Stay PAYE or go back to contracting?

[chilluk7]

After many years of contracting I've very recently switched to a "proper job" which is ok if a little unexciting.

I've been presented with the opportunity to make a swift return to contracting albeit at quite a reduction in rate from my last one so I am trying to weigh up what to do and whether it would cost me to switch.

Current PAYE situation:
Package worth circa 70k Inc pension contributions
Fares approx 5k a year
Journey about 1 hr 15 mins each way
Still turning over approx 10k through Ltd company doing evening and weekend work

On offer:
Fixed term contract paying 56k per year but I can split wages / dividends between me and wife
Office is 10 min bike ride so zero fares
Seems like work would be a bit more up my street
I will actually get paid holiday as it's wrapped into the yearly rate
Will still do the approx 10k of side work - could be a tiny bit more as I'll have a few hours a week back not travelling
Obvuously will have to go back to self funding pension

Any advice? My fag packet calculation can't seem to come up with a convincing argument either way!!

Edited by chilluk7 on Monday 5th February 18:49

[supercommuter]

70k - is £4031 PAYE

56k / 2 = 1860 take home * 2 = £3720 even at PAYE (more taking min and divvy i assume)

10 hrs per week of your own time back.

Absolute no brainer IMO

[UpTheIron]

Do you mean a FTC? Which is normally how a PAYE contract with a fixed end date is described? Or do you really mean a "typical" contract, where you are going to supply your services through your own Ltd Company?

[chilluk7]

Yes sorry, services provided through Ltd co. Not paid hourly rate though will invoice fixed amount per month which is what I meant by fixed term (bad terminology I know).

Yes I know about IR35 but I will be billing other clients as well at same time.

Edited by chilluk7 on Monday 5th February 21:08

[chilluk7]

supercommuter said:

70k - is £4031 PAYE

56k / 2 = 1860 take home * 2 = £3720 even at PAYE (more taking min and divvy i assume)

10 hrs per week of your own time back.

Absolute no brainer IMO

That was my initial thought - obviously I'll have to pay Tax/NI out of the company and Corp Tax so won't be able to draw it all down in salary and dividends though so not sure if that offsets it by too much.

[UpTheIron]

chilluk7 said:

Yes sorry, services provided through Ltd co. Not paid hourly rate though will invoice fixed amount per month which is what I meant by fixed term (bad terminology I know).

Yes I know about IR35 but I will be billing other clients as well at same time.

Edited by chilluk7 on Monday 5th February 21:08

No worries. Have you crunched the numbers based on your exact circumstances? Presume you would pay both you and your wife up to the tax threshold and claim the NI employment allowance, and then the rest in dividends?

Sounds marginal to me based in some very rough numbers in my head... £70k is £4k/month net for 11 months work. Admittedly with some significant travel expenses, but some other benefits too. The £10k in your Ltd is presumably siphoned out as salary to the wife, so negligible profit to be taxed on. So somewhere around £4.8k/net.

£66k all through the Ltd:

£23k out as salaries
£40k profit after assuming £3k operating costs = approx £32k net
= £55k net

So it's something like £7k/year versus 10 hours of your time, not really taking into account pensions, other benefits of the perm role and more crucially the opportunities or stability of either (depending on what is important to you)

I'd be going with the latter to get the time back... but at £15/hour for that time some might feel different.

Also if you can earn £70k perm, what would a "typical" contract rate be for a similar role? I suspect it would be more than the £56k, but I also think your answer would be that you don't want to carry on with what you are doing...

Your IR35 statement is a tad worrying... billing other clients is neither here nor there but I assume you mean the contract and working practices would be safely outside.

[chilluk7]

Thanks for that. It's pretty tight either way isn't it? Previous contract was a fair chunk more but also involved a bit of travel.

Sorry I know I'm simplifying the ir35 aspect. It's the fixed rate rather than strictly paid for time at the keyboard that made me mention it.

Main driving force for even looking was the type of work that I have been doing. A lot more support and data analysis than I was expecting with very little dev work. Partly due to what seems to be some deeper ingrained organisational issues. The offer has come from somewhere a little more dynamic and agile (in every sense of the word)

[Eric Mc]

IR35 is being toughened up. It is likely its reach will be broadened soon.