Looking For Contract Rate to Permanent Salary Conversion Table

[NotAllThere]

HMRC only consider fairness when it results in more tax. So they're against a salary lower than market rates for a contractor, but not for a higher salary. And they're against a high salary for cosec, but not a low one.

VectraMan - you also have to factor in sick pay, insurances and the fact that you may have to keep paying them when they're not productive.

[monkeyBoy32]

Easiest way to find out is to work as a contractor for a while and find out how much money you end up with.

When I started contracting I was clearing nearly 2x what I would in my £32k permie job (low pay for a developer I know) and that was on £280 a day.

Recently I've taken quite a bit of holiday - about 2 weeks a month for the past 3 months and I'm clearing what somebody on £45k permie would (about £2600 a month) Now, I need to take out pension from that but in my mind I'm happy with that - decent monthly income and loads of holiday.

I wont always take that much holiday but I'm getting a better understanding of how much I'll earn being a contractor now - not the £80k I thought I'd earn but still a decent income with decent holidays..

[VectraMan]

VectraMan - you also have to factor in sick pay, insurances and the fact that you may have to keep paying them when they're not productive.

Indeed, though I suspect many contractors keep invoicing whilst not being productive.

[NotAllThere]

OK - you the employer have to keep paying them even when they're not being productive and you notice it. With contractors you can get rid of them. Though I had a very dull 3 months at fantastic rates as an SC contractor. They didn't want to have to get someone else cleared.

[dude69]

Hi

I have been talking to a few agents about contract-to-perm.

Is there such a thing as an de-facto/official table that maps contract rates to equivalent starting salary?

300 pd =
350 pd =
400 pd =
450 pd =
500 pd =
550 pd =
600 pd =
650 pd =
700 pd =
750 pd =

Or is there some computation that takes in tax band rates etc., etc,

Ta! Really appreciate it.

Annual sales (AS) = rate * 232 * 1.02225 (1.02225 is Flat-Rate VAT factor, based on 13% of gross vs. 17.5% net)
Expenses = travel + computers etc. + accountancy + pension + salary

From April you get 100% write-down on expenses, so no faffing about there

Assume accountancy etc. = £1k
Travel, IT equipment and others = £3k (assume that this is all money you would otherwise spend, so hence gravy)
Salary = £5,435

CT rate = 22%, in the long term,

Then corporate taxation (CT) =

((rate * 237.162) - 9,435) * 0.22

Annual sales = 237.162 * rate
CT = (237.162 * rate * .22) - (9435 * .22) = 52.17564R - 2075.70
So annual income =
total take = Annual Sales - accountancy fees (the only money you wouldn't otherwise spend) - Corporate Taxation - personal taxation
= 184.9864R + 1075.70 - PT

If you earn over the basic rate allowance, approx £42k, then you pay 25% tax on the net dividend. The basic rate allowance is approx £35,900. Which is £32,310 net (as a dividend).

Excess profits are then:

184.9864R + 1075.70 - 8435 - 32310

= 184.9864R - 39669.3

Personal tax is then that * 0.25

So
PT = 46.2466R -9917.325

If your company does not earn enough, you will not pay any higher-rate tax, but I disregard this case (this occurs when R < £215)

And hence take-home is

184.9864R - 46.2466R + 1075.70 + 9917.325
= 138.7398R + £10,993.03

As an employee, assuming BRA is £35,900 then with income tax rates of 31% and 41%, then you pay £11,129 of tax on the first £35,900, and then 0.41 * (salary - 41335)

So take-home for salaries of £41,335 and up =

salary - 11129 - (salary -41335) * .41

i.e.
0.59 * salary + £5818.35

So then

0.59S + 5818.35 = 138.7398R + £10,993.03
138.7398R = 0.59S - 5679.6102

R = 0.004253S - 40.94
OR
S = 235.15R + 5679
So then a £60k salary is a £214 daily rate.
And a £500 daily rate is a £123k salary

So for your original thing:
300 pd = £76k
350 pd = £88k
400 pd = £100k
450 pd = £111k
500 pd = £123k
550 pd = £135k
600 pd = £147k
650 pd = £159k
700 pd = £170k
750 pd = £182k

In other words, if somebody offers you a £60k job with no other benefits, it's beaten by a £225 daily rate.

Things would be more favourable still than this, but for the CT hike to 22%, and the 'income shifting' rules.

If you could utilise your spouse's tax allowance, then the equivalent salaries would be even higher.

BTW, these numbers are just for your own take-home, and ignore void periods, pensions, stable jobs, and what the equivalent rate SHOULD be.

In other words, a £60k job in the market is more like a £400-£450 rate in terms of parity if hiring, even though the latter is actually as good as a £110k job.

[TheFaQQer]

Indeed, though I suspect many contractors keep invoicing whilst not being productive.

[oracleslave]

I'll second that

[rocktronAMP]

Annual sales (AS) = rate * 232 * 1.02225 (1.02225 is Flat-Rate VAT factor, based on 13% of gross vs. 17.5% net)
Expenses = travel + computers etc. + accountancy + pension + salary

From April you get 100% write-down on expenses, so no faffing about there

Assume accountancy etc. = £1k
Travel, IT equipment and others = £3k (assume that this is all money you would otherwise spend, so hence gravy)
Salary = £5,435

CT rate = 22%, in the long term,

Then corporate taxation (CT) =

((rate * 237.162) - 9,435) * 0.22

Annual sales = 237.162 * rate
CT = (237.162 * rate * .22) - (9435 * .22) = 52.17564R - 2075.70
So annual income =
total take = Annual Sales - accountancy fees (the only money you wouldn't otherwise spend) - Corporate Taxation - personal taxation
= 184.9864R + 1075.70 - PT

If you earn over the basic rate allowance, approx £42k, then you pay 25% tax on the net dividend. The basic rate allowance is approx £35,900. Which is £32,310 net (as a dividend).

Excess profits are then:

184.9864R + 1075.70 - 8435 - 32310

= 184.9864R - 39669.3

Personal tax is then that * 0.25

So
PT = 46.2466R -9917.325

If your company does not earn enough, you will not pay any higher-rate tax, but I disregard this case (this occurs when R < £215)

And hence take-home is

184.9864R - 46.2466R + 1075.70 + 9917.325
= 138.7398R + £10,993.03

As an employee, assuming BRA is £35,900 then with income tax rates of 31% and 41%, then you pay £11,129 of tax on the first £35,900, and then 0.41 * (salary - 41335)

So take-home for salaries of £41,335 and up =

salary - 11129 - (salary -41335) * .41

i.e.
0.59 * salary + £5818.35

So then

0.59S + 5818.35 = 138.7398R + £10,993.03
138.7398R = 0.59S - 5679.6102

R = 0.004253S - 40.94
OR
S = 235.15R + 5679
So then a £60k salary is a £214 daily rate.
And a £500 daily rate is a £123k salary

So for your original thing:
300 pd = £76k
350 pd = £88k
400 pd = £100k
450 pd = £111k
500 pd = £123k
550 pd = £135k
600 pd = £147k
650 pd = £159k
700 pd = £170k
750 pd = £182k

In other words, if somebody offers you a £60k job with no other benefits, it's beaten by a £225 daily rate.

Things would be more favourable still than this, but for the CT hike to 22%, and the 'income shifting' rules.

If you could utilise your spouse's tax allowance, then the equivalent salaries would be even higher.

BTW, these numbers are just for your own take-home, and ignore void periods, pensions, stable jobs, and what the equivalent rate SHOULD be.

In other words, a £60k job in the market is more like a £400-£450 rate in terms of parity if hiring, even though the latter is actually as good as a £110k job.

Unfortunately I work through an umbrella company. So this probably is going to less than having a limited company with a non-IR 35 contract. I appreciate the candor though

[NotAllThere]

Unfortunately I work through an umbrella company. So this probably is going to less than having a limited company with a non-IR 35 contract. I appreciate the candor though

This is going to be less.

[oracleslave]

This is going to be less.

This is going to be a LOT less