IT Contracting - anyone here do it?

[nyt]

essayer said:

TheAngryDog said:

That doesn't make contracting look worth while on £150 a day. Im on more than that as a permie.

That's going via an umbrella.

Via a ltd co;
£1500 for ten days - say £36000 invoiced per year (48 weeks)
pay a salary £8k ish
= £28k profit
less 20% corp tax and say £500pa accounting fees
= £21900

Assume you took all that as a dividend (tax free) then that's £29900 take home, or the equivalent of a £40k salary.

Dividends aren't tax free.
You'd pay roughly £5,000 tax on that.

So you'd take home about £17,000 ( roughly 47% of earnings ). Add on the roughly £6.5k that you'd get from the £8k salary and you've netted £23.5k (65% of the original £36k) which is better than the 56% that the umbrella company paid in the example above.

Edited by nyt on Saturday 1st November 11:41

[TheAngryDog]

Dr Jekyll said:

TheAngryDog said:

That wouldnt be bad. I presume that this is at the lower end of the pay scales?

I want do take on contract work, but I also need to get a mortgage at some point, and the two arent compatible for the first few years. Plus I think I need to hone my skills more in the role I am in, annoyingly.

It's also dodging IR35, something I've never managed to do.

I guess IR35 is a tax thing?

nyt said:

essayer said:

TheAngryDog said:

That doesn't make contracting look worth while on £150 a day. Im on more than that as a permie.

That's going via an umbrella.

Via a ltd co;
£1500 for ten days - say £36000 invoiced per year (48 weeks)
pay a salary £8k ish
= £28k profit
less 20% corp tax and say £500pa accounting fees
= £21900

Assume you took all that as a dividend (tax free) then that's £29900 take home, or the equivalent of a £40k salary.

Dividends aren't tax free.
You'd pay roughly £6,000 tax on that.

So you'd take home about £24,000 ( roughly 2/3 of earnings ) which is better than the 56% that the umbrella company paid.

• Note that I haven't included the £8k paid as salary which further improves the Ltd company pay out but I doubt that you'd get away with such allow salary especially as it's well under minimum wage.

On those sums, I aren't much worse off financially as a permie, but its not always about that I guess!

[worsy]

nyt said:

essayer said:

TheAngryDog said:

That doesn't make contracting look worth while on £150 a day. Im on more than that as a permie.

That's going via an umbrella.

Via a ltd co;
£1500 for ten days - say £36000 invoiced per year (48 weeks)
pay a salary £8k ish
= £28k profit
less 20% corp tax and say £500pa accounting fees
= £21900

Assume you took all that as a dividend (tax free) then that's £29900 take home, or the equivalent of a £40k salary.

Dividends aren't tax free.
You'd pay roughly £6,000 tax on that.

So you'd take home about £24,000 ( roughly 2/3 of earnings ) which is better than the 56% that the umbrella company paid.

• Note that I haven't included the £8k paid as salary which further improves the Ltd company pay out but I doubt that you'd get away with such allow salary especially as it's well under minimum wage.

You're wrong. however the example is a little out in explaining why.

£36000 invoiced per year (48 weeks)
pay a salary £8k ish
= £28k profit
less 20% corp tax and say £500pa accounting fees
= £21900

Take home is 8k + 21900 = 29900
Taxable pay is 8k + (21900/9)*10 = c32333

As Taxable pay less PA is below the threshold for higher rate tax, there is no further tax liability.

[nyt]

This umbrella company claims a better payout (though it does seem to depend on expenses)


http://www.parasolgroup.co.uk

[bigandclever]

nyt said:

** Note that I haven't included the £8k paid as salary which further improves the Ltd company pay out but I doubt that you'd get away with such allow salary especially as it's well under minimum wage.

As Director of a Limited you can pay yourself as little, or as much, salary as you want. Minimum wage legislation doesn't apply to Directors in any case.

[nyt]

Looks like I was wrong even in my corrected post

This calculator agrees with the other posts on here:

http://www.sjdaccountancy.com/contractor_calculato...

[bigandclever]

nyt said:

This umbrella company claims a better payout (though it does seem to depend on expenses)

The reality is that all brollies work under the same legislation, so the 'best' take-home will be from the brolly that charges the least for their service.

[pherlopolus]

Piggybacking on this thread... So as off Friday I'm unemployed looking my first contract in 11 years.

Whats the best way of handling Agencies?

I've been put forward for a few contracts (probably about 8 in past 2 weeks), some from received phonecalls, some from received emails, some from me being proactive on Jobserve etc.

To chase up or not, should I just let em get back if they hear anything, email once a week, or badger on the phone every now and then?

I'm aware of how busy some of the agents are at the moment so don't want to be harassing them everyday, but also I don't want them to think I'm not interested.

I'm not desperately needing a contract like NOW, as I already have the war chest after taking VR, but don't want to lose out due to not being pushy enough, or pushing too hard!

When I contracted last time, I just sort of bounced from contract to contract and except from 6 months off at the beginning of 2000 I had about 3 weeks off unplanned in 10 years (and that was due to getting clearance transferred) is it pretty much the same now?

[Dr Jekyll]

Yes.

Essentially it means you get taxed as if your entire turnover less minimal expenses was paid as salary. So no opportunity to save NI via dividends or save tax by leaving money in the company until you are in a lower tax bracket.

Edited by Dr Jekyll on Monday 3rd November 09:51

[essayer]

nyt said:

Dividends aren't tax free.
You'd pay roughly £5,000 tax on that.

So you'd take home about £17,000 ( roughly 47% of earnings ). Add on the roughly £6.5k that you'd get from the £8k salary and you've netted £23.5k (65% of the original £36k) which is better than the 56% that the umbrella company paid in the example above.

Edited by nyt on Saturday 1st November 11:41

As mentioned, in this case you wouldn't be liable for tax on the dividends, because as a basic rate tax payer you get a tax credit; but if you had other income or went into the higher rate band then additional tax would be due.

IMO, It's down to the directors to recompense themselves and shareholders as they see fit.

And as to agents, don't waste your whole day trying to chase them. If they genuinely have a job for you and the client is interested then they will call you and leave messages..

Edited by essayer on Monday 3rd November 07:58

[pherlopolus]

essayer said:

And as to agents, don't waste your whole day trying to chase them. If they genuinely have a job for you and the client is interested then they will call you and leave messages..

That's what I thought, Mrs P considers that if I don't badger them I won't be top of their list. However, I know what happens when people badger me, it involves switching my phone off

[oilslick]

pherlopolus said:

That's what I thought, Mrs P considers that if I don't badger them I won't be top of their list. However, I know what happens when people badger me, it involves switching my phone off

My experience of dealing with agents for IT contracts is there's very little point chasing them. If they get even the slightest sniff of some commission for a role they think they can put you forward for you'll get a call very very quickly.

ETA: Make sure you've got every single keyword for your skill set on your CV. What I tended to do when I was looking was to change a word in my CV and upload it to CWJobs / Jobserve every day, this seems to keep you at the top of the list.

Edited by oilslick on Monday 3rd November 17:49

[pherlopolus]

Great tip thanks!

[Pit Pony]

pherlopolus said:

Whats the best way of handling Agencies?

Bullst likes bullst, I've found. They are commission based, so anything you can do you make them believe you are odds on favourite, the better.

Oh and scatter gun the buggers.

[pherlopolus]

Blunderbuss already loaded with birdshot

[rfsteel]

Now in my third week of contracting after the last 16 years as PAYE, I was made redundant on the 30th September and had secured a 6 month contract 7 days later.

Only small issue I've run into is the opening of a business bank account, 5 weeks after sending my application off via a high street branch, and only just received a call to say my application has been processed, but now needs to go through credit scoring before my account details will be released.

[pherlopolus]

Still sitting at home in the middle of my second week off since finishing permie job of 11 years.

Ltd Company set up - tick
Accountant found - tick
paperwork to sign for bank account/paye/corp tax etc - yes sitting next to me
Applying for contracts every day - tick
been given lots of domestic chores to do? - tick

[john2443]

Have been contracting since 1998 (software testing), I wouldn't want to go back to the restrictions of being permie - even though there's minimal difference between what I do and what the permie guy who sits next to me does I do have more of a feeling of freedom and control and don't have to toe the company line (as well as earning more, even taking gaps between contracts into consideration )

Have worked for about a dozen different companies for between 3 month and 4 years

I have been offered to go permanent at a few of the contracts but the ones that have offered have always been to far from home to seriously consider - it would have to be only a few miles from home before I gave it a second thought and even then it would have to be something fairly special to make move move to the dark side!

[oilslick]

rfsteel said:

Now in my third week of contracting after the last 16 years as PAYE, I was made redundant on the 30th September and had secured a 6 month contract 7 days later.

Only small issue I've run into is the opening of a business bank account, 5 weeks after sending my application off via a high street branch, and only just received a call to say my application has been processed, but now needs to go through credit scoring before my account details will be released.

I set mine up in-branch with HSBC. Took about 45 minutes and I walked out with a sort code and account number.

[Mr Whippy]

Just curious why people are on LTD/director vs just self-employed?

Is it because of employment liability issues on longer term contracts... and/or just more tax effective?


I've been freelance on small and large projects but usually do around 5-10 contracts or so a year along with tons of other little bits and bobs, and just do all mine self-employed for now.


I'm surprised the IT Contracting rates are so low though, relatively speaking. I thought most people on this lark were on £60-90k kinda money after a chunk of years in the trade?!



Cheers

Dave