Contracting in IT

[@Spoonie]

I contracted for a year where I am now, went full time due to the need for stability and also the benefits FTE bring me, namely:

Medical Insurance
Life Insurance
Paid Holiday
Paid Sick
Pension with employee contributions
Stock Awards
Performance Bonus
Training
Travel
Home working

For me contracting is based on your skill area and personal circumstances. There are contracts for £500 a day out there I could probably do but I have a young family and prefer the flexibility I have with being full time (sometimes I need to leave early for kids things etc.)

 

[Cliotoby]

When you put it like that it makes it seem like a bad idea!

Think id sooner have the list of perks above.

 

[Chip-mk1]

That's not true.

In fact the opposite is normally true!

Once you have got 6 months in, you now have far more position to push rates up (as I mentioned above, after 6 months in my first contract I was well aware they REALLY needed me at that point so insisted on an increase from 80K to 120K in order to stay) as you now have not just the skills you came with, but intimate knowledge of all the projects you are working on and have made yourself completely indisposable by then so the thought of losing you sends shivers down their spine, you'd have to be a mug to stay for less if you are in that position IMHO

 

[...]

When you put it like that it makes it seem like a bad idea!

Think id sooner have the list of perks above.

Look at what he has put above and think of contracting differently , think of it as running your own business , you can have all the things above and making sure you do seriously reduces levels of corperation tax on your limited company .

Your a director so cheap lease deals (do not stick it through the company though) are there for you

always take 4 weeks out of the year for hols and leave money in the company to keep on paying yourself .

My wife has been a contractor (although in defence) for most of her working life , i am the permie as i am on a decent wage so should it all go tits and she does not work for months we are ok .....

We have just had a friend made redundant and after a chat we have sorted him to go it contracting and he loves it ......though its early days .



The IR35 thing isn't that scary either if you get good advice on contract wording , and you can insure against the tax man deciding your inside the rules ...... its all pretty straight forwards with some research.

 

[Chip-mk1]

The IR35 thing isn't that scary either if you get good advice on contract wording , and you can insure against the tax man deciding your inside the rules ...... its all pretty straight forwards with some research.

As a first time contractor with limited skills he is relatively unlikely to be in a position to dictate contract wording IME, most new contractors just get dumped on standard contracts which get hit by IR35 so might not be as simple for him as it is for your mrs.
Different for a seasoned pro or someone with desirable skills who is in more of a position to negotiate.

 

[Chip-mk1]

Look at what he has put above and think of contracting differently , think of it as running your own business , you can have all the things above and making sure you do seriously reduces levels of corperation tax on your limited company .

Some of them, but things like training it does depend on who you are working for, some employers put you through training you could never realistically afford as a contractor or get you onto courses that money cant buy (thats what happened to me and why I was able to go straight into contracting on decent money at a young age, I aquired some skills that were hugely marketable and there is NO way I would have done for those particular skills without my previous permy employer doing so as one of the courses I went on which was key was not avialable for cash, only for companies who had just spent a million quid on a license)

 

[@Spoonie]

Look at what he has put above and think of contracting differently , think of it as running your own business , you can have all the things above and making sure you do seriously reduces levels of corperation tax on your limited company .

Your a director so cheap lease deals (do not stick it through the company though) are there for you

always take 4 weeks out of the year for hols and leave money in the company to keep on paying yourself .

My wife has been a contractor (although in defence) for most of her working life , i am the permie as i am on a decent wage so should it all go tits and she does not work for months we are ok .....

We have just had a friend made redundant and after a chat we have sorted him to go it contracting and he loves it ......though its early days .



The IR35 thing isn't that scary either if you get good advice on contract wording , and you can insure against the tax man deciding your inside the rules ...... its all pretty straight forwards with some research.

Totally agree, as I say it's a personal thing. My biggest issue was I couldn't be arsed with trying for all the tax savings etc. I am lazy, I just went through an umbrella company.

 

[Chip-mk1]

Totally agree, as I say it's a personal thing. My biggest issue was I couldn't be arsed with trying for all the tax savings etc. I am lazy, I just went through an umbrella company.

I was lazy too, but I just used Low Tax Ltd who did all my accounts for me for only a grand a year or so, was never worth spending the time to do it myself when it was that cheap (and tax deductable too)

 

[...]

Totally agree, as I say it's a personal thing. My biggest issue was I couldn't be arsed with trying for all the tax savings etc. I am lazy, I just went through an umbrella company.

good accountant and the contracting forums are enough , biggest tax benefit can be found from loading a pension,

 

[@Spoonie]

good accountant and the contracting forums are enough , biggest tax benefit can be found from loading a pension,

Just reading that hurts my head

 

[cava83]

I think if you work out 4 weeks holiday into your contracting and can pay for the required insurances and have good advice, try it out.

If it does not work, then go back permanent.

For those that say when you go away on holiday it costs you money when contracting, it costs you as much money as when full time. But because you don't manage the salary you receive, you don't see it..........

Just make sure you have a smart accountant and keep all receipts, be organised, can't emphasise that enough.

Invoice with Wave accounting if, then you have everything online (free). Use Harvest for time keeping and time sheets (cheap) and bobs your uncle.

You can then offset your travel to London too

 

[Chip-mk1]

Cava83, but most full time jobs dont give you the option to have the pay instead of the leave, so it doesnt cost you it as you are going to lose the money if you take the holiday or not.

 

[cava83]

Cava83, but most full time jobs dont give you the option to have the pay instead of the leave, so it doesnt cost you it as you are going to lose the money if you take the holiday or not.

You can't look at it like that.

In PAYE a holiday is not free money, it's already accounted for in your salary......

You used to have the option to take it as salary, but the government have stopped that for health and safety, so you don't take your employer to court for "stress" as they are forcing you to take your holiday if you like it or not

Now, sickness, that's different but you have insurances (which are expensive) for that

 

[Cliotoby]

I didnt complain when Homebase paid me for having about 10 weeks off following removal of a golf ball sized tumor on my face. Benign thank f**k. Be fucked if you needed time off for cancer treatment or something horrible

 

[Chip-mk1]

You can't look at it like that.

Can and did, thats why I took so little holiday whenever I used to contract.

Plus dont forget sometimes you will have a gardening leave period or contract gap between two contracts anyway, so you always have in the back of your mind you will holiday then, and then it doesnt happen, lol

 

[Chip-mk1]

I didnt complain when Homebase paid me for having about 10 weeks off following removal of a golf ball sized tumor on my face. Benign thank f**k. Be f**ked if you needed time off for cancer treatment or something horrible

It all falls under the "fine once you have 6 months + salary in the company account just sat there" IMHO

 

[Cliotoby]

True true

 

[Steven103]

this is all a learning curve for me so I have put down what I believe to be possible. I'm not in IT btw and have experience

It wouldn't be contracting in the sense of trying to obtain a contract but instead employed via my own ltd company for maximum use of the time in industry. watch this space, I'm ever so cunning

IR35 says no.

"Permanent place of work" rules that umbrella companies go by will say "no."

"Intention of future contracts" rules will possibly say "no."


i.e. You'll basically pay the same(ish) amount of tax as if you were salaried.

They're unlikely to pay you a higher rate than a salary too as you won't get company benefits like healthcare or company cars anyway.

Even if they do pay you a rate instead of a salary you'd be saving what, basic rate on maybe 10k? So you save 2k in tax, pay an accountant 1k and irritate the company who you're working for by asking to do things differently?


I don't think it's as cunning an idea as you think? (and if you're about to bring up expenses, you need to be paid a LOT and you need to genuinely incur expenses for it to be worth offsetting against tax vs just not spending that money in the first place)

 

[M26]

So I started my career in IT this time last year on a graduate program and have since been offered two permy roles within the company already, both of which I wasn't getting any extra pay over and above what I am on just now so I rejected them.

Got another year left of the grad program and am very tempted to go down the contracting route for a couple of years to earn some wedge and get some more experience behind me before settling for a permy role.

Will be interested to hear the thoughts of others who have done it, mainly pros and cons of contracting vs permy.

Something I have noticed in the company I'm with is the contractors they bring in are utterly useless and the agencies basically take their word for it when they have things on their CVs yet they are getting paid 3-4 times what I get paid daily and I'm doing a better job than them !

 

[*Badger*]

What certs have you got OP? No doubt you could earn good money, but all this talk of 100k+ here and there is obviously dependent on you being fairly s**t hot in your field.
For Eg, there is a JNCIE (juniper top quali) at our place in Manchester and he ONLY earns 75k.
Edit - and also you maybe I dunno say CCIE in R&S and know nothing about security, DC or Voice, and IMO if someone is willing to pay over 100k for your services they'd want you to be s**t hot on the lot. I'm happy to be wrong however, not being dismissive, just interested.

 

[GrahamS]

IR35 says no.

"Permanent place of work" rules that umbrella companies go by will say "no."

"Intention of future contracts" rules will possibly say "no."


i.e. You'll basically pay the same(ish) amount of tax as if you were salaried.

They're unlikely to pay you a higher rate than a salary too as you won't get company benefits like healthcare or company cars anyway.

Even if they do pay you a rate instead of a salary you'd be saving what, basic rate on maybe 10k? So you save 2k in tax, pay an accountant 1k and irritate the company who you're working for by asking to do things differently?


I don't think it's as cunning an idea as you think? (and if you're about to bring up expenses, you need to be paid a LOT and you need to genuinely incur expenses for it to be worth offsetting against tax vs just not spending that money in the first place)

Thanks for the advice mate. I'll be talking to an accounting friend about what would be best for me and the costs involved. No expenses. I can probably do most of the accounts myself but know there is the chartered element needed somewhere along the track.

On first impression I'm not sure if it would fall under those 2 you mention though. It would be rate.

 

[sbridgey]

£100k is only £400 a day, that's not too unreasonable for an average IT contractor.

£400 * 5 * 52 = £104,000

 

[Chip-mk1]

£100k is only £400 a day, that's not too unreasonable for an average IT contractor.

£400 * 5 * 52 = £104,000

You missed off bank holidays and a small amount of holiday, but yeah something like that and often more with other time.

I used to get 60 an hour 15 years ago, and quite often did a 14-16 hour day, so it wasnt too hard to be invoicing nearly a grand in a day, 70 hour week was over 4K for example and really isnt that big a deal to do if you can do a bit of work from home etc.

Get in the right contract, and you can be really well setup after just a few years if you are sensible with the money.

 

[dk]

16 hour days, no thanks, I'd rather have a life thanks.

plus I like about 5-6 weeks holiday a year.

i would have to be on serious wedge to beat what I have now.

and that calculation is more like

400 x 5 x 48 = 96,000 (assuming 4 weeks holiday)

Bank holidays = 8, plus you are likely to not work between Christmas and new year, so that's another say 3 days, so that makes 11, plus you'll probably have your birthday off so make that 12.

lets assume you are sick for 2 days a year, so that's 14.

so 14 x 400 = £5600

so that's now £90,400

Pension contributions, so your basic would be say 70k in a perm job, that's £1000 pension contributions you are missing out on.

so we're now down to £89,400.

Then you have things like accountant, medical insurance, training, travel, missing out of share options.

you can't just multiply the daily rate by working days in a year to see some amazing figure.

 

[Chip-mk1]

Agreed on the 16 hour days.
Dont fancy that these days even for 960 quid a day.
But if I was young or had a mortgage i would feel differently like i did 15 years ago when I was doing that.

 

[clio007]

If you have skills which are transferable - then go for it.

I have been applying for contracts recently and have found it tough going with no real response. I have been an IT consultant for the last 4 years. Is it always difficult to get the first contract from permanent?

 

[Chip-mk1]

When I've employed contractors I haven't cared if they are first time or not. Just what skills and experience they have.
Times are tougher now though in IT in general than ever in my 20 odd years of IT.

 

[GrahamS]

Someone fill me in on offsetting the cost of travel and if it is possible. Considering the ticket is 4k it may sway it for me.

 

[ChrisR]

From what I can remember you can claim tax relief on it, so assuming 40% of the cost you get 'back' as less tax paid.

 

[Chip-mk1]

Yeah will save you 1600 quid off your tax bill if you do 4k on travel basically.

 

[Steven103]

Yeah will save you 1600 quid off your tax bill if you do 4k on travel basically.

What an astonishing amount of people fail to grasp is that you're still making an overall loss to the tune of £2400 (obviously you know this Chip, just directing this at others).

Classic example is subsistence. People buy breakfast & lunch in the staff canteen & claim tax relief (£5 for arguments sake) on £15 a day, costing them £10. A pack lunch which can't be offset against tax is still cheaper overall.

Likewise £0.45 mile to offset against tax still saves you less money than it costs to run a car unless you've got a Prius etc.


In fact surely claiming for an annual ticket that goes from one specific station to another is very dodgy as it's virtually admitting that you're attending a single place of work for more than 1/3 (do confirm it's a "1/3 rule" and not a "2/3 rule" as I can't remember right this moment) of a two year period, meaning you can't offset it. Obviously an accountant knows more than me & the rules on Ltd vs Umbrella may be slightly different.


Also, Chip's numbers appear to be approximated on the higher rate tax band (?). I'd be amazed if there's an industry that pays uni placement students >36k.


Just an FYI, by "offsetting" people are referring to an amount (on top of your personal tax allowance, 10k this financial year) of money that you do not pay PAYE tax on. So with no expenses you pay tax on anything you earn above 10k, if you can claim 4k then you only pay tax once you've earned 14k.

 

[SharkyUK]

I absolutely HATE project management, have done it before and cant stand it. All I want to do is sit there writing code, doing maths and creating a piece of software, I enjoy technical pre-sales meetings but I dont enjoy running projects at all.

Some companies would look down on you for just want to stay "only a coder" But the consultancy I work through at the moment are fine with that, they arent obsessed with everyone having to advance up the ladder all the time.

Amen brother

 

[Cliotoby]

What certs have you got OP? No doubt you could earn good money, but all this talk of 100k+ here and there is obviously dependent on you being fairly s**t hot in your field.
For Eg, there is a JNCIE (juniper top quali) at our place in Manchester and he ONLY earns 75k.
Edit - and also you maybe I dunno say CCIE in R&S and know nothing about security, DC or Voice, and IMO if someone is willing to pay over 100k for your services they'd want you to be s**t hot on the lot. I'm happy to be wrong however, not being dismissive, just interested.

Ccna security and getting on with ccnp ATM. Passed my route. Should be ccnp this time next year then I'm doing ccnp security. Not interested in ccie yet although it'll happen no doubt.

before you go off on one make sure you read my first post . I'm just genuinely interested as there seemed to be big money up there. I've been working a year and a half and was looking at this as a long term goal.

Interesting point about them wanting you to be s**t hot on everything someone else mentioned that. I'm not sure I want that.

 

[@Spoonie]

Contractors need to be self starters and know their stuff. We recently had someone asking for £450 a day. For that money I would expect them to be at the top of their game with some real depth knowledge. Sadly this is rarely the case and they end up having a very uncomfortable technical interview.

 

[ChrisR]

Interesting point about them wanting you to be s**t hot on everything someone else mentioned that. I'm not sure I want that.

I'd say everything to do with why you were brought in

For my contract they needed someone with rather specific knowledge in a particular product and area of IT, they'd wasted a lot of money on previous cowboys who had said they knew their stuff but really were just blagging it.

It does depend on why you were brought in as well, for me it was getting some value out of money they'd put into a particular system that no one had managed to get working properly.

 

[GrahamS]

Steven, thanks a lot for the reply. You seem to be very hot on this stuff so appreciate your knowledge.

Correct it will not be 36k+ even if I live under my desk.

When I said offsetting, I wasn't sure what it would be called so that was an incorrectly used technical it seems. I'll speak to an accountant and then see what happens, need to sort in next 6 weeks though.

What an astonishing amount of people fail to grasp is that you're still making an overall loss to the tune of £2400 (obviously you know this Chip, just directing this at others).

Classic example is subsistence. People buy breakfast & lunch in the staff canteen & claim tax relief (£5 for arguments sake) on £15 a day, costing them £10. A pack lunch which can't be offset against tax is still cheaper overall.

Likewise £0.45 mile to offset against tax still saves you less money than it costs to run a car unless you've got a Prius etc.


In fact surely claiming for an annual ticket that goes from one specific station to another is very dodgy as it's virtually admitting that you're attending a single place of work for more than 1/3 (do confirm it's a "1/3 rule" and not a "2/3 rule" as I can't remember right this moment) of a two year period, meaning you can't offset it. Obviously an accountant knows more than me & the rules on Ltd vs Umbrella may be slightly different.


Also, Chip's numbers appear to be approximated on the higher rate tax band (?). I'd be amazed if there's an industry that pays uni placement students >36k.


Just an FYI, by "offsetting" people are referring to an amount (on top of your personal tax allowance, 10k this financial year) of money that you do not pay PAYE tax on. So with no expenses you pay tax on anything you earn above 10k, if you can claim 4k then you only pay tax once you've earned 14k.

 

[Steven103]

GrahamS, no no you've got the right technical term (offset) for the way you intend to try to do this - I was just clarifying exactly what it meant and hence how to work out how much money you "save."

If you get the bottom of the exact ltd company numbers (dividend tax + corporation tax appears to be somewhere between 20% and 40% PAYE rates so presumably there's a crossover point somewhere) it'd be good if you post your findings.

 

[Al_G]

Our place pays up to 1200 per day for niche, short term contracts.

Not bad money if you can get it.