IT contracting - am I missing something?
Discussion
I've been increasingly thinking about moving over to IT contracting, but it seems quite daunting to give up a secure job to look for another one with no guarantees.
I'm aware that there's the possibility of earning more contracting, but I'm also very aware that it's just me - no sick pay, no redundancy, and it seems that in a lot of cases it's just a 1 week notice period.
I like the idea of having some more variety and being able to focus on the techy things without doing the manager bit.
I've got some questions, perhaps anyone that's made a similar move might be able to offer some advice!
1- How do I work out what day rate I can achieve? There seems to be a lot of variation out there and agencies seem to tell me what I want to hear. (I'm a VCP 4.1, CCNA and MCSA)
2- Is it better to set up a Ltd company and get an accountant? or use an umbrella company?
2a- I've been looking at Parasol and I'm quite confused by their claims that you get sick pay and holiday pay - how does that work!?
3- Can anyone recommend a good agent/agency?
4- Is there any particular site I should be keeping an eye on? CWjobs/Jobserve etc?
Cheers!
I'm aware that there's the possibility of earning more contracting, but I'm also very aware that it's just me - no sick pay, no redundancy, and it seems that in a lot of cases it's just a 1 week notice period.
I like the idea of having some more variety and being able to focus on the techy things without doing the manager bit.
I've got some questions, perhaps anyone that's made a similar move might be able to offer some advice!
1- How do I work out what day rate I can achieve? There seems to be a lot of variation out there and agencies seem to tell me what I want to hear. (I'm a VCP 4.1, CCNA and MCSA)
2- Is it better to set up a Ltd company and get an accountant? or use an umbrella company?
2a- I've been looking at Parasol and I'm quite confused by their claims that you get sick pay and holiday pay - how does that work!?
3- Can anyone recommend a good agent/agency?
4- Is there any particular site I should be keeping an eye on? CWjobs/Jobserve etc?
Cheers!
http://financialraddeveloper.wordpress.com/2010/03...
So I guess even before thinking of accepting that contract its worth looking into if it is worth going contract on a particular rate?
Examples are good, I like clear examples so I shall endeavour to give the reader one. There is enough HR waffle involved in this sort of thing normally! So take a £50k Perm IT position. To equal that on a daily rate would be in my estimation approx £220 p/day. I get to this number by looking at working 230 days per year. This magic number is taken from 260 possible working days.. 365 * ( 5 /7 ). Then you need to take account of the 8 or so public holidays you probably won’t be able to work. Then in order to have a life you will need 22 days holiday per year. I am not factoring in sick pay is if you are an ill / sickie kind of person then I would really recommend staying perm. The occasional sick day will have to be taken out of holiday in my calcs. Unlike in the perm public sector ( pfff ;P ) where if diddums is ill while on holiday you can claim it back. Unbelievable! Ta-dah 230 days..
Anyway so 50,000 / 230 = £217.40 i.e. £220 p/day. Now this must be the absolute base point. Less than this is insane unless you are getting a great new skill or cracking into banking for the first time and are going to be able to get contacts etc. Lets leave things like for like shall we.
So we need to put a value on ( or monetise to be all finance-y about it ) the perm benefits. So as an individual you will need to buy the cover above you think appropriate.
Private Medical – £100 pcm
Dental – £40 pcm
Pension – 10% Gross salary £400pcm
Illness / Death in service cover – £50 pcm
Holiday Pay – included in initial daily rate calc
Sick Pay – as above
Greater than statutory pay on M/Paternity / Long term sick / Jury Duty – unknown
Employee share schemes – again hard to say, but certainly factor in the loss on any unvested shares you may lose by leaving and not perhaps compensated by a new perm offer
Gym – £50 pcm
So lets add up what we can … £640 pcm is what I get from the back of the napkin figures I have got right here and that I have put a value on. So yearly we are looking at £7680, so lets call it £8k and while we are at it lets lump on for this case £2k of intangible stuff / extra for risk to make it £10k.
This all boils down if you are on the £50k you really need to be getting up to the £60k mark, so £260 p/day to make this worth entertaining. I would also say that bonuses even in IT can be fairly tasty in some banks so again its worth putting this in to your calculations along with the internal mobility and promotion prospects ( which to be frank are much hyped but I find to be truly awful in most places ).
If you want to get a pay rise or promoted? Resign. Strange but true. You should get a counter, if not then possibly they didn’t think much of you anyway, best off out and bucking your ideas up elsewhere.
It’s not all bad news though, on higher scales than this it is quite possible to be more tax efficient. I do *not* mean evade here. I simply mean that the smooth with the rough is that you do not have to give away a large percentage of your earnings in the 40% tax bracket. If you get a good accountant, and I recommend that you do for these reasons.
They can save you a lot more money than you pay them
If you muck this up you WILL get a bill at some point down the road that unless you have monk / nun like abstinence abilities you have already spent. HMRC / IRS will hunt you down and get you. They are only marginally outperformed by Death with his big scythe.
You will want to damage things when your self assessment form comes in at the end of the year and you have no clue what is going on.
I am no tax advisor and all advice comes with a ‘caveat emptor’ (buyer beware) so beloved in the markets. If you get a good tax advisor then you will be well placed. I would NOT recommend the very tempting ‘Managed Service Companies’ that promise > 80% of pay take home. Their fees are normally large and it is very obvious that you are an employee in disguise that is evading tax in some clever shell. If it looks to good to be true it most likely is. This is the next big target from HMRC so watch out.
As a recruiter I trust told me. “Anything with Benefit Trust, Director Loan, Preferential Loan, Discretionary or benefit in kind bonus payments or other P11D trickery in is bad news. If it was that easy the investment banks themselves would be doing it for THEIR employees. Think about it.”
I must dig out the case going on at the moment as a salient point.
Again back to the good news. If you are via your own limited company and with good advice and you don’t sail too close to the wind all should be hunky dory. Another comforting thought is that to bring about legislation that will screw you, screws all small companies at the same time. That is a lot less likely than some shady pay scheme being tax investigated. With umbrella’s I take these as fine as essentially you are PAYE but just relying on the uplift in contract rates while still paying tax via PAYE with the most minimal reductions.
I would say if your contract gross is near or > 1.5X your PAYE gross it could be a good move. You will pay less tax so that extra money should be taken into account. Along with the fact that stuff you use for work and any training you may buy (including those mega expensive Masters courses trading desks so like some Quants / Quant developers to have) can be written off against tax along with VAT on some things. Ask your accountant but if you have some big education / training bills coming up or maybe for the last couple of years it can be a swinging point.
Corporation tax is 25% so getting dividends is better that the PAYE tax if you go over 40K and into the 40% band.
So if you are on 50k + some bonus + bens and a 300 p/day job comes up? £300 * £230 -> £69k … it may be worth it. If its £500 p/day + then its a pretty easy answer!
So I guess even before thinking of accepting that contract its worth looking into if it is worth going contract on a particular rate?
Examples are good, I like clear examples so I shall endeavour to give the reader one. There is enough HR waffle involved in this sort of thing normally! So take a £50k Perm IT position. To equal that on a daily rate would be in my estimation approx £220 p/day. I get to this number by looking at working 230 days per year. This magic number is taken from 260 possible working days.. 365 * ( 5 /7 ). Then you need to take account of the 8 or so public holidays you probably won’t be able to work. Then in order to have a life you will need 22 days holiday per year. I am not factoring in sick pay is if you are an ill / sickie kind of person then I would really recommend staying perm. The occasional sick day will have to be taken out of holiday in my calcs. Unlike in the perm public sector ( pfff ;P ) where if diddums is ill while on holiday you can claim it back. Unbelievable! Ta-dah 230 days..
Anyway so 50,000 / 230 = £217.40 i.e. £220 p/day. Now this must be the absolute base point. Less than this is insane unless you are getting a great new skill or cracking into banking for the first time and are going to be able to get contacts etc. Lets leave things like for like shall we.
So we need to put a value on ( or monetise to be all finance-y about it ) the perm benefits. So as an individual you will need to buy the cover above you think appropriate.
Private Medical – £100 pcm
Dental – £40 pcm
Pension – 10% Gross salary £400pcm
Illness / Death in service cover – £50 pcm
Holiday Pay – included in initial daily rate calc
Sick Pay – as above
Greater than statutory pay on M/Paternity / Long term sick / Jury Duty – unknown
Employee share schemes – again hard to say, but certainly factor in the loss on any unvested shares you may lose by leaving and not perhaps compensated by a new perm offer
Gym – £50 pcm
So lets add up what we can … £640 pcm is what I get from the back of the napkin figures I have got right here and that I have put a value on. So yearly we are looking at £7680, so lets call it £8k and while we are at it lets lump on for this case £2k of intangible stuff / extra for risk to make it £10k.
This all boils down if you are on the £50k you really need to be getting up to the £60k mark, so £260 p/day to make this worth entertaining. I would also say that bonuses even in IT can be fairly tasty in some banks so again its worth putting this in to your calculations along with the internal mobility and promotion prospects ( which to be frank are much hyped but I find to be truly awful in most places ).
If you want to get a pay rise or promoted? Resign. Strange but true. You should get a counter, if not then possibly they didn’t think much of you anyway, best off out and bucking your ideas up elsewhere.
It’s not all bad news though, on higher scales than this it is quite possible to be more tax efficient. I do *not* mean evade here. I simply mean that the smooth with the rough is that you do not have to give away a large percentage of your earnings in the 40% tax bracket. If you get a good accountant, and I recommend that you do for these reasons.
They can save you a lot more money than you pay them
If you muck this up you WILL get a bill at some point down the road that unless you have monk / nun like abstinence abilities you have already spent. HMRC / IRS will hunt you down and get you. They are only marginally outperformed by Death with his big scythe.
You will want to damage things when your self assessment form comes in at the end of the year and you have no clue what is going on.
I am no tax advisor and all advice comes with a ‘caveat emptor’ (buyer beware) so beloved in the markets. If you get a good tax advisor then you will be well placed. I would NOT recommend the very tempting ‘Managed Service Companies’ that promise > 80% of pay take home. Their fees are normally large and it is very obvious that you are an employee in disguise that is evading tax in some clever shell. If it looks to good to be true it most likely is. This is the next big target from HMRC so watch out.
As a recruiter I trust told me. “Anything with Benefit Trust, Director Loan, Preferential Loan, Discretionary or benefit in kind bonus payments or other P11D trickery in is bad news. If it was that easy the investment banks themselves would be doing it for THEIR employees. Think about it.”
I must dig out the case going on at the moment as a salient point.
Again back to the good news. If you are via your own limited company and with good advice and you don’t sail too close to the wind all should be hunky dory. Another comforting thought is that to bring about legislation that will screw you, screws all small companies at the same time. That is a lot less likely than some shady pay scheme being tax investigated. With umbrella’s I take these as fine as essentially you are PAYE but just relying on the uplift in contract rates while still paying tax via PAYE with the most minimal reductions.
I would say if your contract gross is near or > 1.5X your PAYE gross it could be a good move. You will pay less tax so that extra money should be taken into account. Along with the fact that stuff you use for work and any training you may buy (including those mega expensive Masters courses trading desks so like some Quants / Quant developers to have) can be written off against tax along with VAT on some things. Ask your accountant but if you have some big education / training bills coming up or maybe for the last couple of years it can be a swinging point.
Corporation tax is 25% so getting dividends is better that the PAYE tax if you go over 40K and into the 40% band.
So if you are on 50k + some bonus + bens and a 300 p/day job comes up? £300 * £230 -> £69k … it may be worth it. If its £500 p/day + then its a pretty easy answer!
Mr Kitten said:
1- How do I work out what day rate I can achieve? There seems to be a lot of variation out there and agencies seem to tell me what I want to hear. (I'm a VCP 4.1, CCNA and MCSA)
2- Is it better to set up a Ltd company and get an accountant? or use an umbrella company?
2a- I've been looking at Parasol and I'm quite confused by their claims that you get sick pay and holiday pay - how does that work!?
3- Can anyone recommend a good agent/agency?
4- Is there any particular site I should be keeping an eye on? CWjobs/Jobserve etc?
!
1. £350 a day plus (south east)2- Is it better to set up a Ltd company and get an accountant? or use an umbrella company?
2a- I've been looking at Parasol and I'm quite confused by their claims that you get sick pay and holiday pay - how does that work!?
3- Can anyone recommend a good agent/agency?
4- Is there any particular site I should be keeping an eye on? CWjobs/Jobserve etc?
!
http://www.itjobswatch.co.uk/contract.aspx?page=1&...
2. If you plan to contract for 1 year plus, have a wife/partner that can help out with the adim (and therefore be paid), likely to have a sensible amount non client charagable expenses - then ltd co (can save thousands a year) if you are crap with book keeping paper work then umbrella (tread very carefully they are occasionally known to go bust)
2a. They pay you sick and holiday out of the fees they take from you. If you contract and are prudent you will quickly build up a slush fund to support you through the short hard times, and can get insurance to cover serious illness etc.
3.
4. Jobserve and cwjobs, total jobs, linkedin
Good luck :-)
Great reply..... And I completely agree on the total value calculation.
I've just doing some calculations as I'm in the process of taking a package but I have the advantage of full benefits statement from my company and although my salary is good, the extra's come to another 50% of my base salary !
But to be honest that doesn't even cover things like share save / buy etc, so that 50% is even more
Good luck BTW :-)
I've just doing some calculations as I'm in the process of taking a package but I have the advantage of full benefits statement from my company and although my salary is good, the extra's come to another 50% of my base salary !
But to be honest that doesn't even cover things like share save / buy etc, so that 50% is even more
Good luck BTW :-)
There are certain costs to contracting that have not been mentioned.
professional insurance.
other insurances
trade body associations
training costs (courses that your employer would have paid for)
Be sure on your IR35 status - this will have a big impact.
Put money aside for times you might be on the bench (not working)
If you are married look at income splitting/joint shareholders, effectively getting 70k+ tax free
Pay into pension(s) using employer contributions as these come before profit so will cut your CT bill. CT is 20% unless you are over a few hundred K/yr.
If earning 70K+ go VAT Flat rate scheme to get another couple of % (charge at 20%, pay HMRC at 13.5/14.5% and count the rest as gross profit)
Worth saying again, go LTD, get a good accountant, DO NOT go near any loan/tax/80%+ schemes.
professional insurance.
other insurances
trade body associations
training costs (courses that your employer would have paid for)
Be sure on your IR35 status - this will have a big impact.
Put money aside for times you might be on the bench (not working)
If you are married look at income splitting/joint shareholders, effectively getting 70k+ tax free
Pay into pension(s) using employer contributions as these come before profit so will cut your CT bill. CT is 20% unless you are over a few hundred K/yr.
If earning 70K+ go VAT Flat rate scheme to get another couple of % (charge at 20%, pay HMRC at 13.5/14.5% and count the rest as gross profit)
Worth saying again, go LTD, get a good accountant, DO NOT go near any loan/tax/80%+ schemes.
To expand on contractor's post
Other thing missing is an allowance for when the bad times are bad
BPR's calcs (or whoever the blogger is in the link)don't include this. Whilst you can say the holidays are included (1 month approx.) what if you cannot get a contract at that rate for 3 months every 3 years (on average) That means you need to earn the dosh in (say) 200 days
I would allow for 3 months of savings for not working before you go contracting
Other thing missing is an allowance for when the bad times are bad
BPR's calcs (or whoever the blogger is in the link)don't include this. Whilst you can say the holidays are included (1 month approx.) what if you cannot get a contract at that rate for 3 months every 3 years (on average) That means you need to earn the dosh in (say) 200 days
I would allow for 3 months of savings for not working before you go contracting
lestag said:
To expand on contractor's post
Other thing missing is an allowance for when the bad times are bad
BPR's calcs (or whoever the blogger is in the link)don't include this. Whilst you can say the holidays are included (1 month approx.) what if you cannot get a contract at that rate for 3 months every 3 years (on average) That means you need to earn the dosh in (say) 200 days
I would allow for 3 months of savings for not working before you go contracting
Having recently gone self-employed, I would say that that is the bare minimum. I have heard figures of closer to a year mentioned in other forums.Other thing missing is an allowance for when the bad times are bad
BPR's calcs (or whoever the blogger is in the link)don't include this. Whilst you can say the holidays are included (1 month approx.) what if you cannot get a contract at that rate for 3 months every 3 years (on average) That means you need to earn the dosh in (say) 200 days
I would allow for 3 months of savings for not working before you go contracting
Fittster said:
Don't think I've ever met a contractor who thinks it applies to him.
True, but it's not what the contractor thinks that matters is it? Obviously QDOS or PCG is a recommended investment. Best to get your contract vetted and checked by someone who knows, and of course, that costs money.rog007 said:
The Mother of all replies! 
One thing I would add, and I always use in my calculations, is a target deployment factor.So, once you've decided on the gross annual income required, you divide it first by the target deployment factor. I decided that I could probably find work for 75% of the time - you can set your own factor higher or lower depending on the availability and competition for work in your sector.
If you achieve a higher deployment rate than the factor you chose, you're in profit, but in any case you avoid being left hard up simply because you're not deployed all of the time.
Naturally, the outcome of the whole calculation still needs to stack up with what the market is prepared to pay and your competitors are bidding.
Mr Kitten said:
I've been increasingly thinking about moving over to IT contracting, but it seems quite daunting to give up a secure job to look for another one with no guarantees.
I'm aware that there's the possibility of earning more contracting, but I'm also very aware that it's just me - no sick pay, no redundancy, and it seems that in a lot of cases it's just a 1 week notice period.
I like the idea of having some more variety and being able to focus on the techy things without doing the manager bit.
I've got some questions, perhaps anyone that's made a similar move might be able to offer some advice!
1- How do I work out what day rate I can achieve? There seems to be a lot of variation out there and agencies seem to tell me what I want to hear. (I'm a VCP 4.1, CCNA and MCSA)
2- Is it better to set up a Ltd company and get an accountant? or use an umbrella company?
2a- I've been looking at Parasol and I'm quite confused by their claims that you get sick pay and holiday pay - how does that work!?
3- Can anyone recommend a good agent/agency?
4- Is there any particular site I should be keeping an eye on? CWjobs/Jobserve etc?
Cheers!
A couple of details not right in BPR's long post (e.g. Corp Tax rate), but the general gist is good. I'm aware that there's the possibility of earning more contracting, but I'm also very aware that it's just me - no sick pay, no redundancy, and it seems that in a lot of cases it's just a 1 week notice period.
I like the idea of having some more variety and being able to focus on the techy things without doing the manager bit.
I've got some questions, perhaps anyone that's made a similar move might be able to offer some advice!
1- How do I work out what day rate I can achieve? There seems to be a lot of variation out there and agencies seem to tell me what I want to hear. (I'm a VCP 4.1, CCNA and MCSA)
2- Is it better to set up a Ltd company and get an accountant? or use an umbrella company?
2a- I've been looking at Parasol and I'm quite confused by their claims that you get sick pay and holiday pay - how does that work!?
3- Can anyone recommend a good agent/agency?
4- Is there any particular site I should be keeping an eye on? CWjobs/Jobserve etc?
Cheers!
1 - How much you can command will depend on how good you are - a couple of certifications don't mean much without experience to back them up.
2 - I'd go Ltd if you are going to be contracting for a year or more.
3 - There is no such thing really, concentrate on point 4, and then go with the agent offering the contract.
4 - Jobserve, CWJobs and Technojobs... or LinkedIn. Better still recommendations and referrals.
contractor said:
If you are married look at income splitting/joint shareholders, effectively getting 70k+ tax free
Pay into pension(s) If earning 70K+ go VAT Flat rate scheme
How do you manage £70k tax free between two of you??Pay into pension(s) If earning 70K+ go VAT Flat rate scheme
Flat Rate - only applicable if t/o is less than £150k
Pension - if it's you paying and you're not hitting higest rate tax, I'd personally forget about this.
Kudos said:
How do you manage £70k tax free between two of you??
Flat Rate - only applicable if t/o is less than £150k
Pension - if it's you paying and you're not hitting higest rate tax, I'd personally forget about this.
One person getting 7.2K salary, 2 shareholders up to higher rate threshold. You could get a bit more if wife also justifies a salary.Flat Rate - only applicable if t/o is less than £150k
Pension - if it's you paying and you're not hitting higest rate tax, I'd personally forget about this.
I said pension from ltd co hence employer contribution, so it's not you paying, it's the company.
You can do FRS if your t/o is under 150K when you join. You can stay in until you go over 230K pa and then you need to come out.
ETA: re 70+K, I'm talking about dividends.
Edited by contractor on Wednesday 7th August 18:34
Crikey chaps - many thanks for all the useful info, especially to @BluePurpleRed for a very comprehensive post.
Clearly there's a lot I'm not aware of in order to be tax efficient so I think the next step would be to have a quick chat with an accountant and get some advice.
I'm not really in a position to get work through recommendations and referrals just yet - my background has been based in the private education industry so far and it's not a big area for taking on contractors.
I appreciate the comment about certifications not meaning much - I'm well aware of that from my own experience of recruiting! I've got plenty of experience in smaller to medium environments - 25 to 100 servers, 800 - 8000 clients.
For those of you that have done this recently - did you have a long wait to get a contract?
When applying for contract jobs, how quickly do they expect you to be able to start? For example, I'm currently on a 3 month notice, therefore I'm assuming that I'd start to interview with a month or so to go?
Thanks again for all the advice, and the well-wishing!
Clearly there's a lot I'm not aware of in order to be tax efficient so I think the next step would be to have a quick chat with an accountant and get some advice.
I'm not really in a position to get work through recommendations and referrals just yet - my background has been based in the private education industry so far and it's not a big area for taking on contractors.
I appreciate the comment about certifications not meaning much - I'm well aware of that from my own experience of recruiting! I've got plenty of experience in smaller to medium environments - 25 to 100 servers, 800 - 8000 clients.
For those of you that have done this recently - did you have a long wait to get a contract?
When applying for contract jobs, how quickly do they expect you to be able to start? For example, I'm currently on a 3 month notice, therefore I'm assuming that I'd start to interview with a month or so to go?
Thanks again for all the advice, and the well-wishing!
Mr Kitten said:
When applying for contract jobs, how quickly do they expect you to be able to start? For example, I'm currently on a 3 month notice, therefore I'm assuming that I'd start to interview with a month or so to go?
Thanks again for all the advice, and the well-wishing!
Typically they want you to start sharpish. They'll never wait 3 months, I'd be surprised if they wait more than oneThanks again for all the advice, and the well-wishing!
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