Working on long (12 month) contract directly for a friends company

[northernladuk]

So you negotiate with them until they don't see it as a permanent role. And then look at the PCG stats.

Negotiation won't do this though. It doesn't matter what the OP perceives or wants or even what the paperwork says. It is educating the client that is key here and getting him to change his thinking of the future relationship. You can negotiate and play the game until you are blue in the face. If the client sees the OP as a permie you are utterly screwed. What must happen in this instance is the client changes his view on the position and the true relationship of the OP, not the game, or the words on paper. Until that happens all the contracts and negotiation in the world will still end in the reality the OP is filling a perm position with an agreed finance fudge. Even then you are relying on the client not shafting him in an investigation. Until this is firmly in place then he is technically inside IR35. Doing a mate a favour to make it look outside won't really wash.

To be fair though it does sound like he has the relationship in this case that all other contractors don't have. I can't see many situations where we can convince a large corporate client a position needs a contract not a permie. It appears he maybe able to do that in this case but he must make absolutely sure that the client has it right, not playing a game to suit him.

and finally at the end of the day the chances of him getting investigated are so slim why bother with all this, but that is the OP's choice.

All that said and done it is pretty clear that this whole situation is nothing more than a fudge and with all the will in the world we know that is all it will ever be. Play the game but the reality is it's a fudge.

[Old Greg]

Negotiation won't do this though. It doesn't matter what the OP perceives or wants or even what the paperwork says. It is educating the client that is key here and getting him to change his thinking of the future relationship. You can negotiate and play the game until you are blue in the face. If the client sees the OP as a permie you are utterly screwed. What must happen in this instance is the client changes his view on the position and the true relationship of the OP, not the game, or the words on paper. Until that happens all the contracts and negotiation in the world will still end in the reality the OP is filling a perm position with an agreed finance fudge. Even then you are relying on the client not shafting him in an investigation. Until this is firmly in place then he is technically inside IR35. Doing a mate a favour to make it look outside won't really wash.

To be fair though it does sound like he has the relationship in this case that all other contractors don't have. I can't see many situations where we can convince a large corporate client a position needs a contract not a permie. It appears he maybe able to do that in this case but he must make absolutely sure that the client has it right, not playing a game to suit him.

and finally at the end of the day the chances of him getting investigated are so slim why bother with all this, but that is the OP's choice.

All that said and done it is pretty clear that this whole situation is nothing more than a fudge and with all the will in the world we know that is all it will ever be. Play the game but the reality is it's a fudge.

It's often a fudge. If the real test of IR35 is what happens in an investigation (PCG case history), how many people are - when it comes to the crunch - actually in IR35. IR35 is IMO at heart a fear tactic to get people to declare themselves inside IR35, not a real tool that can catch people in an investigation where the contractor is properly investigated. It's fine to say, the client sees it as a permie role etc. etc., but what happens if the contract says:

Contractor must give 1 month's notice but client can terminate without notice and for any reason...
And all the other stuff we know so well.

Inside or outside IR35?

[Wanderer]

If the role was permanent the package would be 65k + 25 days holiday and no pension. What would be equivalent daily rate for contracting be? 65000/ (365-104-8-25) = £285. Which seems a bit low? Is there anything else I should be considering?

Permie rights/perks/annual leave/sick pay/maternity leave/pension/bonus/job security/business expenses.

£285 is way too low. For a £65k equivalent contracting you would want £65/hour which is £520 per day. See #13 in my list of Noobie Contractor Mistakes.

Have a go with this calculator and don't forget that accountancy or umbrella fees alone will cost you about £1200 per year.

Also make sure you use a contract (eg, PCG one) and make sure your working arrangement is outside IR35 or you will get caned for tax.

[boshdmg]

Thanks again for your help guys.

My thinking is that I am well inside the IR35 and that I should be using an umbrella company, this seems like the honest, simple and correct approach.

Given this I really need to get my head straight on what is an appropriate rate to ask for considering the additional costs and risk. Wanderer is suggesting £520 per day (Perm Salary/1000 = hourly rate), where as LisaContractorUmbrella and TheFaQQer are suggesting circa £325.

Can any one help me fill in the gap?

[jamesbrown]

Wanderer is suggesting £520 per day (Perm Salary/1000 = hourly rate), where as LisaContractorUmbrella and TheFaQQer are suggesting circa £325.

Can any one help me fill in the gap?

(325+520)/2=422.5 Seriously though, there's no "correct" answer for you. It's a negotiation. Go in realistically high (by realistically, I mean aligned with the market for what you do and with your importance to the client, not arbitrarily high) and then negotiate.

[jamesbrown]

Permie rights/perks/annual leave/sick pay/maternity leave/pension/bonus/job security/business expenses.

£285 is way too low. For a £65k equivalent contracting you would want £65/hour which is £520 per day. See #13 in my list of Noobie Contractor Mistakes.

Have a go with this calculator and don't forget that accountancy or umbrella fees alone will cost you about £1200 per year.

Also make sure you use a contract (eg, PCG one) and make sure your working arrangement is outside IR35 or you will get caned for tax.

I would dispute there being any good comparison for an individual case TBH as it depends on too many factors. It should be "significantly" higher than the perm salary, and then it just comes down to how much higher the client will accept, given the market and the individual. The OP is basically in the situation of being a permie-tractor on a long-term gig (likely with low bench time), so common back-of-the-envelope calculations are even less relevant (and that salary/1000 calculation has never struck me as being a realistic one to begin with).

[jamesbrown]

what happens if the contract says:

Contractor must give 1 month's notice but client can terminate without notice and for any reason...
And all the other stuff we know so well.

Inside or outside IR35?

There's no answer, because it doesn't really matter. The contract is more of a prerequisite (a hurdle to be resolved by review and with due regard to the inherent risk of any conflict with the upper contract in an agency scenario). Everything after that, i.e. the important stuff, comes down to working practices.

[Wanderer]

I would dispute there being any good comparison for an individual case TBH as it depends on too many factors. It should be "significantly" higher than the perm salary, and then it just comes down to how much higher the client will accept, given the market and the individual. The OP is basically in the situation of being a permie-tractor on a long-term gig (likely with low bench time), so common back-of-the-envelope calculations are even less relevant (and that salary/1000 calculation has never struck me as being a realistic one to begin with).

Lots of people say that, though they can't offer an alternative formula. You are right that it is definitely skewed by a myriad of other factors but the way to level this is to ask how much someone in your position would realistically get offered and accept to work under the same conditions as a permie for that same employer (same commute, working conditions, job satisfaction etc, etc) and calculate your day rate from that.

Compared to permies at the places I have worked my hourly rate is usually pretty much their salary/1000 or thereabouts.... Just out of interest, how does your current hourly rate sit compared to your reasonably expected permie salary / 1000?

[jamesbrown]

Lots of people say that, though they can't offer an alternative formula. You are right that it is definitely skewed by a myriad of other factors but the way to level this is to ask how much someone in your position would realistically get offered and accept to work under the same conditions as a permie for that same employer (same commute, working conditions, job satisfaction etc, etc) and calculate your day rate from that.

Compared to permies at the places I have worked my hourly rate is usually pretty much their salary/1000 or thereabouts.... Just out of interest, how does your current hourly rate sit compared to your reasonably expected permie salary / 1000?

I agree, any reasonable number needs to consider the market (ratios of perm/contract rates), not some fairly arbitrary numerical extrapolation, but that also requires actual research, so defeats the purpose of a back-of-the-envelope calculation to begin with (i.e. there is no simple formula). To answer your specific question, about 70% and 110% of the implied hourly rate based on that calculation for my last two gigs, but the latter was fixed price and I don't work in IT, plus I work 100% from home. Like I say, too many factors for salary/1000 to be useful in practice IMHO and, in my experience, that calculation is heavily biased (but, since you need to know your market anyway, I don't really see the purpose of it).

[BlasterBates]

Remember to take into account travelling costs. In the current market it is very difficult to find something on your doorstep, so a daily rate of 350 200 miles from home wouldn´t be much use because the extra would be spent on hotels and travelling. I don´t see many contracts on a daily rate above 350.

I don´t see why you can´t arrange this contract to be any less outside IR35 than any other contract. In my view most contracts are inside IR35 as the key clause on substitution is clearly a fake, and most contractors are bums on seat that do what they´re told. The fact that you work for a friend means you can probably get a well defined piece of work that you can do in your own office and should the inspector come sniffing he´d be more likely to say the right things than a PM who couldn´t care less about your taxes.

It sounds like your friend though is taking you on as a temp. In this case there´s no need for an Umbrella co, as your friend´s company will employ you. Anything else wouldn´t make sense.

My calculations suggest a contract of 350 per day away from home wouldn´t be worth it, even if you´re outside IR35 and inside IR35 for your temp salary (remember your friend pays half NI on top of your salary).

Use jobserve to find out what rates are on offer and where and then use the calculators on the web to compare yourself, taking into account travelling expenses, and make sure you know what the contract is from your friend. If it isn´t a temporary employment contract (i.e. he contributes to your NI) then it´s a contract like any other.