New to contracting - contractors pay higher tax?

**cojak** · 26 January 2010, 10:21

Read the First Timers section.

**northernladuk** · 26 January 2010, 10:24

Do not gloss over sick and holidays. You can not plan for 52 weeks a year. You have no flexibility and you can only go down from there so would be a terrible mistake to do so. We have enough bank holidays to blow that calculation for a start.

Also figure in some bench time. If you are working on 52 weeks a year forever you are going to be very badly dissapointed.

I would also guess that if you are on 35k a year you have a fairly reasonable role. 200 a day doesn't strike me as an equivalent rate for someone with the skills to get 35k a year to be honest. Yes we all have to take something we don't like but seems a tad low.

Oh yes and remember we are in a recession.. rates suck at the moment.

**Julius Caesar** · 26 January 2010, 10:46

Originally posted by nfoote View Post

As a perm I was on 35000/year and was getting checks for roughly 2100 in the hand. I had my calculator out and its roughly 134 quid gross per day.

As well as all the other good points, especially the one that says read the First Timers guide, remember this one:

When you thought you were on a salary of 35000/year, you were actually on a salary of 38748/year. Employer's NICs of 3748 were payable on that, and your employer paid them, leaving you with the impression that your salary was 35000.

Now that you are a contractor, those "Employer's NICs" are still payable, and it is you who have to pay them (there's nobody else).

**NeverBeenNorthOfTheM25** · 26 January 2010, 10:49

"I know I'm glossing over several things like holidays/sick leave"

So dont.

Also you are failing to think about deductable expenses. That tube journey you take to work each morning, you get to give the bill to the taxman whereas for the permie, he's forced to suck up the cost himself.

Also unless youve managed to get a contract that says we'll keep you on for the next 2 years straight, do you really think you are going to finish a contract on Friday and start a new one on Monday every single time?

**BlasterBates** · 26 January 2010, 10:55

If you currently have 5 weeks holiday that will be 225 billing days

45000 gross, if you are within IR35 then it is effectively 40,000

You then have to pay for an accountant, that could easily be a grand

As you can see there doesn't seem to be much difference.

If you have to travel, it is a definite no no, as you will be worse off.

If you have a comfy interesting job and you want your 5 weeks off, probably not worth it.

**nfoote** · 26 January 2010, 11:15

Originally posted by Julius Caesar View Post

When you thought you were on a salary of 35000/year, you were actually on a salary of 38748/year. Employer's NICs of 3748 were payable on that, and your employer paid them, leaving you with the impression that your salary was 35000.

Now that you are a contractor, those "Employer's NICs" are still payable, and it is you who have to pay them (there's nobody else).

Ah I think this might have been one of the key points I was missing, makes things slightly more understandable now.

Thanks for all the other advice too. I had read through some of the first timers articles but will go through them all in detail again.

Also I do realise 52 weeks a year is crazy talk, the plan is to work drastically less than this, hence the attempt to go contracting rather than permanent.

**Julius Caesar** · 26 January 2010, 12:31

Originally posted by NeverBeenNorthOfTheM25 View Post

Also you are failing to think about deductable expenses. That tube journey you take to work each morning, you get to give the bill to the taxman whereas for the permie, he's forced to suck up the cost himself.

Let us be precise here.You don't get to give the bill to the taxman, but you do get to pay it yourself with your money that has not had tax taken off it first. For up to 2 years, that is: after that it is not allowable (see guides and FAQs for details).

**alreadypacked** · 26 January 2010, 12:38

Originally posted by nfoote View Post

Hi I'm new to contracting / trying to break into contracting and am just trying to get an accurate picture of how much I'd potentially earn as opposed to a perm role. Pretty much everyone I talk to says to initially go with an Umbrella company so assume thats I'm talking about here...

As a perm I was on 35000/year and was getting checks for roughly 2100 in the hand. I had my calculator out and its roughly 134 quid gross per day.

I've been using the calculators on this website and plugging in say 200/day (25/hr at 8 hours a day), 52 weeks worked (since perm you could work 52 weeks and forgo holidays). Pretty simple maths tells you the gross for that is almost 20k more at 52000/year. Forgetting about things like umbrella fee and tax claims at the moment the calculators are saying thats only 2,557.92 in take home pay. Not that 2500quid a month is to be laughed at but the increase struck me as rather low compared to raw increase in daily rate, more than 65 pounds per day!

I know I'm glossing over several things like holidays/sick leave and tax claims etc etc but I was just wondering if contractors end up paying more in tax?
For example, perhaps, what perm salary in real life terms is 200/day comparable to?

Perhaps not being from the UK I'm missing something like a tiered tax system?

You also haven't accounted for getting into a niche area at the right time, and your clicents flying you business class around the world and put you up in 5* hotels.

Tough life, but someone has to do it

**BlasterBates** · 26 January 2010, 14:20

what is your niche area?

New to contracting - contractors pay higher tax?