IT Contract rates vs. perm salary

[ammw]

I'm a senior Java dev with many years experience, and been working in the finance sector for last 10+ years in Glasgow. I've been considering contracting for a while now (partly for the money, and partly because I'm happy being a developer and not interested in all the politics and career bks that comes with being permie).

I'm just wondering what sort of rate I should expect, and how that would compare with a my perm salary (just below £50k). I've spoken to agencies and sounds like £375/day is about right. How will this compare once I take into account tax/NI/pension/holidays etc? Should I try to push for more?

[Burrow01]

Sounds a bit low but not sure of the market in Glasgow - would expect it to be more if you were in London with the experience you have

[98elise]

Sounds a little low. You need to be covering sick pay, holiday pay, pension, death in service benefits, and any other optional benefits you get like car, travel allowances etc.

You will also need to base your billable days on less than every avalable working day, as you might go a month or so between jobs.

You should be looking at £400+, in london you would be looking at 500+ with the right experience. Check jobserve for rates

Edited by 98elise on Wednesday 3rd August 20:40

[bigandclever]

A broad brush is take the permy salary, divide by 1000 and that gives you a hourly rate. Multiply by 8 for the day rate. Naturally you need to do a much more granular calculation to suit your situation.

As for the rate, I use http://www.itjobswatch.co.uk/contract.aspx to keep an eye on (advertised) rates... on a search for senior java developer and Glasgow, rates seem to be around £350. Change it to London and, well, it's higher. YMMV.

[louiebaby]

If you do switch to Contracting, you need to look at the way you pay tax. There isn't a lot of choice when a permanent employee, but when contracting, it can make a huge difference.

Tax avoidance can be very good for your pocket at the end of the month. Tax EVASION is the illegal one. A good accountant, with knowledge in the area, can be very useful.

[ammw]

Thanks guys.

louiebaby said:

If you do switch to Contracting, you need to look at the way you pay tax. There isn't a lot of choice when a permanent employee, but when contracting, it can make a huge difference.

Tax avoidance can be very good for your pocket at the end of the month. Tax EVASION is the illegal one. A good accountant, with knowledge in the area, can be very useful.

This is the area I'm unsure of ... how do you do this? I've had emails from Tarpon quoting figures of 85% (of gross) take home pay. Is this realistic? Is an umbrella company a good option?

[oldcynic]

ammw said:

This is the area I'm unsure of ... how do you do this? I've had emails from Tarpon quoting figures of 85% (of gross) take home pay. Is this realistic? Is an umbrella company a good option?

I've never used an umbrella company myself but I've known colleagues who have been royally fleeced week after week. Many people who are working on a busy project at high rates will be happy to see how much appears in their bank account and will simply fail to notice a few hundred here & there that doesn't get paid.

Personally I'm about to move from contract to permanent, but this is very much about what work is available in my field and my skillset slipping hopelessly out of date. Contracting is great if you have the self-discipline to retain 30% of gross income within your ltd company to cover tax / fees etc. and don't squander future anticipated earnings on expensive car finance.

[worsy]

Eric will be along soon, but fwiw:

First of all you need to ascertain whether the contract on offer will be inside or outside IR35. If inside then you need to deduct Pensions and Expenses payments then Employer and Employee NI contributions, PAYE tax and that is your take home.

If outside IR35 then a Ltd is usally the best advice. In my opinion I would not consider any form of EBT, the risks are too high. If outside IR35 you can consider:

S660 Income Shifts
Dividends and Salary under PAYE thresholds

The benefits of outside ir35 contracting are more than money though. Ability to take on eve and w/e work (double bubble), work from home, control your own working day, take leave/breaks when you want to.

[arfur]

ammw said:

This is the area I'm unsure of ... how do you do this? I've had emails from Tarpon quoting figures of 85% (of gross) take home pay. Is this realistic? Is an umbrella company a good option?

www.amlimited.com now is clear of the new loans/ebt rules and effective for the next couple of years until the next change is necessitated. I see about 85% in my pocket with no further tax due and no paperwork at all

[Burrow01]

ammw said:

Thanks guys.

louiebaby said:

If you do switch to Contracting, you need to look at the way you pay tax. There isn't a lot of choice when a permanent employee, but when contracting, it can make a huge difference.

Tax avoidance can be very good for your pocket at the end of the month. Tax EVASION is the illegal one. A good accountant, with knowledge in the area, can be very useful.

This is the area I'm unsure of ... how do you do this? I've had emails from Tarpon quoting figures of 85% (of gross) take home pay. Is this realistic? Is an umbrella company a good option?

If you are unsure in this area do a lot of research before you take the plunge - once you are into the contracting merry go round there is not a lot of time to set things up properly. Check out contractoruk web site / forum FAQ's, SJD Accountancy also have a good guide to contracting.

Basically if you are looking at contracting long term, a ltd company of your own gives much more flexibility. If you are just contracting for a short time then Umberella companies are OK, but offer much less flexibility in terms of managing your cash.

Also check out Tarpons history.....

[arfur]

Burrow01 said:

If you are unsure in this area do a lot of research before you take the plunge - once you are into the contracting merry go round there is not a lot of time to set things up properly. Check out contractoruk web site / forum FAQ's, SJD Accountancy also have a good guide to contracting.

Basically if you are looking at contracting long term, a ltd company of your own gives much more flexibility. If you are just contracting for a short time then Umberella companies are OK, but offer much less flexibility in terms of managing your cash.

Also check out Tarpons history.....

I still own my old LTD as well as using the offshore umbrella .. I cant match the 85% using a LTD and the total lack of paperwork or accounts is great. I currently run 3 contracts through the same umbrella who can manage hourly rates, day rates and adhoc invoicing ..

[Burrow01]

arfur said:

Burrow01 said:

If you are unsure in this area do a lot of research before you take the plunge - once you are into the contracting merry go round there is not a lot of time to set things up properly. Check out contractoruk web site / forum FAQ's, SJD Accountancy also have a good guide to contracting.

Basically if you are looking at contracting long term, a ltd company of your own gives much more flexibility. If you are just contracting for a short time then Umberella companies are OK, but offer much less flexibility in terms of managing your cash.

Also check out Tarpons history.....

I still own my old LTD as well as using the offshore umbrella .. I cant match the 85% using a LTD and the total lack of paperwork or accounts is great. I currently run 3 contracts through the same umbrella who can manage hourly rates, day rates and adhoc invoicing ..

Do you know how they are getting to 85%? They don't have any tools / allowances etc that you cannot use as a Ltd. Also what happens if you don't want all the money from an invoice to be paid immiediately, maybe to retain some profit to invest via the company / company pension etc

Not saying Umberella's are specifically bad, but for a long term contractor a Ltd company would still be the way to go in my opinion

[Eric Mc]

arfur said:

Burrow01 said:

If you are unsure in this area do a lot of research before you take the plunge - once you are into the contracting merry go round there is not a lot of time to set things up properly. Check out contractoruk web site / forum FAQ's, SJD Accountancy also have a good guide to contracting.

Basically if you are looking at contracting long term, a ltd company of your own gives much more flexibility. If you are just contracting for a short time then Umberella companies are OK, but offer much less flexibility in terms of managing your cash.

Also check out Tarpons history.....

I still own my old LTD as well as using the offshore umbrella .. I cant match the 85% using a LTD and the total lack of paperwork or accounts is great. I currently run 3 contracts through the same umbrella who can manage hourly rates, day rates and adhoc invoicing ..

Is this an offshore trust and if so, how are they coping with inceased attention from HMRC?

Are you being paid in the form of loan advances or proper salary/dividends?

[arfur]

Eric Mc said:

Is this an offshore trust and if so, how are they coping with inceased attention from HMRC?

Are you being paid in the form of loan advances or proper salary/dividends?

It is a trust and it still uses loans. However no one is an employee, rather a partner and self employed. This was a loophole left in the new rules. It's actually better as there is no eers NI. Basically safe from attention again for a few years knowing how slowly HMRC works

[Eric Mc]

So you run and control your own business then as a partner in that business?

You sit at the partners' meetings and make decisions about the overall business strategy?

You also make decisions with the other partners at these meetings as to how the overall profits of the partnership is split between the partners and you all vote on that and minute the decision.

Did you know that some partners in partnerships are obliged to pay PAYE and NI on their partnership income?

And did you know that IR35 applies just as much to partbners in a partnership as directors in a limited company?

I thing these set ups are a total sham and exploit any tax loopholes the way bank robbers exploit bank opening hours.

[bigandclever]

arfur said:

Eric Mc said:

Is this an offshore trust and if so, how are they coping with inceased attention from HMRC?

Are you being paid in the form of loan advances or proper salary/dividends?

It is a trust and it still uses loans. However no one is an employee, rather a partner and self employed. This was a loophole left in the new rules. It's actually better as there is no eers NI. Basically safe from attention again for a few years knowing how slowly HMRC works

*cough* retrospective tax legislation *cough*

[Eric Mc]

Indeed.

[arfur]

bigandclever said:

*cough* retrospective tax legislation *cough*

That's always a risk, but been fine for the last 15 years. There was no retro on the EBT loans that have just been closed down except from Dec 10 - Mar 11 so all's good in the 'hood Strangely I took no loan for that period at all.

@Eric. Sham it may be, but it's legal and therefore avoidance. I would not use them otherwise. And yes, I am fully aware that IR35 applies to partnership stuff ... I've been in the contract line for 20 years and do read

Edited by arfur on Thursday 4th August 15:14

[Eric Mc]

I would like to know on what basis you are considered a partner in a partnership?

Were you asked to invest any equity into the partnership?