Contract vs. Perm roles in the City

[redrabbit]

Afternoon gents,

I'm thinking about jacking in my current City job: it's a permanent role (generic 'executive director' level for those familiar with the market); I'm considering moving to interim/contract work elsewhere, but haven't nailed down what rate I'd need to earn to maintain my current net income. I'm hopefully in the market for jobs advertised at c.£500-600/day. Anyone here got an informed view on what that translates into as net annual income, assuming I operate via a limited company with relevant expenses deducted? At a rough guess I'd expect to offset around £4,500 pa in travel expenses: don't think there are any other legit deductions I could factor in. Thought I'd ask on here, in case anyone else has relevant experience before I start trawling through the myriad of accountancy websites...

Apologies if there's another thread on this somewhere: if so please feel free to redirect, otherwise any advice gratefully received!

[daemon]

You need to get a view on whether or not you will be inside IR35 regulations or outside of them.

Summarising, if you are performing a specific role, usually on the clients site and they are contracting YOU (and cannot subsitute another employee of your company) then you are likely to fall withing IR35.

At the moment you will then pay full PAYE tax, after travel expenses are taken out. So if you get £500 a day, and incur £200 a week on travel, then (roughly speaking as you get a 5% "allowance" in there too) you would be taxed per week on £2,500 - £200, at regular PAYE rates.

IF you can avoid IR35 - which is more likely if you work from your own office, advertise your services, and charge "per job" for a piece of work being done, then you can pay yourself a small salary and take a high proportion as dividends @ 20% tax rate.

There is some legislation being discussed which would see the ability to offset your tax against expenses removed. Wont impact you much, but if i'm working on client site and staying over during the week then i rack up £2,500 a month in expenses which would be painful for me (working from home on this contract though)

Here is quite a good starting point for all things contracting - http://forums.contractoruk.com/

FWIW have targeted myself to be fee earning 45 weeks a year, and am on track to hit this.

[Pickled Piper]

Keep in mind that taxation on dividend income is changing after April 2016.

Lots of online calculators if you want to work out how much you will be taking home.

Perhaps have a chat with an accountant.

[essayer]

Look into the two year rule, after two years at the same location you pay the travel, not the company.

("London" is a location)

Are there no opportunities to change roles within your existing organisation?

[UpTheIron]

What ballpark is your current net income in?
What other benefits or perks are in your current package?
How much holiday allowance do you get?
What tools of the trade would you require to start up as a contractor? Laptop? Phone? Anything else?

Do you expect to be working in the City (I'm assuming London here!) for more than 2 years - if so you can't claim travel expenses from Day 1, even if your clients change... but then again it isn't a particularly significant amount.

How much do you *need* to live on - if you are in a position to retain profit in the company there are more tax efficient ways to withdraw it in future (pensions, liquidation) rather than simply taking as dividends.

Do you have a partner who does not work or has a low income?

[Derek Chevalier]

redrabbit said:

Afternoon gents,

I'm thinking about jacking in my current City job: it's a permanent role (generic 'executive director' level for those familiar with the market); I'm considering moving to interim/contract work elsewhere, but haven't nailed down what rate I'd need to earn to maintain my current net income. I'm hopefully in the market for jobs advertised at c.£500-600/day. Anyone here got an informed view on what that translates into as net annual income, assuming I operate via a limited company with relevant expenses deducted? At a rough guess I'd expect to offset around £4,500 pa in travel expenses: don't think there are any other legit deductions I could factor in. Thought I'd ask on here, in case anyone else has relevant experience before I start trawling through the myriad of accountancy websites...

Apologies if there's another thread on this somewhere: if so please feel free to redirect, otherwise any advice gratefully received!

Sent you a PM

[omniflow]

It all depends on what your primary goal is, but you might be underselling yourself.

£500 / day will give you a higher net income than £100,000 / year.

However, most banks have bands for contractors in exactly the same way they have bands for permanent staff. £500 / day is very definitely in the VP band. The rate for a director equivalent position is more like £750 - £850 / day. Obviously with IR35 it's not actually "director equivalent" - however in reality there's almost zero difference. Whether your current ED title is the same as Director, or actually closer to VP, I have no idea.

[bigunit00]

Rule of thumb is for every £100 a day contracting is worth circa £15k in base salary paye. I would expect ED level role in city of London to pay basic of around £125k....so you need around £850 a day plus vat to be similiar. Just so you know rates at this level aren't that easy to come by especially if you have no specific niche or usp. What is hot at the moment is risk / regulatory / change projects where you are a hybrid PM/BA or a programme lead type of resource. If you aren't in the space I reckon your rates will be stuck in the £500-750 band. You need to think this through if you have a cushy perm ED role with all the trimmings

[redrabbit]

Thanks chaps, and thanks bigunit, that's a useful rule of thumb I guess. I do happen to be in the niche area you describe so maybe will look around a bit more before acting in haste. Current role is nicely paid but a total PITA for a gazillion reasons and I can afford to take a bit of a punt to get better job satisfaction which is my priority these days: I've fortunately stashed away enough over the years to put the life part of life/work balance to the fore.

Thanks for the advice, all.

[Liszt]

Don't look at contracting as an easy route to job satisfaction.

At that level, you'll still be playing politics and under pressure to deliver. There is not much difference in expectations between contract and perm.

Have you cconidered interim management?

[daemon]

bigunit00 said:

Rule of thumb is for every £100 a day contracting is worth circa £15k in base salary paye. I would expect ED level role in city of London to pay basic of around £125k....so you need around £850 a day plus vat to be similiar.

How are you working that out?

Even 45 weeks per year @ £850 a day five days a week brings you in £191,250?

If your contract is outside of IR35, this calc would suggest an equivalent day rate of approx £510 an hour?

http://www.contractorcalculator.co.uk/PermanentToC...

Edited by daemon on Saturday 12th September 17:35

Edited by daemon on Saturday 12th September 17:38

[bigunit00]

Liszt said:

Don't look at contracting as an easy route to job satisfaction.

At that level, you'll still be playing politics and under pressure to deliver. There is not much difference in expectations between contract and perm.

Have you cconidered interim management?

Pretty accurate really. There are pros and cons and at times contracting can appear to be different only in the mechanism of contractual employment and how you are being paid (salary plus dividends rather than paye). You do have to deliver and justify your own existence at all times otherwise no point keeping you on.

Edited by bigunit00 on Saturday 12th September 17:38

[bigunit00]

daemon said:

How are you working that out?

Even 45 weeks per year @ £850 a day five days a week brings you in £191,250?

More a rule of thumb I didn't mean to say it was scientifically accurate. I guess if you are on £125k basic plus say £40k bonus min plus paid leave and 6% super contribution min plus paid sick leave etc etc etc that would make the total comp around £200-250k gross. Not too mention as perm its much harder to get rid of you so have more job security. Given you take on a lot more risk as a contractor I actually don't think it makes sense in some cases but that really does depend on how good a perm deal is you are giving up

Edited by bigunit00 on Saturday 12th September 17:41

[daemon]

bigunit00 said:

daemon said:

How are you working that out?

Even 45 weeks per year @ £850 a day five days a week brings you in £191,250?

More a rule of thumb I didn't mean to say it was scientifically accurate. I guess if you are on £125k basic plus say £40k bonus min plus paid leave and 6% super contribution min plus paid sick leave etc etc etc that would make the total comp around £200-250k gross. Not too mention as perm its much harder to get rid of you so have more job security.

Its not even in the right ballpark, if you're talking about base salary as you said you were.

£525 a day would cover you as a base equivalent, so the "rule of thumb" would be roughly £25,000 not £15,000.

[daemon]

bigunit00 said:

Given you take on a lot more risk as a contractor I actually don't think it makes sense in some cases but that really does depend on how good a perm deal is you are giving up

If you're good at what you do and theres a market for your skills, the risk is quite manageable.

Also, dont forget its not "all about the money", there are many advantages to contracting.

But yes, if you're sitting on a package worth a quarter of a million per annum, i'd advise you to sit tight.

[bigunit00]

daemon said:

Its not even in the right ballpark, if you're talking about base salary as you said you were.

£525 a day would cover you as a base equivalent, so the "rule of thumb" would be £25,000 not £15,000.

Its up to OP to work out what he thinks his rate should be but I wouldn't be giving up an ED perm role at circa £125k basic plus bono plus extras to go contracting on £525 a day. I think you need more than that to make it worthwhile given the risk (even if it is manageable)

[daemon]

bigunit00 said:

daemon said:

Its not even in the right ballpark, if you're talking about base salary as you said you were.

£525 a day would cover you as a base equivalent, so the "rule of thumb" would be £25,000 not £15,000.

Its up to OP to work out what he thinks his rate should be but I wouldn't be giving up an ED perm role at circa £125k basic plus bono plus extras to go contracting on £525 a day.

You gave him a ballpark that was a mile off and given his next post, he accepted it as fact.

I said the equivalent day rate was approx £525 a day, i didnt say it was worthwhile giving up a perm salary equivalent to that.

O/P, use a guide of approx £100 per day equaiting to £25K of base salary and you wont be a mile off.

Edited by daemon on Saturday 12th September 17:54

[bigunit00]

daemon said:

You gave him a ballpark that was a mile off and given his next post, he accepted it as fact.

I said the equivalent day rate was approx £525 a day, i didnt say it was worthwhile giving up a perm salary equivalent to that.

Anyone who takes what is written on ph as fact should be having a good hard look at themselves . I moved from temp to perm recently and no chance I would go back to contracting at circa £525 a day. That's a rate only a pleb would take.

[daemon]

bigunit00 said:

daemon said:

You gave him a ballpark that was a mile off and given his next post, he accepted it as fact.

I said the equivalent day rate was approx £525 a day, i didnt say it was worthwhile giving up a perm salary equivalent to that.

Anyone who takes what is written on ph as fact should be having a good hard look at themselves . I moved from temp to perm recently and no chance I would go back to contracting at circa £525 a day. That's a rate only a pleb would take.

Jeez, you could just admit you were wrong?

Your figure was wildly inaccurate, and the O/P shouldnt use it as a rule of thumb.

[daemon]

bigunit00 said:

Anyone who takes what is written on ph as fact should be having a good hard look at themselves .

So the O/P should have a good hard look at themselves then?

redrabbit said:

Thanks chaps, and thanks bigunit, that's a useful rule of thumb I guess.