Hard to find contracts?

[oversteer]

You really need to get your head around PAYE, Corp Tax, VAT and the legal implications of being a director and shareholder of a Ltd Co. It's not hard, but if you get it wrong, your life will be made a misery.

If it's too much, start off using an umbrella company.

[ITContractorUK]

I appreciate that it is a lot to get your head around.

I am now on £47000/year in a permanent position so for that I would need a day rate as contractor at £470?
But I would need more than that to "break even" right for holiday, time between projects etc?

I am just trying to get my head around on which daily rate I would need to get in order to get the same amount of money as today.
So far in this thread all the comments have indicated that it is better to stay with the permanent position (at least when it comes to the money side of things)..

[malvolio]

I appreciate that it is a lot to get your head around.

I am now on £47000/year in a permanent position so for that I would need a day rate as contractor at £470?
But I would need more than that to "break even" right for holiday, time between projects etc?

I am just trying to get my head around on which daily rate I would need to get in order to get the same amount of money as today.
So far in this thread all the comments have indicated that it is better to stay with the permanent position (at least when it comes to the money side of things)..

Which bit of "salary divided by 1000" did you not understand? You would need a full 12 month contract at £470 a day to stand still. We're already agreed you're more likely to be on £300, and probably not working 260 days a year either.

Still think this is a good idea?

[DS23]

... (cue a load of people that haven't worked outside a 20 mile radius in 20 years etc etc)

i haven't worked inside a 20 mile radius for 20 years.

[DS23]

... - WE DON'T DO IT FOR THE MONEY

i do.

[eek]

Which bit of "salary divided by 1000" did you not understand? You would need a full 12 month contract at £470 a day to stand still. We're already agreed you're more likely to be on £300, and probably not working 260 days a year either.

Still think this is a good idea?

I think this shows the his first problem. Salary / 1000 is for hourly rate which would be £47 an hour or £350 a day (on a 7.5 hour day).

[ITContractorUK]

Which bit of "salary divided by 1000" did you not understand? You would need a full 12 month contract at £470 a day to stand still. We're already agreed you're more likely to be on £300, and probably not working 260 days a year either.

Still think this is a good idea?

Clearly not with the numbers presented here, if they are correct.
But I appreciate this thread because I now realized that my initial contract has to be worth more than I initial thought.
There are perm developers who gets 25k/year and I am on 47k because I am specialized within certain areas. So I have to just wait around until I get a decent good first contract. I am in no rush but I still want to be a contractor.

I think this shows the his first problem. Salary / 1000 is for hourly rate which would be £47 an hour or £350 a day (on a 7.5 hour day).

Ahh, that makes sense. Thanks for clearing that up!

[malvolio]

I think this shows the his first problem. Salary / 1000 is for hourly rate which would be £47 an hour or £350 a day (on a 7.5 hour day).

Oops, quite correct. Sorry...

[lje]

Thanks for that! I do have a bit of money saved up so should be ok.

When it comes to calculating the net profit.
If I use the calculator on the sjdaccountancy.com website it states that I get £5184 per month after tax on a £300/day contract. But on the contractor calculator website the same rates only gives you £3790.

I know it all depends on if you have your own limited company vs umbrella company, IR35 etc but what would your experience tell you? Which one is closer to the reality?

OK - here's my rough calculation. It has the following assumptions:

1) You are operating as a limited company.

2) You are outside IR35.

3) You do not have any travelling expenses (obviously not true but seeing as you gave no indication of your travelling this is what I have assumed).

4) You take a salary of around £6k and the rest in dividends.

5) You don't make any company contributions to your pension.

6) You take out all of the distributible profit which you make every year.

7) Probably others which I haven't thought of...


£300/day for 45 weeks a year (allowing for holidays / bank holidays / sickness)
=> £67.5k

Salary of 6k, 1k of PAYE and other expenses (such as insurance), 1.5k on accountancy fees
=>£8.5k

Profit = £67.5 - £8.5 => £59k

Corporation tax @21% = £12.4k

Distributible Profit = £59k - £12.4k = £46.6k

If you took dividends up to the 40% tax band you would be able to take a gross amount of roughly £43k - £6k salary = £37k. Which (given the 10% tax credit) would leave a net dividend amount of 90% of £37k = £33.3k

Remaining distributible profit = £46.6k - £33.3k => £13.3k

This could be taken out as a gross dividend of £13.3/0.9 => £14.8

Tax on the dividend would be an extra 22.5% (because you are in the 40% tax band) = £14.8 * 0.225 => £3.3 k. So the net dividend (after all taxes) would be £13.3 - £3.3 => £10k

So, your total income would be £6k salary + £33.3k dividend + £10k dividend
=> £49.3k

This is equivalent to £4.1k a month.

There are so many assumptions in here (and approximations) that I doubt it will be useful to you. It may even be wrong because I haven't really spent any time thinking about it. It might help you to do some of your own calculations though.

Note that one of the areas which the calculators will vary in is the amount of travelling expenses. This makes a big difference if you drive to client site. If you go by train or something else then you can reclaim the costs - but you've actually spent the money so it has gone. If you drive then you can claim 40p/mile for the first 10,000 miles in a year, and 25p/mile thereafter. As petrol doesn't cost this much (yet!) this could be seen as tax free income. Although obviously you'd have to pay for petrol and you'd get extra wear and tear on the car.

<edit>It's also worth remembering that this money won't come in every month in the way that a salary would. You are likely to pay yourself a lump sum dividend at less frequent intervals (I do it once a year).</edit>

[ITContractorUK]

Thanks a lot lje! That was really useful.