Freelancing / Contracting

Pross

I've been contacted today about a job opportunity that sounds very interesting (basically a poacher turned game keeper situation) but it is a contract role. It would be working for a public sector with an initial 12 month contract but there is apparently at least 3 or 4 years of secure work. The hourly rate is almost identical to my current basic salary but obviously by setting up as a limited company I would be tax efficient and all my work related expenses including travel would tax exempt so I should be able to take home an extra £400 - £500 per month. Also, any hours extra I worked would be chargeable and I could arrange flexible hours plus possible home working. On the flip side I would need to pay into a pension separately, run my own car and possibly buy insurance to cover illness etc.

I'm sure some of you on here have made the leap from permanent to contract work or vice versa so would be keen to here your experiences and advice.

From my brief research so far I have learned that setting up as a limited company is by far the best way to maximise take home salary but requires a bit more paperwork (I have found a specialist accountant that handles everything for about £120 per month). Also, I understand it is best to ensure the contract you take puts you outside IR35. Pros and cons as I see them:

Pros

Flexibility
Potentially greater take home income
Being your own boss
Getting paid for all the hours you work

Cons

Lack of security (but then in reality the permanent job only gives security for the length of my notice period!)
Paperwork and accountants fees
Potentially more difficult to get a mortgage etc.
Not paid for sick or leave (but only get paid 10 days sick per 12 months anyway)
Need to pay into a pension
Need to fund my own car

All advice welcome!

Monty Dog

Check out your IR35 Business Entity Test requirements - setting-up a limited company to do sub-contract work for a single customer (particularly your previous employer) may be considered by Revenue to be a tax-dodge. There are numerous online tests and guidance.

freeze77

http://www.contractorcalculator.co.uk/ is a good source of info if you haven't seen it particularly the comparison calc. If you can go 'VAT flat rate scheme' too should you pull the trigger but that's a little way down the line after all the initial set up, getting a biz account etc. There is sooo many pros and cons mate and a very big step from a permy job, good luck. If your salary matches the hourly rate your offered then they are getting you cheap as when you want leave/sick/snowed in they are not paying you as you know plus if they don't need you it's a tap on the shoulder or at best a weeks notice...... I've been there numerous times but as long as your keeping back enough for paying fees, tax man and afew weeks pay at least (as I do giving me breathing space to find another contract) then you should be good. Roughly 20% is the rule of thumb for all your fees and expenses etc (not the safety net though) just don't buy parlees with it
My line of work its the difference of about 2k a month so everyone's different however Iam doing 50+ hrs a week at times. £120 a months abit steep too I've paid no more than £500.......a year. Setting up is easy and could cost next to nothing doing it yourself on companies house website. Sure they'll be loads on here with their pennies worth though.

Again good luck

Brassknocker

freeze77 wrote:

£120 a months abit steep too I've paid no more than £500.......a year.

Agree with the above, I was paying about £110 a month for a while with a crappy accountancy firm (don't go with 3 sixty group whatever you do!!!) but changed to an 'individual' accountant who charges about £400 -£500 per year and is excellent.

...as mentioned above, the first thing he did was switch me onto the VAT flat rate scheme.

VTech

I went from being employed to "renting myself out" and its the best move ive ever done, there are so many opportunities available where you can sell yourself for more hours or to others.
Never worry about accountancy bills, as long as they save you more than they cost you your onto a winner. There are so many things you can claim for legally without worrying about having to try and dodge taxes which IMO isnt worth it, they always get you in the end.

daviesee

I have been contracting off and on for the past 25 years, continuously for the past 9, and I wouldn't take another staff job ever again given the choice.
It sounds like you have a good handle on things but there are 2 important points I'd like to make.

1. Contractors get paid at a higher rate than staff as the overheads are lower. In my line it is @ 50%+. Sounds like you have gotten a poor offer.
2. The Government is clamping down on long term public sector contractors probably mostly to do with image and not wanting to appear hypocritical. Although IIRC most MPs are set up in this manner.

VTech

A lot of long term contractors are anything 6 months or over which in turn the government suggest you are then full time permanent. The idea is to not pay NI contributions.
They hate this of course so want to stop it.

I'm not sure how to get round this but as above, it's the best decision I've made and I would suggest it to anyone who isn't 100% certain of keeping their job or want to progress.

Pross

Thanks all. I think I might see if I can push the hourly rate up a bit. I suspect the agency are mentioning the low end of the potential rate to maximise their own take and suspect the Council are paying them much more. Although the contract would be full time hours it wouldn't be exclusive so I could do a few ad hoc hours for mates who have their own companies which should ensure I don't get caught in IR35.

MountainMonster

I have been working on a consultancy basis since I turned 19, and it is very great. There are many positives to the work, but also a few negatives, as some people have already pointed out. It is great being able to claim back VAT on things that a normal employer won't accept!

The one thing that always worries me is late payments from clients. We had one client drag their feet at the end of a 2 year contract which resulted in my parents almost losing their house, and us having problems making rent. I highly suggest going with a service like CreditFocus or MyBusinessWorks which offers you the ability to send payment reminders and in the event of late payment send collection letters. They also have lawyers who will go to court for your if things get that bad!

As a consultant you most likely will not have very many transactions on your business account, so using a simple online service like Quickbooks Online could help save some costs through the year for accounting software. I use it, it is great!

Good luck!

Pross

Thanks. I raised the issue of late payments when talking to the agency that approached me. Apparently they pay weekly on the dot into your business account (I need to ensure they aren't acting as an umbrella company or stripping out charges but I assume this is covered by whatever uplift they are charging the Client) and in this case the Client is a Council who tend to pay their bills immediately.

I'm just trying to get my head around the numbers so if I run through I simplified example using nice round numbers can someone point out what I'm missing / where I've gone wrong please:-

Contract rate £30 per hour 40 hours per week

Total paid to Pross Contracting Ltd (based on 45 earning weeks per year) = £54000 per annum

Monthly salary to Pross = £6,000 (slightly above Employee NI rate but below Employer NI rate)*

Expenses paid to Pross (mileage at 45p, parking, bridge tolls) say £6,000

Total paid out by Pross Contracting Ltd = £12000

Annual profit = £42000

Corporation tax = £8400

Profit after tax = £33600

Dividend to Pross £30000

Pross gross income = £36000

Total gross income at lower level so no further tax due.

Take home monthly pay = £3,000 + expenses repaid free of tax

I've left out VAT for now as that confuses me and I'm not sure if the contract on offer allows me to claim VAT on top but as I understand it the flat rate VAT option means I pay something like 13% of VAT back which I assume means I keep 7% of the VAT charged?

I also haven't included pension in there. Am I right that this is best paid directly into a pension scheme by Pross Contracting Ltd from the pre-tax profit and that the money would then come of the profits before corporation tax is paid?

* Something I'm not sure of is whether I can pay myself such a small amount or would I have to pay minimum wage for the number of weekly hours in my contract? Everything I have read seems to suggest I can pay the bare minimum to get myself into the NI system but that would work out at less than the National Minimum Wage.

Hopefully the above makes some sort of sense?

MountainMonster

It is all making sense, but I suggest reading through the Companies House documents regarding incorporation? We don't qualify for it because we are under the threshold, therefore do not need to be incorporated. Have you considered other avenues of setting up the business? If you set up as a sole trader you could save yourself a large headache.

daviesee

You are correct in your thinking about flat rate VAT and pension. :P

Re the salary. You can do that, and many do but it opens you up to investigation on minimum wage and may highlight you for investigation on other matters. It is common practice to pay minimum wage as a salary.
In your case 40 hours x 52 weeks @ £6.31 = £13,125. Bear in mind a £9440 allowance and that does not leave much for taxable amounts.

simonhead

I am a recruiter in the oil and gas industry and work with a number of contractors:
A few things worth considering:
You mention 3 or 4 years work - is this all at the same site, if it is technically you cant claim expenses after 2 years.
Insurances - do you have them set up, you should have a minimum of PL but PI and EL are worthwhile as well, EL as under IR35 you have demonstrate the right of substitution and you couldnt substitute without EL
VAT - Current VAT threshold is £77k so you should be VAT exempt unless any side jobs take you above this level.
Get quotes - there are loads of companies (brooksons, giant etc) that will quote you a NET rate, ask for their workings out, some will unfortunately over inflate mileage/expenses to make it sound like you are getting a better deal with them.
Paid when paid - dont let an agency tell you they work on a paid when paid basis, this is not fair on contractorsand if they do that run a mile (normally means financial trouble)
Visibility - you need to be an obvious contractor for a project or peice of work (IR35 again) - lots of ways to do it but non generic company email clearly defining you as a contractor is popular eg dave.smith.guest@abc.com, same with business cards noting you are a contractor.

Without knowing exactly what you do i cant say if your rate is low or not, but as others have stated the norm is +15-40% for contractors

MountainMonster

Pross, this is a bit of a shameless plug, but if you require websites to be built up and designs of high quality letter heads, business cards and such give me a shout. I'd love to be able to help some fellow cyclists out. My company is www.cdwm.org, feel free to drop me a line and we can work on pricings!

VTech

You need to speak with someone OFF the forum as you are missing lots that you would claim for. All without being scrutinised as trying to avoid taxes etc.
it's not as simple as earning a figure and paying a set rate on that figure unless you like to overpay.
Also, I hope that hourly rate is just a figure plucked from the air and not the real figure.

Pross

No, that's pretty much the hourly rate (if I could get it raised by 25%). It's high for contracting in my field (civil engineering consulting)

drlodge

simonhead wrote:

I am a recruiter in the oil and gas industry and work with a number of contractors:
A few things worth considering:
You mention 3 or 4 years work - is this all at the same site, if it is technically you cant claim expenses after 2 years.

I think that if you believe you will be working for 2 years at the outset i.e. contract is for 2 years or more, then you can't claims expenses from day 1. So setup the contract to be less than 24 months.

simonhead

drlodge wrote:

simonhead wrote:

I am a recruiter in the oil and gas industry and work with a number of contractors:
A few things worth considering:
You mention 3 or 4 years work - is this all at the same site, if it is technically you cant claim expenses after 2 years.

I think that if you believe you will be working for 2 years at the outset i.e. contract is for 2 years or more, then you can't claims expenses from day 1. So setup the contract to be less than 24 months.

You are right, however he stated that the initial contract is 12 months so doesnt gauruntee rolling on. Should be OK but worth asking the question to an expert.

Spender

If that's the rate for civil engineering you need to look at another industry to engineer in.

Pross

Spender wrote:

If that's the rate for civil engineering you need to look at another industry to engineer in.

Probably but with 20 odd years experience it might be a bit difficult to retrain!

Spender

You'd be surprised the background of people in the oil industry. 20 years up must be in your 40s that's not too late to do some transferrable training and I bet your skills of 20 years would be valuable. However it's not all about the money obviously.

VTech

I've recently had lots of engineering work done (design and calculations) and none of them have been done for anything like £30-£40/hour so I'm not sure if you are in this field of work but it seems quite lucrative to me.
I feel I've also had good value as he did a great job, was on schedule and listened to what the wife wanted in the planning so all was good.
You can charge whatever you want if you offer good, reliable and trustworthy service.

simonhead

Spender wrote:

You'd be surprised the background of people in the oil industry. 20 years up must be in your 40s that's not too late to do some transferrable training and I bet your skills of 20 years would be valuable. However it's not all about the money obviously.

Spender is right, it is harder to transition from civils into the oil and gas industry than structural but is achievable, particularly in a smaller company. Going rate for a civil engineer with 5 years experience is £55-60 p/h in the South East in oil and gas. Structural guys are getting up to £80, thats just with the EPC organisations, operators are paying even more.

Pross

VTech wrote:

I've recently had lots of engineering work done (design and calculations) and none of them have been done for anything like £30-£40/hour so I'm not sure if you are in this field of work but it seems quite lucrative to me.
I feel I've also had good value as he did a great job, was on schedule and listened to what the wife wanted in the planning so all was good.
You can charge whatever you want if you offer good, reliable and trustworthy service.

My experience is all in highways so there's not much call for private work. My charge out rate through my company is way higher than £30 per hour but in terms of Contract work no-one is paying much more than that (maybe £35 to £40 in the South East but I don't intend moving). There's a lot of competition out there as the industry has been hard hit by redundancies and there are a lot of one man band consultancies about so I'd be looking for fairly secure longer term contracts rather than hoping to bring in my own work.

VTech

I dont want to pretend I know much about your work as I dont so anything I say is guesswork as far as the work side goes but could you sell your services online ?
Then you could cover far greater areas ?

Ive recently had a cellar and games room built, it was all underground and the engineer info was all done over the net, they were very helpful and gave great service. It wasnt cheap but it was good value as t would have cost me more if they hadnt done such a thorough job.

FatTed

VTech
why did you go underground? looks like you have plenty of land to build on top.

VTech

I'm not sure really, I just fancied the idea of an underground cellar and then added a games/snooker room to it and it went from their.
It was surprisingly well priced too which is always a shock in building.

steerpike

I know vtech, why not use the thread as a vehicle for some more bragging about your money/land/house/lifestyle? What? oh....

VTech

steerpike wrote:

I know vtech, why not use the thread as a vehicle for some more bragging about your money/land/house/lifestyle? What? oh....

Don't be a hater, jealousy is soooo 1980's

MountainMonster

steerpike wrote:

I know vtech, why not use the thread as a vehicle for some more bragging about your money/land/house/lifestyle? What? oh....

Shoah, someone's got a case of jealousy!

d87francis

@MountainMonster - more like someone has grown tired of someone who can't shut up about their personal wealth.

VTech wrote:

You need to speak with someone OFF the forum as you are missing lots that you would claim for. All without being scrutinised as trying to avoid taxes etc.
it's not as simple as earning a figure and paying a set rate on that figure unless you like to overpay.
Also, I hope that hourly rate is just a figure plucked from the air and not the real figure.

It's usually very, very difficult to persuade HMRC that a permanent or nearly permanent position with a company , much like the one you are shown in on your website, is one of self employment. I just wondered if you have ever been investigated by HMRC, and what advice you have for others who take such a high risk strategy? Or are you winging it until you get found out?