their 9-to-5, full-time employed role. But beyond that initial contract or two, you’ll always have to manage the uncertainty of your future income.

If you’re excellent at what you do, and are prepared to get out there and meet new people, then there’s no reason why you can’t be successful at running your own sole trader or limited company tech business. It’s about being proactive and looking in the right places while speaking to the right people. For real peace of mind, prime a ‘Plan B’ business or semi-regularly cue up a permanent position, to potentially return to employment if your self-employed income starts to look unsustainable.

4. Keeping pace yourself with technology, industry, and skills  

When you’re employed, you usually have access to a wider peer group from which to learn and keep up-to-date with current issues and trends. Being self-employed means you’re a bit more isolated. The run with that more isolated position is that, as a freelancer, you’ll be expected to be able to advise your clients, often as the sole source they’ll turn to!

As a result, you’ll have to find your own ways to keep your skills, knowledge and services up-to-date; whether that’s through professional development and training courses, or industry events and web resources like Whitepapers, webinars and podcasts.

Former full-time techies we know who are now fully-fledged IT contractors are members of specialist groups within their industry or skill-set, typically connecting via forums and apps with like-minded professionals specialising in the same space.

Without such career-enhancing ‘infrastructure’ in place, you can feel isolated, miss out on emerging trends and risk rendering your services as out-of-date.

5. Solo-business lifestyle

It’s not always easy to adjust to working for yourself. If you’re working from home, you may miss the structure of going into an office each day and being with other people.

Additionally, when you work for yourself as a limited company or sole trader, you have to do your own day-to-day work for the client, as well as your own accounts, marketing, client-management and administration! Oh, and then you also need to schedule in time off for holidays and breaks which means planning ahead -- not just your schedule but your income too!

In short, there’s lots to do -- and think about, and surprise-surprise, it’s all on you.

Final thoughts

There is no magic formula for removing the risks when switching from conventional employment to freelancing in the tech industry. But if you’ve always wanted to work for yourself – meaning you’ve probably got the passion and drive inside you already, you can minimise the potential bumps in the road with a bit of effective and shrewd planning. But again, for the financial sort of planning, a pro-active accountant should be able to alleviate your not insignificant workload. Good luck!

Written by

Harry Gruffydd

Limited Company Operations Manager at Workwell

Harry leads Workwell’s team of specialist contractor accountants. He has worked in the industry for over 15 years and is an expert in tax and compliance matters for freelancers and contractors.

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