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

[boshdmg]

I have been offered a role at a friends company, they would like me to consider taking a role on a 12 month contract basis despite them considering the role permanent- the reason for this so they can capex the cost of the wages so it doesn't effect their budgets - they are willing to increase the wage offered to compensate for this.

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?

Having looked into contracting before, I came to the conclusion, I would have to set up a company, and business bank account, worry about IR35, etc - is all this still necessary in this scenario?

[northernladuk]

You don't have to worry about IR35. You are so far inside it isn't true so absolutely nothing to worry about.

This situation has absolutely squat to do with contracting. You are an employee of his company and using contracting as nothing but finance fudge. IR35 and the aggressive tax avoidance rules were set up to clearly deal with this situation.

Go permie, take the salary and the benefits or go find a proper gig IMO. It isn't worth you taking all the risk just to suit your friends company.

[kevpuk]

What NLUK said ^^
This kind of scenario is exactly what IR35 & chums are all about - you win the star prize

[Martin at NixonWilliams]

I have been offered a role at a friends company, they would like me to consider taking a role on a 12 month contract basis despite them considering the role permanent- the reason for this so they can capex the cost of the wages so it doesn't effect their budgets - they are willing to increase the wage offered to compensate for this.

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?

Having looked into contracting before, I came to the conclusion, I would have to set up a company, and business bank account, worry about IR35, etc - is all this still necessary in this scenario?

If you are comparing the two in terms of take-home pay, an equivalent daily rate would typically be around £250 assuming you are contracting through a limited company.

I'm sure you know this already, but contractors normally charge a higher rate than the salary equivalent to compensate for the risks they face, loss of holiday pay, statutory benefits etc.

IR35 etc. is only a concern if you operate through a limited company.

I hope this helps.

Martin

[LisaContractorUmbrella]

I have been offered a role at a friends company, they would like me to consider taking a role on a 12 month contract basis despite them considering the role permanent- the reason for this so they can capex the cost of the wages so it doesn't effect their budgets - they are willing to increase the wage offered to compensate for this.

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?

Having looked into contracting before, I came to the conclusion, I would have to set up a company, and business bank account, worry about IR35, etc - is all this still necessary in this scenario?

If you are inside IR35, which seems likely in this case, then you will be liable to pay income tax, employee's NI and employer's NI (as a disguised employee who is both employer and employee of your Ltd Co.) You will also not be paid when you take holiday or if you are taken ill so all this needs to be factored in. £65,000k pa is £1250.00 per week - in permanent employment you would be paid for 52 weeks regardless of how many you work - as a contractor you will only be paid for the weeks you work - let's say 46 - so you would need £1413 per week to come back to your £65k. As a permanent employee your employer would pay employer's NI which is 13.8% (after allowances but we'll keep it simple) as a contract you will pay it so you will need £1607.99 (1413 x 13.8%) to match £65,000 which takes you to £73,967.54. However, that would only match the permanent rate - I would suggest asking for around £75,000 or about £325.00 per day as a minimum.

[TheFaQQer]

You don't have to worry about IR35. You are so far inside it isn't true so absolutely nothing to worry about.

This situation has absolutely squat to do with contracting. You are an employee of his company and using contracting as nothing but finance fudge. IR35 and the aggressive tax avoidance rules were set up to clearly deal with this situation.

Go permie, take the salary and the benefits or go find a proper gig IMO. It isn't worth you taking all the risk just to suit your friends company.

Absolutely agree.

If you read about IR35 (over on the right hand side --->) then you'll see exactly why for this situation, umbrella or PAYE is the only option for you here.

For me, it would be PAYE and a decent package or nothing.

[boshdmg]

Hi Guys thanks for taking your time to help me out.

I take peoples points, that this is not really contracting, and its a risk, but they are willing to pay more to compensate me for this.

As LisaContractorUmbrella says the rate would have to be 325 a day minimum, but surely the deal would start to be in my favour if there offer was 400 per day for example?

If it was in this region, is it still worth my while setting up a company so that I can claim expenses etc?

[TheFaQQer]

I take peoples points, that this is not really contracting, and its a risk, but they are willing to pay more to compensate me for this.

If you've factored everything in correctly, then it's up to you what you do from here - take it or leave it.

As LisaContractorUmbrella says the rate would have to be 325 a day minimum, but surely the deal would start to be in my favour if there offer was 400 per day for example?

No, the deal starts to be in your favour below Lisa's 325 since her example includes some extra non-billable days. It actually starts to be in your favour at the point where the day rate, factoring in costs, non-billing days and any risks, becomes greater than the normal permanent salary.

The deal becomes more in your favour with every pound you increase the rate beyond that break-even point.

If it was in this region, is it still worth my while setting up a company so that I can claim expenses etc?

You've done no research about IR35, have you? Since you'll be caught, expenses can only be 5% of the income. You then pay tax on the remaining 95%, including two lots of NI.

Do the sums - work out what your costs will be in running a Ltd company, then work out how much you are likely to take home. If this is going to be your only "contract" then you'll be limited in what you can claim anyway. Once you've done that, calculate what an umbrella will pay you with the same expense calculations. Then make your own decision.

Running a company isn't something that you should enter into lightly - if you have no idea about what you want to be doing, what rates you are charging, what running a company involves, what expenses you can claim, or anything like that (and you don't seem to know any of this) then I'd steer clear.

[Old Greg]

Inside vs outside IR35 will cost you a lot of momey so get some professional advice before acting on forum posts by randoms on the Internet.

My take on this as a random on the Internet who doesn't have the details of what you do is:

- Join PCG and use one of ther B2B contracts.
- Explain to your client that if they want to do this the contract way then it is a proper B2B relationship.
- Get IR35 insurance.
- Make sure you act as a business in uour dealings with the client.

[northernladuk]

Inside vs outside IR35 will cost you a lot of momey so get some professional advice before acting on forum posts by randoms on the Internet.

My take on this as a random on the Internet who doesn't have the details of what you do is:

- Join PCG and use one of ther B2B contracts.
- Explain to your client that if they want to do this the contract way then it is a proper B2B relationship.
- Get IR35 insurance.
- Make sure you act as a business in uour dealings with the client.

Generally good advice but you cannot ignore the factors the OP has mentioned and they blow all of this out of the water. It is clearly a perm job with a fudged payment process. No amount of playing the game is going to cover this one IMO. He is going to act like an employee and be treated as one so his working practices will fail and he it is going to be extremely difficult to pretend to be B2B in a friends company.