Disaster First Contract

[vwdan]

So if that is correct then 80K a year is 700 a day?

And 120K perm is 1,050 a day?

No idea why you think the relationship would be linear.

The OP is already down so stop trying to also break him by saying he is paid peanuts - 350 outside is not bad at all ....

It's important to know what you're worth. In my bit of the industry, £350 doesn't get you the kind of resource who can get a £60k job - that's just how it is. It wasn't a complex analysis of how much one takes home, or whether earning £350p/d is "good", it's about understanding the market.

And, incidentally, he came back and admitted he's really on £400p/d which sounds more like it to me. Yeah it's only £50, but realistically for most of us there's only a few hundred between the bottom and top of the range.

[Abbot]

Taking 2021 as an example, there are 253 working days (i.e. 261 weekdays minus 8 bank holidays). In a permanent job, you would get at least 20 days of A/L per year (more precisely, 28 days including bank holidays), so that brings it down to 233 days. I've seen permie roles that offer 25 days + bank holidays, which would bring it down to 228 days. So, 225 billing days for a contractor seems optimistic for bench time, and there's quite a big difference between "effectively permie" and "taking 6 months off".



First up, £350 x 225 is £78,750, so a bit over 78k. However, you'll need to deduct some business costs from that, e.g.
* Accountancy fees
* Business bank account
* Email account
* Insurance
* Confirmation statement

Based on my spending, that would take you down to about 77k. If you're also paying for software licensing, training, etc. then it will go lower.

Assume that you then take the whole 77k as salary. That's roughly £1480/week. However, you need to subtract employer's NI and employer's pension contributions.

As a rough guide:
* £1300 for gross salary
* £155 for employer's NI
* £25 for employer's pension contributions

£1300 x 52 = £67,600 per year (gross).

Putting that another way, if you billed for 200 days/year (equivalent to 40 weeks), you'd get £52,000 as your gross salary.

I agree that this could be optimised, e.g. by taking some of the money as dividends. However, I disagree with your claim above, i.e. that you're getting 78k "before you have optimised anything".

(To address BR14's point, I think it's useful to have info like this for anyone who's searching the forum, particularly those who weren't around for a poster's previous accounts.)

You have to pay corporation tax on the billed revenue less expenses. The gross billed less expenses can’t just be taken as salary/drawings as the company itself is making a profit and only pre-tax funds are available to the contractor.

[vwdan]

You have to pay corporation tax on the billed revenue less expenses. The gross billed less expenses can’t just be taken as salary/drawings as the company itself is making a profit and only pre-tax funds are available to the contractor.

Salary and pension are pre corp tax. Dividends are post tax.

[WTFH]

And the above is missing a number of things e.g. benefits package from the perm to be factored in to the contract and many other things which is why there is no right answer to this and it's a bit pointless try to get to one.

But we know that is what theoretical PM is obsessed with, coming up with a half-baked theory and rejecting anything else.
Back of a fag packet calculation:
£75k perm salary
15% annual bonus = £11,250
Employer NIC on that = £10,628
15% Employer pension = £11,250

So, excluding all the hardware, phone contract, healthcare, and other benefits, some of which may or may not incur tax, but do not incur any other costs on the employee's bottom line, £75,000 basic can be seen as £108,128. Which is roughly £490 per day on a 220 day year. If we ignore employer NIC then it's about £440, but still significantly greater than the guy who says he is now permanent, but I doubt has ever done a day's contracting in his life and probably lives rent-free in the spare bedroom of his parents run-down semi in one of the less-salubrious parts of north London.

[Abbot]

Salary and pension are pre corp tax. Dividends are post tax.

Yes, I should have worded it better. I was trying to say any funds available to the contractor have to take into account that they will need to pay HMRC the corporation tax for the profit they have made at a later date. They can’t just take that into the calculation of the monthly amount available to them to withdraw from the company.