The idea with contractor rates is you get paid inflated rates compared to permies to offset any sick pay and other benefits thats permies get. I started contracting when I was 24 and now coming up for 26 and you'd be surprised how much you can drag down especially if your prepared to work in London.

Admittedly im not a coder, I do more on the AD and infrastructure side but I wouldnt imagine there was a big divide.

There are companies that will manage you tax and VAT for you at very reasonable rates, you dont have to go down the road of limited company and VAT returns.