Employee to Contractor

[dannywooly]

Hi All

Sorry this is my first post on here so bare with me.

I am currently employed as PAYE and i am inline for a small pay rise in my position as Web Projects Manager. I have always been employed since uni and enjoy some of the benefits but feel now i am worthy of contracting.

Just last Friday one of our contract workers didn't renew his contract and thus has left an opening for a contract position. I am having a discussion with my boss today or tomorrow about possibly filling that role. (which actually is a similar job to what i do now but more technical, but thats what i want)

I have no issue starting a Ltd company i know plenty of people who can help with that, but after reading about our loverly governments catch tax (IR35) i am a little concerned that i wouldn't be that much better off.

I know my contract would be renewed as i am a solid member of the team and work closely with the Head of Web. But this just sets me up for a IR35 catchment.

So my question is,

Is the pay increase worth the hassle of setting up LTd company and getting caught by IR35?

Would there be ways to get this unfortunate IR35 defining role around the ruling?

Any help or advice would be appreciated.

Regards

Danny

P.S. I have read through all the links on the right they are most helpful.

[malvolio]

The obvious question is why? You would surely be better off taking the role as a permie. Even if the rate means parity on total nett income (which is probably won't given you'll certainly be inside IR35) why sacrifice all the employee benefits (pension, sick pay, holiday pay, bank holiday pay, training, etc., etc.) to work for the sma ecompany in the same environment?

I may be biased but in the curent climate it seems like a bad idea to me.

[rootsnall]

I don't think you actually mention how your possible rate compares to your salary. The old rule was if you are on say 40K salary then your gross contract income for the same amount of weeks should be double that.

[dannywooly]

Hi

Thanks for the replies, lets put it this way if i took the contract role i would at gross double my income, thats the reasons mostly for the move.

But with IR35 it obviously dents the income a bit more.

[ASB]

Hi

Thanks for the replies, lets put it this way if i took the contract role i would at gross double my income, thats the reasons mostly for the move.

But with IR35 it obviously dents the income a bit more.

You need to try and ensure you are comparing like with like.

Let's assume your current salary is 30k, it's a 37 hour week, that you get 25 days holiday and have 6 days sick (about the average across the UK workforce). Also your bank holidays are in addition (they don't have be be) and you get absolutely no company benefits like phone, life insurance, medical or pension.

In this case you will work:- 260 - 25 - 9 - 6 = 220 days. This would yield 22500 approximately.

Now, let us assume that the contract is double the rate, call it 240 per day. Comparing like with like, assuming you manage the same amount of work then this is billing 52800. Assuming IR35 caught - you will be paying employers NI then this will yield approximately 47500 after employers NI and thus a net pay of approximately 34000.

If you start to factor a bit of bench time - say you only work 40 weeks, then the gap rapidly narrows. If you do have company benefits then these can be expensive to provide yourself (if you choose so) narrowing the gap even more.

Your double has now reduced to "only" 50% better in your packet.

If you are giving up other benefits you need to factor those in too.

[rootsnall]

Hi

Thanks for the replies, lets put it this way if i took the contract role i would at gross double my income, thats the reasons mostly for the move.

But with IR35 it obviously dents the income a bit more.

Do your figures and make your decision.

There are quite a few websites out there that will calc your take home pay assuming you are IR35 caught and thus paying full NI. My accountant leaves it up to me to declare my IR35 position, you could always say you aren't caught and take your chances, the odds are in your favour that you'll never be investigated but if you are you'll be struggling to fight it. You'll still be in pocket for aslong as the contract lasts if you are paying full NI.

If you are really ready for contracting then maybe look outside your comfort zone and jump ship altogether !?

[Sausage Surprise]

I've not met an employer yet who would let a permie employee convert to contractor. The other way yes. But in my experience you have to leave the company for at least 12 months before being allowed back as a contractor.

[dannywooly]

I've not met an employer yet who would let a permie employee convert to contractor. The other way yes. But in my experience you have to leave the company for at least 12 months before being allowed back as a contractor.

Yes mine has agreed to it, plus another employee did it recently!

[oracleslave]

It's exactly the sort of thing that IR35 <spit> was brought in for...

WTLS

[malvolio]

Yes mine has agreed to it, plus another employee did it recently!

Because it's saving him significant money and removing several legal obligations. You're also first out of the door when they need to save some money

You're being had, be careful, do all the homework before deciding.