Educate me about contracting please?
Discussion
I am currently in a permanent role and am looking for a new job, as I work in IT recruiters often ring me up about Contracting roles, I have always been tempted by the money on offer so decided to put the daily rate into an online calculator 
So according to this calculator, I can take home 75% of what I earn and this would in turn mean I take home TREBLE the amount I currently take home
Is this dodgy? Would that be breaking some tax rules? I have heard mention of IR35 but have no clue what this is, so any info is appreciated
What I would intend to do would be take the 2/3rds give myself a small pay raise but then I could still save more a month than I am earning now to cover any gaps when a contract came to an end
So according to this calculator, I can take home 75% of what I earn and this would in turn mean I take home TREBLE the amount I currently take home
Is this dodgy? Would that be breaking some tax rules? I have heard mention of IR35 but have no clue what this is, so any info is appreciated
What I would intend to do would be take the 2/3rds give myself a small pay raise but then I could still save more a month than I am earning now to cover any gaps when a contract came to an end
then the rewards are there for those of us who choose to live outside permiesville. Put some away for a rainy day though - we aren't all running round in Lambos!There would definitely be a rainy day fund, on those rates I could save more a month than I currently earn so that wouldnt be an issue
The car thing was tongue in cheek I would rather get the mortgage right down first to be honest (man I am getting dull in my old age)
I shall read up about IR35 and look into an accountant
The car thing was tongue in cheek I would rather get the mortgage right down first to be honest (man I am getting dull in my old age)
I shall read up about IR35 and look into an accountant
Whilst contracting does seem like a very attractive option, I'll add some of the negatives as you're aware of the positives:
- Depending on the industry you're often not aware of where your next job is going to come from. Some industries are a little reactionary, so forward planning your workload can be often impossible, which can make life very very stressful.
- You have to go where the work is. Money is great, but being wealthy and stuck in a hotel for months on end living out of a suitcase can lose its appeal very very quickly.
- You seldom have the satisfaction of seeing a job through from concept to completion.
- Being away from family
- No pension / loss of company pension
- Stress of contract negotiations. Make sure your T&Cs are water-tight.
- Getting paid - some companies are dreadful at paying you, even the multi-billion turnover lot.
- You're sometimes in a very weak position when it comes to trying to do the right thing professionally. As an employee you can tell your boss he's going to f
k up the project. As a contractor you sometimes can't and you're into damage mitigation to your rep then.
- Some people see you as a parasite.
- Money not always as good as you may first think. What happens if one contract finishes and the one you were due to start is delayed by a month or two? It can be very very hard to manage your work to seamlessly flow together.
As if by magic, there's a lot of info here http://www.contractoruk.com/first_timers/
And I would add:
build up some kind of warchest before you jump from Permie to Contract, and then when you're contracting continue to add to it;
understand most businesses want you today, and probably won't wait for a permy to work through their notice period;
understand you will almost certainly not find the ideal contract in the early days (location vs rate vs longevity vs whatever other drivers you have);
IR35 is a state of mind.
And I would add:
build up some kind of warchest before you jump from Permie to Contract, and then when you're contracting continue to add to it;
understand most businesses want you today, and probably won't wait for a permy to work through their notice period;
understand you will almost certainly not find the ideal contract in the early days (location vs rate vs longevity vs whatever other drivers you have);
IR35 is a state of mind.
rhinochopig said:
Whilst contracting does seem like a very attractive option, I'll add some of the negatives as you're aware of the positives:
Am in IT I am a Software Tester/Business Analyst so can go for either role, there are an abundance of these at the moment, not really tied to any industry though- Depending on the industry you're often not aware of where your next job is going to come from. Some industries are a little reactionary, so forward planning your workload can be often impossible, which can make life very very stressful.
rhinochopig said:
- You have to go where the work is. Money is great, but being wealthy and stuck in a hotel for months on end living out of a suitcase can lose its appeal very very quickly.
rhinochopig said:
- You seldom have the satisfaction of seeing a job through from concept to completion.
rhinochopig said:
- Being away from family
rhinochopig said:
- No pension / loss of company pension
rhinochopig said:
- Stress of contract negotiations. Make sure your T&Cs are water-tight.
rhinochopig said:
- Getting paid - some companies are dreadful at paying you, even the multi-billion turnover lot.
rhinochopig said:
- You're sometimes in a very weak position when it comes to trying to do the right thing professionally. As an employee you can tell your boss he's going to fk up the project. As a contractor you sometimes can't and you're into damage mitigation to your rep then.
rhinochopig said:
- Some people see you as a parasite.
rhinochopig said:
- Money not always as good as you may first think. What happens if one contract finishes and the one you were due to start is delayed by a month or two? It can be very very hard to manage your work to seamlessly flow together.
Remember you don't get paid for bank holidays, your holidays, days off sick, etc and don't get any of the perks you might be used to as a permie (health, car, etc).
Some people I know have tried it and spent most of their time stressing about renewals/next jobs - It's not for everyone, so be prepared to not like it. There's a good chance you'll not know if you have a job on Monday until last thing Friday night! (I once left a job on Friday without one to go to and got a call Monday morning asking me to go back after one of the team broke his leg playing football at the weekend!)
That said, if you're good, relaxed about your employment (ie confident in your abilities and ability to sell yourself repeatedly at interviews) and have sensible expectations about how much you will actually clear (I bet it won't be 75%), then it can be a great way to work.
I did it for about 10 years in the 80s and 90s and loved the freedom as well as the pay, but I got lured by a well paid permie job with a package that competed and, aside from a couple of short dabbles, I've never been lured back.
IR35 MIGHT be a state of mind, but it's also a pain that I didn't have.
M
Some people I know have tried it and spent most of their time stressing about renewals/next jobs - It's not for everyone, so be prepared to not like it. There's a good chance you'll not know if you have a job on Monday until last thing Friday night! (I once left a job on Friday without one to go to and got a call Monday morning asking me to go back after one of the team broke his leg playing football at the weekend!)
That said, if you're good, relaxed about your employment (ie confident in your abilities and ability to sell yourself repeatedly at interviews) and have sensible expectations about how much you will actually clear (I bet it won't be 75%), then it can be a great way to work.
I did it for about 10 years in the 80s and 90s and loved the freedom as well as the pay, but I got lured by a well paid permie job with a package that competed and, aside from a couple of short dabbles, I've never been lured back.
IR35 MIGHT be a state of mind, but it's also a pain that I didn't have.
M
Edited by marcosgt on Wednesday 16th May 11:40
There's useful information here, all free:
http://www.pcg.org.uk/cms/index.php?option=com_con...
A substantial financial cushion is vital: it enables you to ride out slack periods without being forced to take rubbish jobs just to keep money coming in.
http://www.pcg.org.uk/cms/index.php?option=com_con...
A substantial financial cushion is vital: it enables you to ride out slack periods without being forced to take rubbish jobs just to keep money coming in.
I left a permie role to take up a contract job 2 years ago, it more than doubled my take home pay but I did have to move from Scotland to SE England, and have since moved to the midlands for a couple other contracts, but I am quite lucky that I don't have a mortgage / kids to keep uprooting.
Remember that if you do decide to go Ltd company you will need to pay corperation tax and you will need to declare any dividends you get on your self assesment form. Also get VAT registered as there is a flat rate VAT gain, no idea what it is in IT, but it's sort of 'free money'. As said before, get an accountant - some specialise in IT contractors - and they should be able to sort out all of that for you.
~ Craig
Remember that if you do decide to go Ltd company you will need to pay corperation tax and you will need to declare any dividends you get on your self assesment form. Also get VAT registered as there is a flat rate VAT gain, no idea what it is in IT, but it's sort of 'free money'. As said before, get an accountant - some specialise in IT contractors - and they should be able to sort out all of that for you.
~ Craig
I'm a BA living in Kent, started as a contactor in January.
Remember that you will probably not earn all year, so work out your money based on say 10 months only. If you get a years work then its a bonus. If you finish a contact in late November, you could be out of work for a couple of months.
Also its very hard to move from perm to contractor if you are still in work. Its normally days between interview and start, not weeks or months. I took redundancy which gave me the buffer, and drive, I needed.
Remember that you will probably not earn all year, so work out your money based on say 10 months only. If you get a years work then its a bonus. If you finish a contact in late November, you could be out of work for a couple of months.
Also its very hard to move from perm to contractor if you are still in work. Its normally days between interview and start, not weeks or months. I took redundancy which gave me the buffer, and drive, I needed.
Whether you find contracting better than permie work will be down to personal preference but there's only one way to find out.
If you just want to dip your toe then make sure you have a good think about setting up a Ltd company as it just isn't worth it for a 6 month contract. It might be worth just using an umbrella to see although you will end up paying more tax in the process. For me I knew I wanted to do this long term from day 1 so wasn't an issue.
Just one thing to bear in mind is that you will be a company so need to conduct yourself accordingly. As a permie you can take a lot of liberties with an employer. Not in a big/bad way but organising work events and getting involved in general work stuff is not something you can really do as a contractor given that time = money. Attitudes can be a bit poor towards contractors but you need to show that you are offering something of the highest value for the money. Something that your employer would want to pay for again in future. Fostering good relations with your employer is all important but perhaps this is more relevant to me as my industry is very incestuous and everyone knows each other (aero).
On the other side I've got a really good relationship with my agent and this helps massively IMHO. Some would argue the merits of this but finding work is the essence of a sucessful contractor so you need these guys on side too.
Anyway best of luck with it all
If you just want to dip your toe then make sure you have a good think about setting up a Ltd company as it just isn't worth it for a 6 month contract. It might be worth just using an umbrella to see although you will end up paying more tax in the process. For me I knew I wanted to do this long term from day 1 so wasn't an issue.
Just one thing to bear in mind is that you will be a company so need to conduct yourself accordingly. As a permie you can take a lot of liberties with an employer. Not in a big/bad way but organising work events and getting involved in general work stuff is not something you can really do as a contractor given that time = money. Attitudes can be a bit poor towards contractors but you need to show that you are offering something of the highest value for the money. Something that your employer would want to pay for again in future. Fostering good relations with your employer is all important but perhaps this is more relevant to me as my industry is very incestuous and everyone knows each other (aero).
On the other side I've got a really good relationship with my agent and this helps massively IMHO. Some would argue the merits of this but finding work is the essence of a sucessful contractor so you need these guys on side too.
Anyway best of luck with it all
I've been contracting for over 20 years now.
Many good points to consider in the posts above.
Many positives and negatives to consider but I find the monthly invoice being paid into my company account each month usually outweighs the negatives... considerably.
As a basic guide:
Find an accountant, one that specialises in 1 man band IT consultancies, they will keep you on the straight and narrow. But do bare in mind that they do not know everything and their advice is just that, advice. You are ultimately reponsible.
Set your company up (accountant will tell you how to do this, cost £100 or so) and get company bank accounts sorted, current and reserve accounts.
Go flat rate VAT, this means you only pay 14.5% of your gross invoice as VAT, means you get to keep a couple of hundred each month. Gratis.
Ignore IR35. Really, just ignore it. You're not permie anymore so don't pay permie tax.
Take home - I put aside 30% of my invoice each month, into my reserve account, to pay all the various taxes; corporation, personal.
Put you 14.5 VAT into the reserves each month as well. Then, pretty much whatever is left in your company can be thought of as pay and trsnferred to your personal account, for spending!
Don't bother with company cars, etc.., the savings are not there like they used to be.
Consider pensions if you want one. I don't have one but at the moment I prefer to put my cash in doing my house up, paying my mortgage down and stacking into ISAs.
Make sure you take holidays, don't get into the rutt of not taking them as you will lose the day rate and have to pay for holiday, makes holiday expensive. Budget for having 4 weeks off a year and use them. Accept that holidays will never 'seem' cheap again.
Put a 3 month buffer of cash into a savings account in case you need it. Spend the rest, or do something more boring with it, see pensions comment above.
Don't get sick.
Do what the client asks.
Enjoy not getting involved deeply in office politics.
Some clients are good at renewals, some are dreadful. It took 6 weeks for me to get my extension confirmed at the start of this year for exmaple.
Use jobserve and send loads of CVs when you're looking for the next contract. Anything that matches your skill set 75% will do. If the particular job is not use, the agency may have another come in later that afternoon, your CV will be fresh in their minds.
In 20 years, I've been out of work for about 8 weeks total whilst searching for the next contract.
Realise that the money you're earning is like being paid cash in hand. It's up to you to make sure you pay tax and spend the remainder wisely. You're own your own.
Finally, enjoy the mental freedom and buckets of extra cash you're about to earn.
Many good points to consider in the posts above.
Many positives and negatives to consider but I find the monthly invoice being paid into my company account each month usually outweighs the negatives... considerably.
As a basic guide:
Find an accountant, one that specialises in 1 man band IT consultancies, they will keep you on the straight and narrow. But do bare in mind that they do not know everything and their advice is just that, advice. You are ultimately reponsible.
Set your company up (accountant will tell you how to do this, cost £100 or so) and get company bank accounts sorted, current and reserve accounts.
Go flat rate VAT, this means you only pay 14.5% of your gross invoice as VAT, means you get to keep a couple of hundred each month. Gratis.
Ignore IR35. Really, just ignore it. You're not permie anymore so don't pay permie tax.
Take home - I put aside 30% of my invoice each month, into my reserve account, to pay all the various taxes; corporation, personal.
Put you 14.5 VAT into the reserves each month as well. Then, pretty much whatever is left in your company can be thought of as pay and trsnferred to your personal account, for spending!
Don't bother with company cars, etc.., the savings are not there like they used to be.
Consider pensions if you want one. I don't have one but at the moment I prefer to put my cash in doing my house up, paying my mortgage down and stacking into ISAs.
Make sure you take holidays, don't get into the rutt of not taking them as you will lose the day rate and have to pay for holiday, makes holiday expensive. Budget for having 4 weeks off a year and use them. Accept that holidays will never 'seem' cheap again.
Put a 3 month buffer of cash into a savings account in case you need it. Spend the rest, or do something more boring with it, see pensions comment above.
Don't get sick.
Do what the client asks.
Enjoy not getting involved deeply in office politics.
Some clients are good at renewals, some are dreadful. It took 6 weeks for me to get my extension confirmed at the start of this year for exmaple.
Use jobserve and send loads of CVs when you're looking for the next contract. Anything that matches your skill set 75% will do. If the particular job is not use, the agency may have another come in later that afternoon, your CV will be fresh in their minds.
In 20 years, I've been out of work for about 8 weeks total whilst searching for the next contract.
Realise that the money you're earning is like being paid cash in hand. It's up to you to make sure you pay tax and spend the remainder wisely. You're own your own.
Finally, enjoy the mental freedom and buckets of extra cash you're about to earn.
Edited by Piersman2 on Wednesday 16th May 14:02
bigandclever said:
Piersman2 said:
Go flat rate VAT, this means you only pay 14.5% of your gross invoice as VAT, means you get to keep a couple of hundred each month. Gratis.
And he'd get the extra 1% discount for first year VAT trading under the Flat Rate scheme.I know that Eric and a host of others will bemoan, but it's just as easy to see 85% or more in your pocket without even bothering with a company. PM if you want a contact.
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