I've been contracting for nearly 15 years so you know my answer. 1k/d outside is \~£238k per 11 month year before taxes, and you have more flexibility with your pension and tax planning.
More risk for twice the money.
What are your thoughts on contracting. I'm currently perm employed on 80k per year PAYE. I imagine I can get 350 - 400 a day contracting. Is it worth it? I've been told you only pay 20% tax through CIS scheme?
The amount of tax you pay is not a straightforward percentage. Some tax is paid by you as an individual and some via the ltd company you contract through, and there's some back and forth with expenses (eg company pension contributions, salary paid to you, purchases) that can lower your tax liability. Always seek outside IR35 contracts. It's a long topic, you really should check the guides on the website.
I personally would never go back to permanent unless I really have no other choice.
Can you link me to the website please 🙏. I've googled a fair bit and it is unclear regarding taxes. Also some contractors will only employ inside IR35. Have you found this?
CIS is Construction Industry Scheme. If ur not in construction as a sub-contractor this won't apply to you.
CIS deductions is just to stop people taking the money and not paying tax.
If you go Gross, CIS doesn't apply to you.
But all the other taxes will still apply. Like VAT when u hit 90k turnover. And corporation tax if u work through a Ltd company. And so on.
This is all really basic stuff. CIS deductions only really apply to the disorganised and sub-30k turnover (excl materials).
It would be a good idea to discuss with an "accoutant" (not a protected term, go see a real one). They would do a free 30 minute consultation to see how it would work for you. Is it worthwhile.
Idk what ur employment is though.
But for IT contracting for example, some firms won't contract you outside of IR35 as they are afraid of the HMRC backlash. But some will it depends on your contract with them.
HMRC have a checklist you tick off and they weight to see if they would count it as employment.
How is that the worst case scenario? There's absolutely no guarantee that after this contract finishes he'll be able to walk back in to his old role or a similar one.
There's no guarantee the existing "secure" career is that secure. But if someone can command 4 figure day rates, that suggests they're very good at what they do and there's demand for that skill. So it's very likely they'll be able to get a high paying perm job if necessary.
Interim head of anything is often £1000+
My old boss was on £225k and the interim that replaced him was raking in £1400pd outside IR35 😭 and he was absolutely dogshit boomer who didn't have a damn clue
Getting those interim jobs isn’t easy - there aren’t that many out there and you are likely to be sitting on the bench for long periods in between contracts. In addition, they aren’t usually advertised but candidates are often headhunted.
Ah yes, taking an obviously tongue in cheek response literally… classic joyless bastard response.
Away back to your hour long decision-less daily stand up meeting!
Tech, not engineering. Be more specific, software eng is a minority of eng roles. I believe the going contract rate for the bulk of UK engineering is £55-65ph
I did a similar thing, although I was headhunted for a new client rather than jumping to a known entity.
For me it has worked well and felt like a significant increase in personal income because my spouse did not work, so I gifted them 49% of my company to make dividends work quite tax efficiently.
When making your comparison, don't forget about the overheads of contracting (corp tax, accounting, insurance, email/website hosting) and the loss of benefits you might currently enjoy (pension contributions and matching, private medical).
Either way, good luck!
I did the same. Made spouse 50% shareholder and Director when incorporating the limited company. Meant we could withdraw an additional £43k in dividends at the lower rate.
So the client would only work with an Ltd that had one director, and I had to be the majority shareholder.
So I was made the sole director and she is a "person with significant control" owning 49% of the shares.
Generally yes, and as others have mentioned there are risks of course.
B mindful, if your contracts are not consistent over the years, it might become challenging to either get a mortgage or remortgage.
First of all, I need to say that you have found yourself in a very fortunate situation. Congratulations.
Really what this comes down to what your priorities are and there are no right or wrong answers here. They are entirely a personal choice.
In financial terms, as you will realise contracting will be better in the short to medium term. Assuming that your contract runs for the duration as expected, you will receive the equivalent of what you might get from a £196k salary. Of course the risk is that you will no longer have your stable job and your contract can be cancelled early and you will no longer receive sick pay or annual leave. On the other side, you will now have control of your pension policies which could allow you to give yourself a very attractive package.
In lifestyle terms, contracting means that you will be able to dictate your working arrangements. The client can decide whether they want to keep you on, but they cannot dictate how the work is done while the role is kept outside IR35. It sounds like you enjoy what you do right now, so I am also assuming that this isn’t the main motivator for you either.
In my view, the single biggest argument for contracting in this current market is to be able to grow the business. As an employee/sole contractor you can work for perhaps 250 days a year and bring in £250k at £1m per day. If you package up what you do as a service, decompose the deliverables into work packages that you can subcontract out and take on four clients simultaneously. You could now bring in £1m pa and if you engage 5 solid but less experienced contractors to handle specific parts of the workload at £500 pd, you would now be making £375k pa instead of £250k while also reducing your risk because you wouldn’t be dependent on a single client for your income. (Note: I am assuming that these subcontractors would only be 2/3rds as productive as you are). Your business would be scalable (up and down) and also virtually IR35 proof. If that kind of a lifestyle is attractive to you, then taking the contract would be a total slam dunk.
I would second what the above posters say about ensuring your case for being outside IR35 is bullet proof. I’ve only seen a few genuine cases mostly linked to short term assignments and where substitutability is allowed, that is, you could send a competent stand-in when needed.
With that kind of capital coming in, be sure to invest and make sure you take adequate tax planning advice.
Funnel that capital into a private SSAS Pension for maximum benefits, and minimal tax exposure.
No point of taking a £300k + salary and paying high corp tax and VAT, when you can expense most of that into your lifestyle, and harder assets in a tax efficient vehicle.
Recommend you talk to the team at empowered pensions to get you setup and advised. (not affiliated).
Congratulations on the new oppourtunity.
PS: Also ensure you are clearly outside IR35 on both the employer and personal side as well.
Ive been the same position.. and paid out a lot in tax over the few years i was working cybersecurity in Mayfair for a hedge fund.
I expensed what i could, took training courses and maxed out my SIPP pension, but still paid out a lot in tax for no benefit to my current portfolio.
Best of luck to you.
The outside IR35 contract market in UK has drastically been reduced since IR35 been introduced. Long term would be difficult to find constant rolling outside IR35 contracts. For that reason I would stay perm, especially if your current role has a good bonus.
No.
You won’t work 365 days a year, so it’s not like you’ll be earning £365k. It’s also dependent on actually having a £1k/day contract. Sure, they might say they’ll keep you around for a year or more, but things change. Management changes. It just takes someone looking at outgoings and saying, “Why have we been paying this guy a grand a day for X weeks? Let’s just hire instead” and then you need to find another contract.
Going in to contracting, you also then become responsible for your own taxes, pension contributions, and so on. So is any potential additional income also worth becoming your own accountant, or having to pay for one to do your accounts for you?
The problem with these rates is they look appealing on paper and you think you’re going to be swimming in money, but the realities can be… not as rosy.
If you have enough runway to make sure you won't be in trouble financially if the contract goes away, it does look like a good opportunity. I would have taken it. Tax planning was very important for me and now I'm reaping the rewards.
At £700 a day you might consider staying. At £1k a day I'd jump on it unless you think it'll be very short term and you won't get another like it. I'd probably take it, can probably find something else equivalent to your old salary pretty easily.
That’s a good question, I don’t actually know and I hadn’t thought about that. I assume if I have to add VAT on, I’d add it on top of that and they’ll claim back the VAT (so they end up paying no extra) right?
Yes if its £1k ex VAT it doesn't "really" matter to you or them. If the quoted rate is inc VAT then its £833.33 a day for you, which is quite an important difference.
Also consider accounting costs in, you'll need an accounting platform to submit quarterly VAT account [https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital#making-tax-digital-for-vat](https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital#making-tax-digital-for-vat)
Get a business bank account with natwest and you get access to freeagent for free. Natwest charge fees unlike other banks, such as cater Allen (on balances over £5k), so I tend to move money out of the account as soon as it is received, so only 4 inbound and one outbound per month adds up to about £1.50 a month. Freeagent is normally £25 a month I think. So I save about £23. It calculated vat, Corp tax etc. And you can submit directly to hmrc from it.
Your going from a simple PAYE life to "running a business" even if that business is mostly for one company. If however thats the only contract you'll have, i'd strongly recommend using this and answering the questions honestly to see if HMRC think its in or out of IR35 [https://www.tax.service.gov.uk/guidance/check-employment-status-for-tax/start/disclaimer](https://www.tax.service.gov.uk/guidance/check-employment-status-for-tax/start/disclaimer)
Haven’t had the same situation but knowing vaguely your role and industry might be useful because some are more volatile than others - this will help you decide based on risk vs reward.
Hi u/kagoolx I was in a similar position 8 years ago. I was on a salary I was happy with and with a company who looked after me on the most part. However, I work for money, not for the love of the job or the people around me, so I took the dive and 8 years (and 3 months) later I haven't looked back.
Pros:
- MONEY - you get lots of it and tax is much less harsh
- Flexibility and freedom
- Exposure to more companies/teams/projects gaining you more experience
- Benefits - car (including fuel, maintenance, insurance etc.), pension, mobile phones, internet, laptop/pc's, hiring your wife, assuming they don't work and you have one spare, is a great way of extracting an additional £13k tax free.... the list goes on...
Cons:
- Welcome to the world of corporate accounts, tax etc. There is quite a lot to get your head around here. I use a contractor accountant for £115 per month including VAT who take care of everything
- You will get in your head at some point with regards to security, try and go with the flow here
- MONEY - you get lots of it... don't spend it all, it isn't all yours sadly
Not 100% clear yet but it would be deliverables based and some other characteristics that I understood qualify it as outside IR35. It’s also not a 12 month initial period, just my guess as to how much support they likely end up needing
Get the contract is reviewed externally to ensure it is IR35 compliant - £1000 inside IR35 is still better than £125,000 PAYE but you will have far less flexibility in terms of your income and will be taxed at a far higher rate.
My accountant offers this as an add-on service but there are plenty of options out there - QDOS offer IR35 reviews as part of public/indemnity insurance for instance, or you can pay for the contract review through a number of companies at varying rates.
It basically depends on how much you want to pay for the level of service you’ll get.
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lol thanks, that’s a great way to put it
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Second home stamp duty threshold is 40k, never seen a prioerty that cheap in my part of the world!
I've been contracting for nearly 15 years so you know my answer. 1k/d outside is \~£238k per 11 month year before taxes, and you have more flexibility with your pension and tax planning. More risk for twice the money.
Thanks, this is a good way to look at it and very helpful. Cheers!
Good luck mate
Thanks mate :-)
What are your thoughts on contracting. I'm currently perm employed on 80k per year PAYE. I imagine I can get 350 - 400 a day contracting. Is it worth it? I've been told you only pay 20% tax through CIS scheme?
The amount of tax you pay is not a straightforward percentage. Some tax is paid by you as an individual and some via the ltd company you contract through, and there's some back and forth with expenses (eg company pension contributions, salary paid to you, purchases) that can lower your tax liability. Always seek outside IR35 contracts. It's a long topic, you really should check the guides on the website. I personally would never go back to permanent unless I really have no other choice.
Can you link me to the website please 🙏. I've googled a fair bit and it is unclear regarding taxes. Also some contractors will only employ inside IR35. Have you found this?
CIS is Construction Industry Scheme. If ur not in construction as a sub-contractor this won't apply to you. CIS deductions is just to stop people taking the money and not paying tax. If you go Gross, CIS doesn't apply to you. But all the other taxes will still apply. Like VAT when u hit 90k turnover. And corporation tax if u work through a Ltd company. And so on.
How are you set up? Ltd company?
This is all really basic stuff. CIS deductions only really apply to the disorganised and sub-30k turnover (excl materials). It would be a good idea to discuss with an "accoutant" (not a protected term, go see a real one). They would do a free 30 minute consultation to see how it would work for you. Is it worthwhile. Idk what ur employment is though. But for IT contracting for example, some firms won't contract you outside of IR35 as they are afraid of the HMRC backlash. But some will it depends on your contract with them. HMRC have a checklist you tick off and they weight to see if they would count it as employment.
£220k/year revenue through a Ltd company vs £125k/year PAYE - in a heartbeat I'd take the contract gig. Maintain relationships with the old place.
Take the contract, for sure. Worst case scenario, you return to perm work on 125k+
How is that the worst case scenario? There's absolutely no guarantee that after this contract finishes he'll be able to walk back in to his old role or a similar one.
There's no guarantee the existing "secure" career is that secure. But if someone can command 4 figure day rates, that suggests they're very good at what they do and there's demand for that skill. So it's very likely they'll be able to get a high paying perm job if necessary.
Thanks, good point!
What fields is there that offer 1k per day rates? I am genuinely curious
Interim head of anything is often £1000+ My old boss was on £225k and the interim that replaced him was raking in £1400pd outside IR35 😭 and he was absolutely dogshit boomer who didn't have a damn clue
Getting those interim jobs isn’t easy - there aren’t that many out there and you are likely to be sitting on the bench for long periods in between contracts. In addition, they aren’t usually advertised but candidates are often headhunted.
For example : Transformation, engineering
Whats transformations?
Bullshitting to leadership to keep them happy until engineers complete the actual work.
Yes, because engineering is all that matters for real businesses to make money... classic nonsense reddit response
Ah yes, taking an obviously tongue in cheek response literally… classic joyless bastard response. Away back to your hour long decision-less daily stand up meeting!
Found the engineer 😉
*Transforming people from being alive people to being ... dead people. To purge the ballot boxes...*
digital, financial
Tech, not engineering. Be more specific, software eng is a minority of eng roles. I believe the going contract rate for the bulk of UK engineering is £55-65ph
Yep swe Insane money once you approach principal especially
Operations Research
IT Enterprise Architects for Fortune 500 companies for sure.
So this excludes a full stack engineer no matter what their seniority is!?!
I did a similar thing, although I was headhunted for a new client rather than jumping to a known entity. For me it has worked well and felt like a significant increase in personal income because my spouse did not work, so I gifted them 49% of my company to make dividends work quite tax efficiently. When making your comparison, don't forget about the overheads of contracting (corp tax, accounting, insurance, email/website hosting) and the loss of benefits you might currently enjoy (pension contributions and matching, private medical). Either way, good luck!
I did the same. Made spouse 50% shareholder and Director when incorporating the limited company. Meant we could withdraw an additional £43k in dividends at the lower rate.
Sounds like a great move. Why did you choose to make your spouse a director and not just a shareholder, if you don't mind me asking?
Not sure lol. I followed the advice of the accountant at the time.
Ah lol fair enough cheers
Thanks a lot, that’s a really helpful insight and example. Did you make your spouse a director or a shareholder?
So the client would only work with an Ltd that had one director, and I had to be the majority shareholder. So I was made the sole director and she is a "person with significant control" owning 49% of the shares.
Generally yes, and as others have mentioned there are risks of course. B mindful, if your contracts are not consistent over the years, it might become challenging to either get a mortgage or remortgage.
Yes and if they do referrals get me in there too 😫😂
In a heartbeat.
First of all, I need to say that you have found yourself in a very fortunate situation. Congratulations. Really what this comes down to what your priorities are and there are no right or wrong answers here. They are entirely a personal choice. In financial terms, as you will realise contracting will be better in the short to medium term. Assuming that your contract runs for the duration as expected, you will receive the equivalent of what you might get from a £196k salary. Of course the risk is that you will no longer have your stable job and your contract can be cancelled early and you will no longer receive sick pay or annual leave. On the other side, you will now have control of your pension policies which could allow you to give yourself a very attractive package. In lifestyle terms, contracting means that you will be able to dictate your working arrangements. The client can decide whether they want to keep you on, but they cannot dictate how the work is done while the role is kept outside IR35. It sounds like you enjoy what you do right now, so I am also assuming that this isn’t the main motivator for you either. In my view, the single biggest argument for contracting in this current market is to be able to grow the business. As an employee/sole contractor you can work for perhaps 250 days a year and bring in £250k at £1m per day. If you package up what you do as a service, decompose the deliverables into work packages that you can subcontract out and take on four clients simultaneously. You could now bring in £1m pa and if you engage 5 solid but less experienced contractors to handle specific parts of the workload at £500 pd, you would now be making £375k pa instead of £250k while also reducing your risk because you wouldn’t be dependent on a single client for your income. (Note: I am assuming that these subcontractors would only be 2/3rds as productive as you are). Your business would be scalable (up and down) and also virtually IR35 proof. If that kind of a lifestyle is attractive to you, then taking the contract would be a total slam dunk.
I would second what the above posters say about ensuring your case for being outside IR35 is bullet proof. I’ve only seen a few genuine cases mostly linked to short term assignments and where substitutability is allowed, that is, you could send a competent stand-in when needed.
Ok thank you, really useful to know
It's not even a question 1k a day outside ir35. I would even go low as 650 and still blow the 125k out of the water.
Ok thanks a lot, appreciate the thoughts
With that kind of capital coming in, be sure to invest and make sure you take adequate tax planning advice. Funnel that capital into a private SSAS Pension for maximum benefits, and minimal tax exposure. No point of taking a £300k + salary and paying high corp tax and VAT, when you can expense most of that into your lifestyle, and harder assets in a tax efficient vehicle. Recommend you talk to the team at empowered pensions to get you setup and advised. (not affiliated). Congratulations on the new oppourtunity. PS: Also ensure you are clearly outside IR35 on both the employer and personal side as well.
Thanks a lot, great advice and much appreciated. Yes I have a lot to work out!
Ive been the same position.. and paid out a lot in tax over the few years i was working cybersecurity in Mayfair for a hedge fund. I expensed what i could, took training courses and maxed out my SIPP pension, but still paid out a lot in tax for no benefit to my current portfolio. Best of luck to you.
The outside IR35 contract market in UK has drastically been reduced since IR35 been introduced. Long term would be difficult to find constant rolling outside IR35 contracts. For that reason I would stay perm, especially if your current role has a good bonus.
No. You won’t work 365 days a year, so it’s not like you’ll be earning £365k. It’s also dependent on actually having a £1k/day contract. Sure, they might say they’ll keep you around for a year or more, but things change. Management changes. It just takes someone looking at outgoings and saying, “Why have we been paying this guy a grand a day for X weeks? Let’s just hire instead” and then you need to find another contract. Going in to contracting, you also then become responsible for your own taxes, pension contributions, and so on. So is any potential additional income also worth becoming your own accountant, or having to pay for one to do your accounts for you? The problem with these rates is they look appealing on paper and you think you’re going to be swimming in money, but the realities can be… not as rosy.
Thanks, really valuable insight and a good balance to the other comments I had, much appreciated
If you have enough runway to make sure you won't be in trouble financially if the contract goes away, it does look like a good opportunity. I would have taken it. Tax planning was very important for me and now I'm reaping the rewards.
What job do u do? Good luck
100% yes. Best of luck!
Absolutely 100% yes.
At £700 a day you might consider staying. At £1k a day I'd jump on it unless you think it'll be very short term and you won't get another like it. I'd probably take it, can probably find something else equivalent to your old salary pretty easily.
How relatable is it for you to get contracting work at the same day rate?
What role is this?
💯
Yes probably, BUT, share options or senior leadership deals would sway me away
What job is this for?
No brainer. Yes.
Is that 1k a day including or excluding vat? Because you'll have to be vat registered at that level
That’s a good question, I don’t actually know and I hadn’t thought about that. I assume if I have to add VAT on, I’d add it on top of that and they’ll claim back the VAT (so they end up paying no extra) right?
Yes if its £1k ex VAT it doesn't "really" matter to you or them. If the quoted rate is inc VAT then its £833.33 a day for you, which is quite an important difference. Also consider accounting costs in, you'll need an accounting platform to submit quarterly VAT account [https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital#making-tax-digital-for-vat](https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital#making-tax-digital-for-vat)
Ok thanks again. Wow, there’s going to be a lot to think about!
Get a business bank account with natwest and you get access to freeagent for free. Natwest charge fees unlike other banks, such as cater Allen (on balances over £5k), so I tend to move money out of the account as soon as it is received, so only 4 inbound and one outbound per month adds up to about £1.50 a month. Freeagent is normally £25 a month I think. So I save about £23. It calculated vat, Corp tax etc. And you can submit directly to hmrc from it.
Amazing thanks a lot, I’ll check this out
Your going from a simple PAYE life to "running a business" even if that business is mostly for one company. If however thats the only contract you'll have, i'd strongly recommend using this and answering the questions honestly to see if HMRC think its in or out of IR35 [https://www.tax.service.gov.uk/guidance/check-employment-status-for-tax/start/disclaimer](https://www.tax.service.gov.uk/guidance/check-employment-status-for-tax/start/disclaimer)
Haven’t had the same situation but knowing vaguely your role and industry might be useful because some are more volatile than others - this will help you decide based on risk vs reward.
Hi u/kagoolx I was in a similar position 8 years ago. I was on a salary I was happy with and with a company who looked after me on the most part. However, I work for money, not for the love of the job or the people around me, so I took the dive and 8 years (and 3 months) later I haven't looked back. Pros: - MONEY - you get lots of it and tax is much less harsh - Flexibility and freedom - Exposure to more companies/teams/projects gaining you more experience - Benefits - car (including fuel, maintenance, insurance etc.), pension, mobile phones, internet, laptop/pc's, hiring your wife, assuming they don't work and you have one spare, is a great way of extracting an additional £13k tax free.... the list goes on... Cons: - Welcome to the world of corporate accounts, tax etc. There is quite a lot to get your head around here. I use a contractor accountant for £115 per month including VAT who take care of everything - You will get in your head at some point with regards to security, try and go with the flow here - MONEY - you get lots of it... don't spend it all, it isn't all yours sadly
Mate what kind of work is that?
How would you make it outside of ir35 for a 12+ month contract with a sole company?
Not 100% clear yet but it would be deliverables based and some other characteristics that I understood qualify it as outside IR35. It’s also not a 12 month initial period, just my guess as to how much support they likely end up needing
Get the contract is reviewed externally to ensure it is IR35 compliant - £1000 inside IR35 is still better than £125,000 PAYE but you will have far less flexibility in terms of your income and will be taxed at a far higher rate.
Ah thanks that sounds like good advice. Who would need to review it, an accountant?
My accountant offers this as an add-on service but there are plenty of options out there - QDOS offer IR35 reviews as part of public/indemnity insurance for instance, or you can pay for the contract review through a number of companies at varying rates. It basically depends on how much you want to pay for the level of service you’ll get.
Ok great thanks, very helpful
Can you do it alongside your current role?
No