Can you afford to go perm or inside IR35?

[eek]

Having recently gone perm and taken a circa 45% deduction in my gross income, 30% net when you factor in holidays and pension, I thought I'd add my thoughts.

When contracting I tried to keep my expenses down to match a decent dev salary in the Midlands so the drop is manageable.
However, I'm finding the main difference is those one off large purchases hit me a bit more. Things like a new TV or holiday which I would just have simply bought when contracting I'm now looking to see if I can afford it.

As a result the plan is to use the next 12 months as a perm to re-skill into a high demand area. Current thinking is AI - Big Data Engineer with Cloud Migration. Couple of Azure Certs, along with Data Bricks, Snowflake and MuleSoft.

Had the opportunity 3 years ago when working in a role doing just that to cement my skills but didn't take it due to being offered a decent day rate for a new gig in C#.

Should really be typing this into my new permie 'personal development plan'

Rule 1 for a contractor (or anyone) pick your project based on what it allows you to do next.

[BlueSharp]

As others have mentioned it sounds like you're suffering from lifestyle inflation.

There are a lot of adjustments contractors can make before having to decide if food or heating is today's priority. As I rarely take more than 76k out of the company each year I'm confident I could find something perm paying around that and pay the extra tax, 10k drop per anum? If you go perm what are your plans for the war chest? I will probably stick mine in my pension or look for investment property.

[Fraidycat]

Effective tax rate between 100K and 120K is 60% (and 14% Employers NI if inside IR35)

Tax rate above 150K is 45% (and 14% Employers NI if inside IR35)

These threshold levels are probably not going to change much over the next 10 or 20 years.

While inflation will mean more and more Permies and Inside IR35 contractors end up paying these tax rates.

In fact these tax rates might even rise, both the 45% rate and the 14% NI rate eg 45%->50% and 14%->20%

[ladymuck]

You shouldn't be paying the employers NI from your day rate on an inside gig. Unless, of course, you're using an umbrella.

Haven't looked too closely for a while but I would expect illustrations for inside gigs to make it very clear what deductions the client / agency will be taking from your rate (isn't it going to be a legal requirement?).

[jamesbrown]

You shouldn't be paying the employers NI from your day rate on an inside gig. Unless, of course, you're using an umbrella.

Haven't looked too closely for a while but I would expect illustrations for inside gigs to make it very clear what deductions the client / agency will be taking from your rate (isn't it going to be a legal requirement?).

Not directly, no, because that would be illegal. But indirectly, yes, and in most cases it will be mechanically so because the fee payer isn’t receiving any more money. Of course, the same is ultimately true for employment too. All business taxes reduce wages.

[eek]

You shouldn't be paying the employers NI from your day rate on an inside gig. Unless, of course, you're using an umbrella.

Haven't looked too closely for a while but I would expect illustrations for inside gigs to make it very clear what deductions the client / agency will be taking from your rate (isn't it going to be a legal requirement?).

It's not - Key Information documents exist so that the amount paid will be clear but they are only required when the contract is being offered.

It's why I'm very keen on ensuring agencies are very clear in what they are offering and why one of the things I'm working on is to get agencies to use "Agency Umbrella Rates" so that it is clear what the agency is paying the umbrella and that the sum paid isn't the employees and is before all the deductions that need to be made (employers NI, holiday pay....).

And you can see why it's so important when both of the posts above (when both you and JamesBrown both of whom are a lot better informed than the average contractor) are getting fundamental items wrong...

However it's essential that we ensure agencies do offer these types of rates as salary sacrifice into pensions is essential going forward as it's one of the few benefits we will have remaining.

[ladymuck]

It's not - Key Information documents exist so that the amount paid will be clear but they are only required when the contract is being offered.

It's why I'm very keen on ensuring agencies are very clear in what they are offering and why one of the things I'm working on is to get agencies to use "Agency Umbrella Rates" so that it is clear what the agency is paying the umbrella and that the sum paid isn't the employees and is before all the deductions that need to be made (employers NI, holiday pay....).

And you can see why it's so important when both of the posts above (when both you and JamesBrown both of whom are a lot better informed than the average contractor) are getting fundamental items wrong...

However it's essential that we ensure agencies do offer these types of rates as salary sacrifice into pensions is essential going forward as it's one of the few benefits we will have remaining.

I am not surprised I'm getting bits wrong. I've read the legislation and the guides that are intended to help one make sense of them and there's still stuff that I get stuck on. I know i was bordering on "I don't like it so it must be illegal" as I believe an inside contract shouldn't be fundamentally any different to an employment or FT contract in that the contractor should be told a rate (be it hourly, daily, annual etc) and be able to easily determine from that what their take home pay should be. They shouldn't be left wondering if they're going to suffer erNI or AL because of some quirk in the way the client / agency want the payments processed.

[jamesbrown]

And you can see why it's so important when both of the posts above (when both you and JamesBrown both of whom are a lot better informed than the average contractor) are getting fundamental items wrong...

What, precisely?

[jamesbrown]

It is unlawful for an employer to deduct employment costs, such as ErNI, from pay owing to an employee. Of course, it is perfectly legal to offer pay in line with the overall costs of employment. That’s why absolute clarity on the pay owing to the employee is important.

[eek]

I am not surprised I'm getting bits wrong. I've read the legislation and the guides that are intended to help one make sense of them and there's still stuff that I get stuck on. I know i was bordering on "I don't like it so it must be illegal" as I believe an inside contract shouldn't be fundamentally any different to an employment or FT contract in that the contractor should be told a rate (be it hourly, daily, annual etc) and be able to easily determine from that what their take home pay should be. They shouldn't be left wondering if they're going to suffer erNI or AL because of some quirk in the way the client / agency want the payments processed.

Agents always want to maximise the rate they advertise. So they use "Umbrella Rates" regardless of the fact they mean 2 very different things to justify advertising large rates.

So one area I'm focussed on (and the IPO isn't helping here) is allowing agencies to do what they want but in a way that will make it clearer - hence "Agency Umbrella Rate" so it's clear what the rate is and a means of generating Key Information Documents so they don't need to ask multiple umbrellas to do it.