Can someone explain as new to all this.....

**XperTest** · 12 July 2007, 11:12

Confused... How can you be a permie yet get your own rate. If you do, are you not contracting already, albeit well inside IR35 and with a longer term view than most..? What sort of rate are you referring to, market rate for your field of expertise or your salary divided by your number of hours worked?

**rootsnall** · 12 July 2007, 11:14

You are also paying employers National Insurance that you wouldn't see on your current employee pay slip. I suggest you read some of the guides on contracting.

**VectraMan** · 12 July 2007, 11:14

You've probably forgotten employers NI (12.9%).

Also the calculators tend to work off 10 months a year. Remember you're not paid for holidays, and you could find yourself on the bench for months at a time. It wouldn't be worth the risk if the pay was only the same as a permie.

**Chugnut** · 12 July 2007, 11:16

Employer's NI, plus Umbrella fees.

You have to hope that your rate is considerably better than your permie wage to offset it. Umbrella's can be handy if you're lazy, frightened by a bit of company admin, or on low paid rates.

Otherwise, get yourself outside IR35 and go the limited option. No umbrella fees then, and minimum/lowish salary to minimise the amount of income tax, and both NI's. Limited gives more flexibility, umbrellas do not cater for a mix of inside and outside IR35 contracts, they're full PAYE all the way.

**curtis** · 12 July 2007, 11:34

Sorry should have explained better.....I am currently in permanent employment and get an annual salary of £30k. I am considering at some point in the next 12 months to hand my notice in and go contracting.

I have hunted around to see what kind of hourly rate I could get for what I do and it looks like on average it will be 15 - 16 p/h I am not wanting to go into contracting so much for earning more money but more for the flexibility for a few years but I expected after reading about IR35 and how you will get taxed the same as a permanent position if you fall inside it then even if I do not earn more I would at least take home the same net pay as if I was earning the houly rate in a permie job.

eg. If I was to take a contract for £15 an hour inside IR35, using the IR35 calculators when I put in £15 an hour, inside IR35 it says my net pay will be £1214. I thought though I would be bringing home the same as I do now in my permanent job earning £30000 which works out over 37.5 hours a week roughly £15 an hour/ 1800 (roughly) a month. So the £1214 a month is obvious a lot less.

This is what I am confused about or I am being really silly and missing something as it says to me anyone using a PAYE umbrella will always earn less on the hourly rate they get than if they were earning roughly the same hourly rate (once you work it out through annual salary/hours worked etc) in a permanent position??

**curtis** · 12 July 2007, 11:38

Just read replies ( was typing my reply when you all sent them) and I had forgotton emplyers NI!

**Ardesco** · 12 July 2007, 11:40

Originally posted by curtis

This is what I am confused about or I am being really silly and missing something as it says to me anyone using a PAYE umbrella will always earn less on the hourly rate they get than if they were earning roughly the same hourly rate (once you work it out through annual salary/hours worked etc) in a permanent position??

yes you are missing something that has been explained above.

When you are a permie the company that you are working for pays the employers NI contributions, your annual salery does not include the money paid to IR for NI by your employer.

When you are contracting you have to pay both employers and employees NI contributions so you have to take another 12.9% off the money that you are paid and pay that to the IR. You then also have to pay the umbrella company fees.

An hourly rate of £15/hour for a contractor is worth less than an hourly rate of £15/hour for a permie because we have a bigger tax burden (if taking all our money through PAYE or going through an umbrella company)

**malvolio** · 12 July 2007, 11:49

Actualy, if you want to get really depressed, you should also factor in holidays, bank holidays, SSP, critical illness, pensions and training - I'm assuming on £30k you're not getting cars and healthcare... £30k salary is near enough £30 an hour just to stand still.

And never assume you'll be in IR35. 99.99% of contractors aren't, they just don't believe it.

Like someone said, go read the first timers guides on here and the PCG website. Understand the rules, then ask questions.

**Old Greg** · 12 July 2007, 11:53

Originally posted by malvolio

Actualy, if you want to get really depressed, you should also factor in holidays, bank holidays, SSP, critical illness, pensions and training - I'm assuming on £30k you're not getting cars and healthcare... £30k salary is near enough £30 an hour just to stand still.

And never assume you'll be in IR35. 99.99% of contractors aren't, they just don't believe it.

Like someone said, go read the first timers guides on here and the PCG website. Understand the rules, then ask questions.

I absolutely believed I'd be in IR35. But, I've got a standard agency IR35 friendly contract (checked professionally), I make an effort to behave as if I'm outside of IR35, got PCG membership and looked at the statistics of HMRC vs PCG-backed contractors. So I'm on low salary, high dividends outside IR35. Makes a massive difference.

Can someone explain as new to all this.....