IT contract daily rates

[oyster]

Currently working as a perm PM for a consultancy, but thinking of contracting. If I was targetting take home pay of £7k per month over a 1 year period (assumes say 4 weeks hols plus bank holidays), how much would my gross daily rate need to be?

[john_p]

.. it depends. Are you going through an umbrella, are you reclaiming travel costs, flat rate VAT, investing into pension, tax code etc.

Guess at 75%ish of takehome and 20 days a month for your hols + bank holidays - around £450/day.

You'd do well to get 240 days billed in a year though! Good luck

Edited by john_p on Friday 6th August 19:05

[oyster]

john_p said:

.. it depends. Are you going through an umbrella, are you reclaiming travel costs, flat rate VAT, investing into pension, tax code etc.

Guess at 75%ish of takehome and 20 days a month for your hols + bank holidays - around £450/day.

You'd do well to get 240 days billed in a year though! Good luck

Edited by john_p on Friday 6th August 19:05

I was thinking with holidays I'd only bill about 200 days. And i'd have thought take home would be less than 75% with tax at 40% and NICs both employer and employee.

[spikeyhead]

oyster said:

john_p said:

.. it depends. Are you going through an umbrella, are you reclaiming travel costs, flat rate VAT, investing into pension, tax code etc.

Guess at 75%ish of takehome and 20 days a month for your hols + bank holidays - around £450/day.

You'd do well to get 240 days billed in a year though! Good luck

Edited by john_p on Friday 6th August 19:05

I was thinking with holidays I'd only bill about 200 days. And i'd have thought take home would be less than 75% with tax at 40% and NICs both employer and employee.

There's a lot more tax efficient ways of extracting money from a busuness as a director.

[stigmundfreud]

always flumoxed by the way the industry see's PM's as an absolute requirement when in my vast 18 years experience of working with them without a shaddow of a doubt not one of them has added any value other than to chair meetings about meetings. st gets done with or with out them only with them the senior managers get match reports and pretty charts.

Contract ones are the worst offenders as tehy come in, have to learn all the business processes so you end up teaching them. The perm ones get their jobs done, the contract ones just get everyone else to do their actual job.

Question is, are you willing to sacrifice any professional integrity for a few quid?

[john_p]

Erm well anyway.

As a director of a ltd co you'd typically take a small amount of PAYE salary, contribute a similar amount to a pension scheme, then take most of the rest as a dividend (taxed at 25% once you earn, in total, more than the basic rate)

(Total straw packet as all the tax rates have no doubt changed)

£450/day billed 220 days a year
= £99000 income
less £10/day commuting, £1500/yr accountant and £500 misc others
= £94800 "gross profit"
less
£12k salary - (PAYE - 20% Income Tax 10% Employee NI 10% Employer NI)
less
£10k to a pension

= £72k "net profit" (corporation tax - 22%, £15800)

So after corp tax is paid, you're left with about £56k - you draw this as a dividend which gets taxed at £4k (basic rate dividends pay no tax, after this it's 22.5%)

You've paid 1200 (income tax) 2400 (NIx2) 4000 (tax on dividend) 15800 (corp tax)

= approx £23,000 (24%ish of income)

plus whatever extra goes in your pension.


Also, you get to hold onto the money for a lot longer (possibly not always a good thing)

PAYE/NI due within a month
Corporation tax due 9 months after company year end
Dividend tax due 9 months after the end of April in the (financial) year you paid yourself

So if you formed a company 1st September 2010 and worked for a solid year, your Corp tax would be due May 2012, half your Dividend tax due in Jan 2011, and the other half in Jan 2012..

Caveat: all the rates are from memory, but hopefully you get the general idea. Run it in Excel and see how it adds up for you.

[oyster]

Makes some sense.
Except isn't basic rate tax for divis at 10% and 32.5% for higher rate (not 0% and 22.5%)?

And what about IR35 - which still exists I think.

[spikeyhead]

oyster said:

Makes some sense.
Except isn't basic rate tax for divis at 10% and 32.5% for higher rate (not 0% and 22.5%)?

And what about IR35 - which still exists I think.

There's a 10% discount on the 10% and 32.5% tax rates, which takes it back to teh 0% and 22.5% effective rates. I know not why it is so, just that it is.

You'll need to be a bit savvy about how the contracts are worded and how you work to avoid IR35, however I think that with the demise of the one eyed slack jawed one it will become less of an issue.

[BluePurpleRed]

Sound advice above. To save retyping I have a blog entry on it here :

http://financialraddeveloper.wordpress.com/2010/03...

[john_p]

IR35 is certainly a concern and most people recommend to always get your contract checked by someone like Bauer & Cottrell before starting.

Agents might take a bit of pushing, but should change a contract if it's a make-or-break issue

[RizzoTheRat]

Try running a few rates through this lot to get an idea what you should be charging.
http://www.contractorcalculator.co.uk/ContractorCa...

AS a contractor I'd say aiming for 200 days a year is way too high, you'll never manage to line up new contracts to run as soon as the old one ends, and as mentioned above if you're on a long term contract you're going to have IR35 trouble

[ewenm]

Might also be worth looking at and joining PCG

[bigandclever]

RizzoTheRat said:

and as mentioned above if you're on a long term contract you're going to have IR35 trouble

That's misinformation. Contract length has no bearing on IR35 compliance. You could argue that, since IR35 is applied on an individual contract basis, then having multiple contracts instead of one long one reduces your exposure to it, but that's not the same thing.

[Podie]

oyster said:

And what about IR35 - which still exists I think.

Has there been a successful prosecution yet..?

[JonRB]

bigandclever said:

That's misinformation. Contract length has no bearing on IR35 compliance. You could argue that, since IR35 is applied on an individual contract basis, then having multiple contracts instead of one long one reduces your exposure to it, but that's not the same thing.

Indeed. HMRC will usually go after the low-hanging fruit. So a contractor who has been with the same client for 5 years and has gone slightly native will be more appealing to them than one who has had a load of 3-6 month contracts.

But as you say, that's not the same as long-term contracts being an indicator to disguised employment.

[JonRB]

Podie said:

oyster said:

And what about IR35 - which still exists I think.

Has there been a successful prosecution yet..?

Yes, there have. Several, in fact and rather worryingly some of them have seemed pretty strong. However there have been far more successful defences / unsuccessful prosecutions.

Edit: Look up the Dragonfly case, for example.

Edited by JonRB on Tuesday 17th August 16:08

[Podie]

JonRB said:

Podie said:

oyster said:

And what about IR35 - which still exists I think.

Has there been a successful prosecution yet..?

Yes, there have. Several, in fact and rather worryingly some of them have seemed pretty strong. However there have been far more successful defences / unsuccessful prosecutions.

Edit: Look up the Dragonfly case, for example.

Edited by JonRB on Tuesday 17th August 16:08

Ta. Useful to stay in the loop.