Help with tax? - Seems I got charged more than a small county

[eek]

Contracting hourly rate should be a permie salary / 1000, so if you could expect a permie salary of (say) £20k then your contracting rate should be £20/hour or £140/day for a 7 hour day

Where does the perm /1000 figure come from? If you are on say £60K as a perm are you saying you should aim for £60/Hr as a contractor - 8 hr day £480 day , £2400 week to be the same ?

It's an old fashioned figure used to roughly calculate equivalents. Remember that as a contractor

1) you need to pay all the taxes and holidays that a perm gets.
£60,000 by the time you add on +16% for holidays + 10% for employer NI + pension + £x,000 for expenses

2) there will be periods when you are not working for which you require spare cash (a warchest) to see you through that period. The 1/1000 rule should give you that luxury.

[JamJarST]

It's an old fashioned figure used to roughly calculate equivalents. Remember that as a contractor

1) you need to pay all the taxes and holidays that a perm gets.
£60,000 by the time you add on +16% for holidays + 10% for employer NI + pension + £x,000 for expenses

2) there will be periods when you are not working for which you require spare cash (a warchest) to see you through that period. The 1/1000 rule should give you that luxury.

Thanks for the explanation, just one question, does this calculation assume a 52 week working year or is it less than that?

[eek]

Thanks for the explanation, just one question, does this calculation assume a 52 week working year or is it less than that?

I think it was based on a 40 week basis to factor in some bench time, bank holidays and holidays. Of course if you are work 44 or 46 weeks a year you're quids in.

Edit to add

I've seen a lot of 12 month contracts recently offering a low rate because its a 12 month contract. They usually drop the rate 25% below the rate of a 3 or 6 monther which is insane because you really can only justify a 10% cut.

[JamJarST]

I think it was based on a 40 week basis to factor in some bench time, bank holidays and holidays. Of course if you are work 44 or 46 weeks a year you're quids in.

Edit to add

I've seen a lot of 12 month contracts recently offering a low rate because its a 12 month contract. They usually drop the rate 25% below the rate of a 3 or 6 monther which is insane because you really can only justify a 10% cut.

Great thanks, I assumed it was for a shorter period like 44 weeks and it makes much more sense for 40 weeks.

I wouldn't personally accept a cut in rate due to contract longevity because we all know that as a contractor you can be let go at any time and you are lucky if they give you the notice period.

[LisaContractorUmbrella]

It looks to me as though this has been calculated on a basic of a single week this would happen since you state you are payrolled weekly and also that you have a W1 based tax code at the moment.

When you are not on a week one tax code it will sort itself out.

This could be because you have not given the agency a P45 and they have had to request a coding notice with a P46.

It will resolve itself when the proper tax code is received or a tax return submitted.

Think you are right there ASB but I can't understand why the OP's pay would have been set up with a weekly payroll for a month's income

[SueEllen]

Think you are right there ASB but I can't understand why the OP's pay would have been set up with a weekly payroll for a month's income

Because the umbrella company makes more money?

[LisaContractorUmbrella]

Because the umbrella company makes more money?

By applying a number of weekly fees rather than a monthly one you mean SueEllen??

[contractor55]

but does that figure 1000 get reduced if you have two directors ie Parterns - DIV`s spliting , expenses etc.

I also thought converting from a contractor to Perm then it is double the yearly amount say contractor £75K then if you have a good accoutant and you reduce your tax liability then a perm job requirement is in the region of £120-150K

[LisaContractorUmbrella]

but does that figure 1000 get reduced if you have two directors ie Parterns - DIV`s spliting , expenses etc.

I also thought converting from a contractor to Perm then it is double the yearly amount say contractor £75K then if you have a good accoutant and you reduce your tax liability then a perm job requirement is in the region of £120-150K

This will only apply to Limited Company contractors outside IR35, not umbrella companies

[MrRobin]

The 1/1000 conversion is mentioned quite a bit but it's very flawed in my opinion. OK, it's easy to use as it's a nice round figure but I think a more realistic number is 1/1250 and that still takes into account a fair bit of bench/holiday time, ltd company pension contributions, company fees etc etc.

I.e. £50,000 perm = £40ph contracting