permi vs contracting

[Andy2]

with the recent rule change proposed regarding income shifting and 18% CGT

I have compared permi job Vs contracting both paying 80k/annum

Permanent :

Tax+NI= £24k

Net Income=£80k-£24k=£56k

Contracting :

Assuming £10k director's salary , £5k secretary's salary and £5k other expenses

Corp. tax = £12k
tax+NI on £10k salary=£2k
dividend= £26k
remaining money in company bank account = £22k

Assuming you keep this money in company account for 3-4 years and then close the company
CGT@18% on £22k = £4k

Total tax paid on 80k income = 2k+12k+4k=£18k
expenses £5k

Net income= £80k-£18k-£5k=£57k

So whats the point of contracting now.
Why not do a permi job with holidays+pension+trainings etc
Have I missed anything

[malvolio]

with the recent rule change proposed regarding income shifting and 18% CGT

I have compared permi job Vs contracting both paying 80k/annum

Permanent :

Tax+NI= £24k

Net Income=£80k-£24k=£56k

Contracting :

Assuming £10k director's salary , £5k secretary's salary and £5k other expenses

Corp. tax = £12k
tax+NI on £10k salary=£2k
dividend= £26k
remaining money in company bank account = £22k

Assuming you keep this money in company account for 3-4 years and then close the company
CGT@18% on £22k = £4k

Total tax paid on 80k income = 2k+12k+4k=£18k
expenses £5k

Net income= £80k-£18k-£5k=£57k

So whats the point of contracting now.
Why not do a permi job with holidays+pension+trainings etc
Have I missed anything

Yes. If you can pull £80k as a permie, you would be charging around £150k as a contractor.

[DaveB]

Well for a start permie jobs paying £80k pa are few and far between. If you can get a permie role doing what you do for that money then go for it, I doubt you'll find one.

Contracting is not just about the money anyway, although it is nice.

It's about having the freedom to work when and where you want. Not having to deal with management bulltulip; 360 degree performance reviews; gang bang interviews; annual appraisals; wondering how much your pay rise will be this year, if you even get one; why that git Jones got promoted and you didnt etc etc etc....

Don't get me wrong, I like the money I get contracting, but if someone offered me the same deal for a permie role I'd still have to think long and hard about it.

[mace]

with the recent rule change proposed regarding income shifting and 18% CGT

I have compared permi job Vs contracting both paying 80k/annum

Permanent :

Tax+NI= £24k

Net Income=£80k-£24k=£56k

Contracting :

Assuming £10k director's salary , £5k secretary's salary and £5k other expenses

Corp. tax = £12k
tax+NI on £10k salary=£2k
dividend= £26k
remaining money in company bank account = £22k

Assuming you keep this money in company account for 3-4 years and then close the company
CGT@18% on £22k = £4k

Total tax paid on 80k income = 2k+12k+4k=£18k
expenses £5k

Net income= £80k-£18k-£5k=£57k

So whats the point of contracting now.
Why not do a permi job with holidays+pension+trainings etc
Have I missed anything

You've missed the fact that contractors get paid more than permies. If you can get £80k as a permie, I reckon you'd be on at least £500 per day as a contractor which would be around the £110k mark. I agree, however, that the gap between contractor and permie pay has narrowed so much that the hassle of being a contractor probably isn't worth it any more.

[mace]

Well for a start permie jobs paying £80k pa are few and far between. If you can get a permie role doing what you do for that money then go for it, I doubt you'll find one.

Contracting is not just about the money anyway, although it is nice.

It's about having the freedom to work when and where you want. Not having to deal with management bulltulip; 360 degree performance reviews; gang bang interviews; annual appraisals; wondering how much your pay rise will be this year, if you even get one; why that git Jones got promoted and you didnt etc etc etc....

Don't get me wrong, I like the money I get contracting, but if someone offered me the same deal for a permie role I'd still have to think long and hard about it.

There are similar irritations in the contracting world e.g. being team led by a guy with much less experience than yourself, having to work harder than your permie colleague, being a scapegoat etc. I think the two cancel each other out.

[DaveB]

There are similar irritations in the contracting world e.g. being team led by a guy with much less experience than yourself, having to work harder than your permie colleague, being a scapegoat etc. I think the two cancel each other out.

Depends on the job I guess, but the fact that you wont have to put up with any of it for longer than your contract says you have to makes it easier. Contracting requires thicker skin than permiedom imo. If you have that and can shrug off the crap it makes it easier.

[VectraMan]

If an employer gets you to work for £80K as a contractor compared to £80K as a permie, they're laughing as they've dumped the employer's NI liability onto you. To count the equivalent cost to the client*, your turnover will be £91K.

Which by my reckoning makes your numbers £66K vs.£56K.

*I know there's loads of other factors, but just to illustrate the point about take home pay.

[Andy2]

You've missed the fact that contractors get paid more than permies. If you can get £80k as a permie, I reckon you'd be on at least £500 per day as a contractor which would be around the £110k mark.

if permi job is with an investment bank then the pay can be 70-80k so effectively I am comparing contracting with a permi job in banking.
I think I have answered the question myself. If the permi job is in investment banking then its equivalent to contracting where it is tough to get a foothold as a contractor without prior experience.

[DaveB]

if permi job is with an investment bank then the pay can be 70-80k so effectively I am comparing contracting with a permi job in banking.
I think I have answered the question myself. If the permi job is in investment banking then its equivalent to contracting where it is tough to get a foothold as a contractor without prior experience.

But if you do get in as a contractor you will be earning a lot more that £80k.

[DBA_bloke]

You are right, of course. But £80k permie is hard to get. If I were offered that, I'd weep with joy, and wave goodbye to contracting.