Noob contractor questions

[lukemg]

WTAS
Anyone jumping into this contract market is very brave, I would only advise people with very hot skills (that can’t be off-shored), preferably a contract in the bag, with v. low current expenses, no dependants, 6 months cash in the bank and preferably who is being made redundant anyway to consider it !
I am stuck in, can’t really do anything else, just trying to squeeze a few more years out of it.
Still – good luck..

[nomadd]

Do you have businesses/income on the side to subsidize the lean periods, or just rely on "contracting" savings?

Just rely on "contracting" savings. Mind you, I'm just about to start my 22nd year of contracting, so there's a few gold bars buried in the back garden by now. Plus I'm too old/lazy/ambivalent to do any thing else; my brain is now hard-wired to do IT until I expire (or Bob Injun and his mates get me!)

And anyhow, my time between contracts is fully occupied, hanging around here arguing with the other old-timers (shakes walking stick at all of them...)

[Wanderer]

1) What happens if you work pretty fast, and you finish your contract 2 months early, by no fault, but being too efficient. Do you get terminated early, or do you get the full contract pay?

There are a couple of ways that this can work:

1) You will be engaged to work for X months at Y per day to work on a particular project. If you finish your project early, then you will either get your contract terminated early or they will find other things for you to do. You go to work and take the daily rate.

OR

2) You get approached to design (say) a web site, you hammer out a detailed specification of what you agree to produce and a fixed price to deliver the piece of work. You could do it all yourself or you could subcontract all or part of it to India, your choice. If you get the job done early and to the client's satisfaction then you get paid and move on. You do it early, you make a profit. It goes pear shaped, you make a loss. It's a risky business.

If the tax man is asking, we try to look as much like scenario 2) as possible but the reality is that most contractors look more like type 1) on the daily/hourly rate, do what you're told situation. Lots of people here will howl with derision at this because scenario 1) is a borderline case for being caught by IR35 and doubling your tax bill but in my experience 90% of contractors are in this situation.

2) If you get employed, say as a web designer, then the client wants you to do all sorts of database integration etc on top, outside the original spec, can they do this?

It depends on if you quoted a fixed price against a detailed job specification to produce (say) website or if you were engaged on an hourly rate. If you are doing a fixed price job then you go back to the original requirements document, agree the changes and then give them a quote for the extra work. If you are on the hourly rate then you keep your head down, do what you are told and take the money at the end of the week, all the time looking over your shoulder for the IR35 investigators.

3) Are there calculators which show cash in bank income, assuming ltd company, opting out.

Opting in or out makes no difference to IR35 or your status in business. I suggest that you don't opt out because there is no compelling reason to do so and there are good reasons to stay opted-in.

For example I put £400 a day in 2 calculators (ltd co, outside ir35), I get (per month): £6804.65 on one & £5,081 on another.

As others have said, it's a bit of a complex calculation.

Presuming you get VAT registered, you can probably keep about 75-80% of your ex-VAT invoiced amount (outside IR35) so I think £6804 would be at the higher end but possible. Once you get into the higher rate tax band (which you would do pretty easily on that rate), you will pay more tax. If you don't need the cash straight away then you can retain the money in your company and pay it out during lean times, pay it into your pension, pay a dividend to your spouse if they don't work or invest it in some other business venture.

It may seem like big money but bear in mind that you won't work a whole year - you need to consider unemployment, sickness, holidays, pension etc out of that money too. I generally expect to work about 10 months of the year, sometimes a lot less. You really want a warchest of 6 months salary stashed away for a rainy day.

Don't make the mistake of presuming you are caught by IR35, get some advice because you can avoid a lot of tax if you are outside.

Good luck!

[Billyray]

Thanks for the replies.

It wasnt a troll post.

I understand contracting is hard, as you need white-hot skills, and there is the constant worry about finding contracts/contract renewal.

Do you have businesses/income on the side to subsidize the lean periods, or just rely on "contracting" savings?

[nomadd]

I am thinking of contracting soon.

I have a few questions for thoes experienced in this type of work.

1) What happens if you work pretty fast, and you finish your contract 2 months early, by no fault, but being too efficient. Do you get terminated early, or do you get the full contract pay?

2) If you get employed, say as a web designer, then the client wants you to do all sorts of database integration etc on top, outside the original spec, can they do this?

3) Are there calculators which show cash in bank income, assuming ltd company, opting out.

Any help much appreciated.

Billy

Assuming this isn't an Agent troll post...

1. I've never met a single contractor who finished the job ahead of time...and then went on to boast about it. If you finished ahead of time, you keep you mouth shut, your head down, and continue invoicing. Use this "spare time" to gain some new skills (whether the project needs them or not...)

2. Well, firstly, forget any IR35 "control" nonsense - it has nothing to do with the "real world". The client has employed you because you have skills they do not. What that normally means is you have many skills they do not. And you are prepared to learn new skills, if that's what the project needs. In other words, if what the client wants to do looks like it could be a useful skill for future contracts, you just do it. I'm in that very boat myself at the moment: I'm a Java guy, but client wants a C#/WPF application knocking up to talk to our cluster. A quick scan of Jobserve shows those things to be useful skills, hence I've told the client it will be "no problem" to assist in getting this done.

3. Yes. But they are next to useless. Every contractor's business is different. Do your own calculations, and/or get an accountant to assist (you're going to need one anyway...)

4. Listen to what people are telling you about the downsides of contracting on this thread. And read as many threads on this forum as you can - especially those from last year when the market was dire. Your "question 3" about "earnings calculators" is particularly worrying - don't think of contracting is a quick "road to riches", it isn't.

[oversteer]

Thanks for the advice.

You have to stay positive, if on the bench. Do many people have side incomes too?

One thing I couldnt understand is the difference in income used between different calculators.

For example I put £400 a day in 2 calculators (ltd co, outside ir35), I get (per month): £6804.65 on one & £5,081 on another.

Which one is more accurate?

Neither.

You have to do the sums yourself.

If you are billing via your own Ltd Co, you will be charging £x per day. That's the only guaranteed figure.

How you draw that money from your Ltd Co depends entirely on you. You might take a small salary (£500 per month) and the rest as a dividend. The dividend amount depends on the profit, which depends on your turnover less expenses; expenses can vary; the tax payable from the dividend depends on your income; etc.

If you are going via an umbrella, they will have their own "anticipated" percentage you get.

It's not like permiedom, where you can have an income, and easily work out after tax what you go home with.

[malvolio]

Thanks for the info.

I think outside IR35 is the best bet.

I't s not your choice. Go do some reading

[Billyray]

Thanks for the advice.

You have to stay positive, if on the bench. Do many people have side incomes too?

One thing I couldnt understand is the difference in income used between different calculators.

For example I put £400 a day in 2 calculators (ltd co, outside ir35), I get (per month): £6804.65 on one & £5,081 on another.

Which one is more accurate?

[Support Monkey]

I am thinking of contracting soon.

Billy

you either have a time machine and can see the future or your just a certifiable mad man, have you been outside lately cos its not looking pretty out there, admittably there are more contracts about than last year but with many experienced contractors benched and looking unless your niche skilled your gonna be at the back of the queue and with the impending cuts in the public sector and projects getting canned like never before the next couple of years are gonna be tough, there is never a right time to go contracting but make sure you work out the sums and know all the risks before leaving anything permanent.

In answer to the question, 1) it could roll on for many years it could end in a fortnight you get paid for the time you put in thats the risk
2) you will not be employed you will be contracted to deliver a specific peice of work, make it clear at the contract negotiations that anything extra will be charged accordingly
3)Yes

[Billyray]

Thanks for the info.

I think outside IR35 is the best bet.

[SueEllen]

I am thinking of contracting soon.

I have a few questions for thoes experienced in this type of work.

1) What happens if you work pretty fast, and you finish your contract 2 months early, by no fault, but being too efficient. Do you get terminated early, or do you get the full contract pay?

You get terminated early otherwise you would fall under IR35.

However you can also get extended if due to know fault of your own the project doesn't fit into the time scales predicted.

2) If you get employed, say as a web designer, then the client wants you to do all sorts of database integration etc on top, outside the original spec, can they do this?

Depends if you fall under IR35 or not. If you are not then the answer is no.

3) Are there calculators which show cash in bank income, assuming ltd company, opting out.

Try this link - google


And if you want to know what things like opt-out and IR35 mean have a look at the CUK Navigation panel on the right hand side of the page.

[Billyray]

I am thinking of contracting soon.

I have a few questions for thoes experienced in this type of work.

1) What happens if you work pretty fast, and you finish your contract 2 months early, by no fault, but being too efficient. Do you get terminated early, or do you get the full contract pay?

2) If you get employed, say as a web designer, then the client wants you to do all sorts of database integration etc on top, outside the original spec, can they do this?

3) Are there calculators which show cash in bank income, assuming ltd company, opting out.

Any help much appreciated.

Billy