Reply to: Looking For Contract Rate to Permanent Salary Conversion Table

[northernladuk]

Thanks for posting this information. It is really useful.
Do you have an up to date set of these calculations run against all of the current tax rates, CT rates, VAT rates, flat rates, tax bands, etc?
Many thanks

Lol...

[DaveB]

Thanks for posting this information. It is really useful.
Do you have an up to date set of these calculations run against all of the current tax rates, CT rates, VAT rates, flat rates, tax bands, etc?
Many thanks

Unlikely since this was posted in 2008 and the poster hasn't been online here since December last year.

You could just look up the relevent info and plug that into the calculations yourself.

[pionium]

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.

Thanks for posting this information. It is really useful.
Do you have an up to date set of these calculations run against all of the current tax rates, CT rates, VAT rates, flat rates, tax bands, etc?
Many thanks

[oracleslave]

This is going to be less.

This is going to be a LOT less

[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.

[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

[oracleslave]

I'll second that

[TheFaQQer]

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

[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.

[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.

[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.

[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..

[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.

[shoes]

If you're looking at what employers will actually pay, the hourly rate * 1000 works fine, in that a contract role at £40 an hour typically would relate to a permie role at £40,000 a year.

I think that's broadly true. I have wondered about that in respect to IR35 :

"The legislation ensures that, if the relationship between the worker and the client would have been one of employment had it not been for an intermediary, such as a service company or a partnership, the worker pays broadly tax and NICs on a basis which is fair in relation to what an employee of the client would pay."

So if you are IR35 caught you should not be treating all of your companies income from the contract as salary (less 5%, less vat), in the example above you should only be treating 40k of it as salary.

In an IR35 caught contract my 'salary' is greater than the salary I would recieve in the equivilent permie position, and therefore I pay more tax than the equivilent permie role. So why when IR35 caught are we paying more tax than a permie in the same role?

By HMRCs ridiculous style logic, this is 'not fair'.

[VectraMan]

If you're looking at what employers will actually pay, the hourly rate * 1000 works fine, in that a contract role at £40 an hour typically would relate to a permie role at £40,000 a year.

Looking at it another way, the cost to an employer of a £40K permie is £48K (allowing for employer's NI) *13/11 (which allows for one month a year holiday and one month's salary per year as redundancy) = £57K.

The cost of a £40/hr contractor working 12 months a year is £78K, or 36% more than the permie (and the contractor gets roughly double the take home pay).

And for that the employer gets out of all the issues over employment rights and limits on redundancy and make the balance sheet look better by having less fixed costs. We're a bit of a bargain really.