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Potential first day rate contract - what should I choose, Ltd or Umbrella?

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    Potential first day rate contract - what should I choose, Ltd or Umbrella?

    Hi, I have a reasonable chance of getting my first day rate contract in IT business change at £425 per day. It's listed as being outside IR35. I went on an online calculator from some Umbrella provide and it said that £425 should work out at around £7550 a month as a LTD company, or £5600 per month through an umbrella company. The contract would be for 6 months.

    Obviously the pay sounds quite a lot better as a LTD company but would it come with a lot of other obligations, expense and responsibilities/liabilities? I wouldn't really want to lose out on £2000 per month if i could help it. Is a LTD company hard/time consuming to set up? Also, I know it might sound bad but as this is my first day rate contract I wonder about the pressures of the role/what would be expected. If for any reason I can't provide the level of service that is expected (obviously I hope I can), am I at legal risk if I'm a LTD company in a way that i might not be as employed through an umbrella? What about if I left the contract early for any reason? Just wondering how this sort of stuff works in the real world. Thank you.


    #2
    Suggest you read the 1st timer's guide. You really need to be all over this stuff if you're in business on your own account.
    And the lord said unto John; "come forth and receive eternal life." But John came fifth and won a toaster.

    Comment


      #3
      Originally posted by stevenp61 View Post
      Hi, I have a reasonable chance of getting my first day rate contract in IT business change at £425 per day. It's listed as being outside IR35. I went on an online calculator from some Umbrella provide and it said that £425 should work out at around £7550 a month as a LTD company, or £5600 per month through an umbrella company. The contract would be for 6 months.
      If you are struggling with the LTD situation and your understanding of IR35 then there is nothing wrong with going with an umbrella for three months and then reverting back when you are ready. I did it and many others do. The difference between umbrella and LTD income seems a lot but it will become peanuts over the rest of your contracting career and can be worth it to get it right first time. I wouldn't be quick to discount it as an option.

      Obviously the pay sounds quite a lot better as a LTD company but would it come with a lot of other obligations, expense and responsibilities/liabilities?
      It does. You are personally responsible for the taxes and running of the LTD. You are responsible for the work done as well. If you delete the clients live database they will come after you so need PI/PL insurances etc. It's probably required in he contract anyway. As a LTD the buck stops with you. There is no HR to help you out or hiding behind an employment contract and workers rights. It sounds a lot but it's not that bad once you've got it sorted and understand it.

      I wouldn't really want to lose out on £2000 per month if i could help it. Is a LTD company hard/time consuming to set up?
      It is if you don't know what to do and can't be bothered to go research it. But no it's not really. Get an accountant and they'll do all that for you. Getting the LTD will take a few days but the business bank account might take a bit longer. Learning about IR35 in great detail to understand what and how you must do things takes longer and requires a whole change in mindset. You cannot think like a permie any more. You are an independent supplier to a client. Also getting your head around the company money and personal money catches many newbies out. The company money is not yours until you've extracted it by whatever means you decide etc.

      Also, I know it might sound bad but as this is my first day rate contract I wonder about the pressures of the role/what would be expected. If for any reason I can't provide the level of service that is expected (obviously I hope I can), am I at legal risk if I'm a LTD company in a way that i might not be as employed through an umbrella? What about if I left the contract early for any reason? Just wondering how this sort of stuff works in the real world. Thank you.
      I personally think contractors should deliver to a higher standard than perms and go above and beyond for the client if need be. Some would argue contracting is a wheeze and it's easier. It will very much depend on the role. Some clients expect more from contractors and treat them badly, others are great and as long as you deliver they don't care. You will, at some point in your career, get an absolute stinker of a gig. Could be the perms hate contractors and make your life a misery, it could be the work is crap or it could be you've been dropped in to be the scapegoat for all the perms failings. It happens to us all at some point.

      Leaving early is a bit of a taboo for me but it's possible due to the nature of the contract. Used occasionally and in extreme situations then no problems with it. Agents will get pissed off and you'll have a lot of shouting and a bit of a problem getting your last pay in some situations depending on the circumstances.
      It's also possible you could get walked on the spot if the clients budget dries up or even if your face doesn't fit. There are no protections around suppliers beyond the contract and even then that only sticks if you go legal. There will be a clause in the contract saying you only get paid if there is a signed timesheet. If the client decides not to give you work then you don't get paid and you are done on the spot. It's pretty rare but the risk is always there. Notice periods are irrelevant to clients yet we often have to honour them. It can seem unfair but it's now a client/supplier relationship and the party with the money is king. There are no rights as a contractor so can't complain if the client treats you unfairly, dismisses you or anything.

      It's also not the golden goose you might think looking at your sums. This gig is outside but might not last beyond your first day. You will then have zero income until you find the next gig. The saying goes 'The second gig is the hardest to get'. You don't have the comfort of going from perm to contract. You are out there with no work, zero income and only you to sort it out. You are still a newbie and a risk to the client with only one gig under your belt and you'll be up against many thousands of people with tens of years experience so not that easy to get the second, third and so on roles. Be prepared for long bench times with no income.
      Also outside gigs are pretty rare at the moment. It's highly likely the next few gigs could be inside so budget carefully.

      I've focussed on all the crappy things, it's generally not like this but can happen at some point. If you can cope with all that then the rest is easy mode. Biggest thing to remember though is you are on your own. No one to hold your hand and you are the only one that can manage things and make decisions. Seen plenty of people that are incapable of that and contracting can be difficult for them.

      As Boredom says, every single contractor that has ever been has been in your position so you can imagine there are vast amounts of resources to help you. If you can't get this bit right then maybe it's not for you. Read the First Times link and all the other links to the right and then go find more information on the web.
      'CUK forum personality of 2011 - Winner - Yes really!!!!

      Comment


        #4
        Oh, and remember the contracting mantra. You have nothing until you are sitting at the clients desk on the first day. Reasonable chances still mean you've got nothing. If we all had a pound for every reasonable chance of getting a gig then most of us could have retired by now.
        'CUK forum personality of 2011 - Winner - Yes really!!!!

        Comment


          #5
          Originally posted by northernladuk View Post
          Oh, and remember the contracting mantra. You have nothing until you are sitting at the clients desk on the first day. Reasonable chances still mean you've got nothing. If we all had a pound for every reasonable chance of getting a gig then most of us could have retired by now.
          Yeah I understand that. I just know that for this particular role they've not been able to find someone and my CV does tick quite a few of the points that they need. So I just wanted to get a heads up on how I would do things/what I could earn first in order to help me with my decision ahead of time if I am offered the role. I'm currently in a fixed term contract on a lower salary and just trying, knowing I need to earn (and be able to save) more, but wondering right now if the stress of the change is worth it.

          Comment


            #6
            Originally posted by northernladuk View Post

            If you are struggling with the LTD situation and your understanding of IR35 then there is nothing wrong with going with an umbrella for three months and then reverting back when you are ready. I did it and many others do. The difference between umbrella and LTD income seems a lot but it will become peanuts over the rest of your contracting career and can be worth it to get it right first time. I wouldn't be quick to discount it as an option.


            It does. You are personally responsible for the taxes and running of the LTD. You are responsible for the work done as well. If you delete the clients live database they will come after you so need PI/PL insurances etc. It's probably required in he contract anyway. As a LTD the buck stops with you. There is no HR to help you out or hiding behind an employment contract and workers rights. It sounds a lot but it's not that bad once you've got it sorted and understand it.


            It is if you don't know what to do and can't be bothered to go research it. But no it's not really. Get an accountant and they'll do all that for you. Getting the LTD will take a few days but the business bank account might take a bit longer. Learning about IR35 in great detail to understand what and how you must do things takes longer and requires a whole change in mindset. You cannot think like a permie any more. You are an independent supplier to a client. Also getting your head around the company money and personal money catches many newbies out. The company money is not yours until you've extracted it by whatever means you decide etc.


            I personally think contractors should deliver to a higher standard than perms and go above and beyond for the client if need be. Some would argue contracting is a wheeze and it's easier. It will very much depend on the role. Some clients expect more from contractors and treat them badly, others are great and as long as you deliver they don't care. You will, at some point in your career, get an absolute stinker of a gig. Could be the perms hate contractors and make your life a misery, it could be the work is crap or it could be you've been dropped in to be the scapegoat for all the perms failings. It happens to us all at some point.

            Leaving early is a bit of a taboo for me but it's possible due to the nature of the contract. Used occasionally and in extreme situations then no problems with it. Agents will get pissed off and you'll have a lot of shouting and a bit of a problem getting your last pay in some situations depending on the circumstances.
            It's also possible you could get walked on the spot if the clients budget dries up or even if your face doesn't fit. There are no protections around suppliers beyond the contract and even then that only sticks if you go legal. There will be a clause in the contract saying you only get paid if there is a signed timesheet. If the client decides not to give you work then you don't get paid and you are done on the spot. It's pretty rare but the risk is always there. Notice periods are irrelevant to clients yet we often have to honour them. It can seem unfair but it's now a client/supplier relationship and the party with the money is king. There are no rights as a contractor so can't complain if the client treats you unfairly, dismisses you or anything.

            It's also not the golden goose you might think looking at your sums. This gig is outside but might not last beyond your first day. You will then have zero income until you find the next gig. The saying goes 'The second gig is the hardest to get'. You don't have the comfort of going from perm to contract. You are out there with no work, zero income and only you to sort it out. You are still a newbie and a risk to the client with only one gig under your belt and you'll be up against many thousands of people with tens of years experience so not that easy to get the second, third and so on roles. Be prepared for long bench times with no income.
            Also outside gigs are pretty rare at the moment. It's highly likely the next few gigs could be inside so budget carefully.

            I've focussed on all the crappy things, it's generally not like this but can happen at some point. If you can cope with all that then the rest is easy mode. Biggest thing to remember though is you are on your own. No one to hold your hand and you are the only one that can manage things and make decisions. Seen plenty of people that are incapable of that and contracting can be difficult for them.

            As Boredom says, every single contractor that has ever been has been in your position so you can imagine there are vast amounts of resources to help you. If you can't get this bit right then maybe it's not for you. Read the First Times link and all the other links to the right and then go find more information on the web.
            Hi, thanks for the very detailed reply. I'm going to re-read it and look at the 'first timer' guides too. You've addressed quite a few of my concerns there like the fact that I could be leaving my much lower paid but safe and quite low stress fixed term contract for something much more high pressure and high stress which for all I know they could end after my first few days or week. I presume most contracts have a weekly notice period?

            Am I right in saying you think maybe it would be better to start off with an umbrella first if I were offered and accepted a day rate contract role and then could switch over at some point to Ltd when it feels more safe to do so?

            I remembered someone telling me that working as a Ltd company was better for long contracts, and this one would be 6 months, but then as stated I do have some concerns over whether I would absolutely be able to do the role (this could be me overthinking as I've had bad experiences in the past in other roles and haven't even met these people for interview yet). My current role is very 'comfortable and low stress in a team of very friendly people/good boss. Trouble is I just am not going to earn that much in it (one third of what I would in this role even through an umbrella company, but I do get holidays and a good pension scheme).

            Oh, am I correct in saying that if you go through an umbrella company then the IR35 status of the role doesn't matter? And that it being outside is only a benefit if you do it through a Ltd company? As I say, it could be £2k more if done through a ltd company according to that checker.

            Comment


              #7
              Originally posted by stevenp61 View Post

              Yeah I understand that. I just know that for this particular role they've not been able to find someone and my CV does tick quite a few of the points that they need. So I just wanted to get a heads up on how I would do things/what I could earn first in order to help me with my decision ahead of time if I am offered the role. I'm currently in a fixed term contract on a lower salary and just trying, knowing I need to earn (and be able to save) more, but wondering right now if the stress of the change is worth it.
              Normally a few points doesn't cut it. There will be someone out there with 10 years experience that's just finished a gig doing exactly the same thing. If you say they can't find it then I'll have to take your word but I'd be surprised. Mind me asking what it is?

              We would all say it's worth it as we all contractors here of course, but depends on your skill set and ability to get further gigs. Is this a pot shot that might come off but you don't have the skill set to get further gigs for example? I've no idea about that as I don't know what you do or what you are looking at.
              'CUK forum personality of 2011 - Winner - Yes really!!!!

              Comment


                #8
                Originally posted by stevenp61 View Post

                Hi, thanks for the very detailed reply. I'm going to re-read it and look at the 'first timer' guides too. You've addressed quite a few of my concerns there like the fact that I could be leaving my much lower paid but safe and quite low stress fixed term contract for something much more high pressure and high stress which for all I know they could end after my first few days or week. I presume most contracts have a weekly notice period?
                You assume incorrectly. Notice periods can be anything from zero days up to 30 days. They can be uneven so one party has different periods and there can be no notice contracts where you can't give notice until the work is complete. There is no standard. And as I said, you get paid for work done, if the client doesn't give you any more work tomorrow you don't earn another penny, effectively immediate termination on the day even though the contract might keep running.
                Am I right in saying you think maybe it would be better to start off with an umbrella first if I were offered and accepted a day rate contract role and then could switch over at some point to Ltd when it feels more safe to do so?
                You can do that if you are worried about it all. There will be people that come on and say screw that go LTD straight from the off. It's not for me to tell you what to do as I don't know your situation but if you are really struggling and losing sleep over it then an umbrella is an option. You can be with them, one, two or more months until you are comfortable and then swap.
                I remembered someone telling me that working as a Ltd company was better for long contracts, and this one would be 6 months, but then as stated I do have some concerns over whether I would absolutely be able to do the role (this could be me overthinking as I've had bad experiences in the past in other roles and haven't even met these people for interview yet). My current role is very 'comfortable and low stress in a team of very friendly people/good boss. Trouble is I just am not going to earn that much in it (one third of what I would in this role even through an umbrella company, but I do get holidays and a good pension scheme).
                LTD is better for all outside contracts, 1 day, 1 month whatever. I think what they might be saying is there is a limit where a LTD doesn't outperform a brolly. It used to be about 30k but that was when people in brollys could claim expenses so dunno what it is now.

                Can't advise you on the stress I am afraid but you do have to be able to deliver when you contract. It's not the place for jack of all trades and slackers. Contractors do get binned for being crap, no doubt about that. Many of us have years in our industry and probably been contracting for many years on top of that. There is no happy induction period or weeks of shadowing. For example, I got picked for the contract I'm in as I'd used the tech they were deploying before and in the interview I mentioned the same documents they were using. There could have been equally qualified guys at interview that hadn't used the tech or diff docs. By the end of day one I was expected to draft a plan of what docs I'd create in what order. Had to do it on paper as my laptop didn't appear until lunch.

                I could be wrong and other people have swaned in to contracts they had no idea about and learned on the fly but that's a skill in itself. I think the technical terms are winging it or blagging it. Not something I think I could do to be fair.

                Lots of little things to consider when contracting. You'll get paid a lot but you don't get paid for holidays. Two week hol in the middle of a contract is a very very expensive holiday but it's a mind set you've got to get used to for example.
                Oh, am I correct in saying that if you go through an umbrella company then the IR35 status of the role doesn't matter? And that it being outside is only a benefit if you do it through a Ltd company? As I say, it could be £2k more if done through a ltd company according to that checker.
                Correct. You are paying the right amount of tax (So HMRC thinks) so the status of the gig doesn't matter. The IR35 status only matters when you are outside via an LTD and you've got to make sure you are really a company delivering to a client and not a disguised perm which HMRC doesn't like. Yep, LTD income will be much higher than Umbrella as you can use the low pay and high dividend model as dividends are taxed differently.

                Another quirk of contracting though. You'll have to put everything you can in to building a warchest up first so it's not all free money you can blow on hookers and coke from day 1. You need to make sure there is enough spare money in the account to pay your taxes and on top of that you need money for when you are out of work. You need to hit 6+ months of money in the company account to be able to continue to pay yourself even when you aren't working. You should really be poorer than you've ever been in the first few months while you build the chest up. I kid you not I have seen a grown man cry when a contract got cut short and he'd not built is warchest up. Had the fancy car, expensive mountbike and the latest Apple kit but nothing to pay his mortgage the first month out of contract.

                Lots of these quirks and differences are in the first timer guides on the right and on the web. Too many for me to go through so get reading.
                'CUK forum personality of 2011 - Winner - Yes really!!!!

                Comment


                  #9
                  Originally posted by northernladuk View Post
                  I could be wrong and other people have swaned in to contracts they had no idea about and learned on the fly but that's a skill in itself. I think the technical terms are winging it or blagging it. Not something I think I could do to be fair.
                  I agree with NLUK about having the relevant skills before you start the contract. However, there is a middle ground, particularly for inside contracts (where you don't need such a clearly defined scope of work upfront). In my current contract, I was originally brought in to handle BAU work (e.g. service desk requests) while the permies worked on a migration project. While I was doing that, I got myself up to speed on the platform they were migrating to, and we wound up swapping roles. I.e. my contract got extended to handle the migration while the permies went back to BAU work. However, if I'd initially applied for a role doing that migration then I wouldn't have had the knowledge/experience to handle it.

                  More generally, I think that inside contracts are a good opportunity to hoover up new skills, just by being exposed to processes/technology that you might not have seen before. E.g. if you've never done change control via a CAB, it will be useful to see one that's up and running, rather than just reading about the concept and then trying to implement it from scratch.

                  Comment


                    #10
                    Originally posted by hobnob View Post

                    I agree with NLUK about having the relevant skills before you start the contract. However, there is a middle ground, particularly for inside contracts (where you don't need such a clearly defined scope of work upfront). In my current contract, I was originally brought in to handle BAU work (e.g. service desk requests) while the permies worked on a migration project. While I was doing that, I got myself up to speed on the platform they were migrating to, and we wound up swapping roles. I.e. my contract got extended to handle the migration while the permies went back to BAU work. However, if I'd initially applied for a role doing that migration then I wouldn't have had the knowledge/experience to handle it.

                    More generally, I think that inside contracts are a good opportunity to hoover up new skills, just by being exposed to processes/technology that you might not have seen before. E.g. if you've never done change control via a CAB, it will be useful to see one that's up and running, rather than just reading about the concept and then trying to implement it from scratch.
                    thanks for the reply. When you say inside do you mean inside ir35? I'm not understanding why the difference in terms of not needing a clearly defined scope of work up front?


                    Comment

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