Contracting rates and take home pay

[trooperiziz]

Afternoon

I'm considering making the jump from permanent to contracting, but I'm not entirely sure how to work out my monthly net pay so I can compare effectively.

Assuming I'm going for a £350 daily rate, what will that work out to be as a net monthly wage? The prosperity4 calculator thinks around £4400 with a £400 pension contribution, but doesn't give any figures as to how that was worked out.

Anybody got a good formula that takes everything into account, or isn't it that simple?

As an aside, anybody used Prosperity4 and have any comments on them?

[trooperiziz]

Eric Mc said:

It depends on how you are planning on operating and whether IR35 is an issue.

Just dipping my toe in the contracting market at the moment. Bog standard software development project work contracts for large companies in the city, probably lasting around 6-12 months at a time. My original idea was to go through an umbrella company to start with to see if the contracting world is something I'm into.

[trooperiziz]

Plotloss said:

Rough calculation

Take your hourly, double it, add three zeros

So £50 per hour on a 40 hour week roughly equates to £100K

Then work out tax as per normal salary.

If your contract is IR35 friendly the tax will be significantly less overall though.

Cheers Plotloss

So working on this formula and assuming worst case that I will be taxed as a normal employee, it seems that it would be worth doing monetary wise even with my added travel costs.

I suppose the difficult choice is whether to go with an umbrella company as the least hassle option, or setup my own limited and get my own accountant. A LOT more hassle but it should get me a few more pennies out of the pot. How many pennies is the question though...

[trooperiziz]

SS HSV said:

Eric Mc said:

Even the umbrella company route can throw up wildly differing scenarios.

It depends on whether the umbrella company operates in a consrervative fashion and applies straight PAYE and National Insurance to your earnings. In those circumstances, your take home pay will be very similar to what it would be if you were a "normal" employee.

If the umbrella company is more "adventurous", it may treat the contractor as a shareholder and pay on the basis of salary and/or dividends. This will generally result in a better take home pay situation.
However, this whole area is being put under the microscope by HM Revenue and Customs and new "anti-avoidance" legislation restricting these kinds of practices is being introduced in April.

Edited by Eric Mc on Tuesday 9th January 14:25

Good description. I used to use Gabem Managment. They were very helpful, good communicators and saved me a whole heap of tax.

The only reason I have now left them is that my business is expanding at an alarming rate, and other than day to day expenses, there is no way of factoring in for allowances for company vehicles.

Have a look it might be for you (till they close the loophole) www.gabem.com/

This seems to be along the more "adventurous" lines of umbrella company. I don't really want to have the possibility of a tax bill at an unforseen time, so I think I'd prefer to got with a more conservative umbrella company. Certainly until I decide contracting is for me.

[trooperiziz]

225 said:

Dont forget as a contractor you really are working out salary on roughly 44 weeks, what with sickness, holidays, bank holidays etc.
Setting up your own company is easy and the biggest hassle is setting up the company account I found. An accountant can do it all for you for about £100 and set up a token monthly wage of say £500 and then you take the rest as dividends and only pay 20% corporation tax.

But woudln't that screw me on IR35 if I only work for one company over the next year?

[trooperiziz]

chucklebutty said:

I used Prosperity4 for a year

Any thoughts? Good, bad, indifferent...