Reply to: Disaster First Contract

[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.

[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.

[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.

[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]

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.

[northernladuk]

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.

[hobnob]

350*225 = 78K ....

Now of course contractors might only work six month a year (But if they do they have six month forced break which is not insignificant and is a benefit)

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".

So take home on 350 is 78K and not 60K and thats before you have optimized ANYTHING

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.)

[BR14]

I don't get why you guys are engaging with LondonPM at all.
he proved his ultimate twatness before he got banned, surely?

[eek]

Thank you for the encouraging words and positive contribution!

Please go back to economics 101 - A greater tax saving would mean more people prepared to work for this and therefore rates kept low so tax has a massive influence on things

Also remember how many people in the past would refuse perm and only work for contractors - Now its the other way round

While it's possible that £500 a day outside IR35 is better than £550 inside IR35 - the ideal that post April all the risk is carried by the agency has turned out to not be true.

The given the assumptions within a stock outside IR35 Statement of Work and the claw back terms in many outside IR35 contracts I would recommend very careful thinking and a lot of research before accepting such a contract.

We've already seen agencies lying that a contract is outside when it wasn't and I've seen examples of claw back terms to protect an agency from the cost of their own lies.

[northernladuk]

Before even doing anything like having your dog or cat (wife)ás shareholder and assuming all taken out as salary then the calc as follows should show a bit

350*225 = 78K ....

Jesus.. So that's your approach to an extremely complicated comparison that NO ONE has managed to nail down in all these years? Complete apples and pears and that's your answer. I don't know whether to laugh or cry.

[NowPermOutsideUK]

What has the tax savings (if they actually exist) got to do with anything?

You really do not understand how the real world works (hardly surprising given you are the most clueless PM on this site).

Thank you for the encouraging words and positive contribution!

Please go back to economics 101 - A greater tax saving would mean more people prepared to work for this and therefore rates kept low so tax has a massive influence on things

Also remember how many people in the past would refuse perm and only work for contractors - Now its the other way round

[eek]

I have said it before - Outside IR 35 should pay less because of the tax saving YOU get

What has the tax savings (if they actually exist) got to do with anything?

You really do not understand how the real world works (hardly surprising given you are the most clueless PM on this site).

[NowPermOutsideUK]

Based on what?

In your examples you've moved tax brackets for a start so can't just add a percentage as you have for 80k and 120k

It's very complex to compare the two but useful if you'd tell us what criteria you've used.

Before even doing anything like having your dog or cat (wife)ás shareholder and assuming all taken out as salary then the calc as follows should show a bit

350*225 = 78K ....

Now of course contractors might only work six month a year (But if they do they have six month forced break which is not insignificant and is a benefit)

Perm can be fired just as easily

So take home on 350 is 78K and not 60K and thats before you have optimized ANYTHING

I have said it before - Outside IR 35 should pay less because of the tax saving YOU get

[northernladuk]

I am sorry I do not agree at all with this - I think 60K and 350 outside are very fair and I would still choose the outside

Based on what?

In your examples you've moved tax brackets for a start so can't just add a percentage as you have for 80k and 120k

It's very complex to compare the two but useful if you'd tell us what criteria you've used.

[NowPermOutsideUK]

Yep, that was my immediate thought. I was pitching £350 p/d when I first started, and that was stepping out from ~£40k job

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

And 120K perm is 1,050 a day?


I am sorry I do not agree at all with this - I think 60K and 350 outside are very fair and I would still choose the outside

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 ....

To the OP : This happens often - The secret is building your resiliience and hanging on for one year till you can roll onto something else - It also will happen in the future - Best not moan or speak about it and always try and be positive - There is no holy grail