Contracting vs permanent roles

opethdisciple

opethdisciple

opethdisciple

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Pros and cons?

I've never contracted before. I'm currently looking for a new job and can see that there is a lot more cash in contracting than in a perm role.

Is there some hidden charge to contracting, like having to pay an umbrella company or something?

And how is tax calculated? Say you worked inconstantly throughout the year?
 
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you'll get a better answer in a few days when Osborne makes his announcement - contracting for a lot of contractors might not be so feasible... then again it could take time for any changes to come in and it might be worth attempting to lock yourself into a well paid role if it is a significant boost for you
 
Generally you create a ltd company, you can, but don't need to go through umbrella company. You can sort your own finances or have an accountant do it. You pay taxes like a business. You earn money into the company then pay yourself from it.

Cons:
Usually no paid holidays
No sick pay
No security
Often get the jobs others don't want
Can be looked down on by permies

Pros:
More money
 
Cons:
As above plus:
You'll struggle to get a mortgage
Good chance when they don't need you anymore they can get rid of you in 24 hours.
No benefits like office 2016 for £10 or other work schemes.
You need your own public liability + professional indemnity (around £20 a month)
More admin work, invoicing, tracking incoming and outgoing etc
Accountant will cost around £50 a month (some rip off companies will want £200 a month to do your accounting and usually tell you you'll get 95% of the income. its a lie).


Pros:
You can call yourself a director (as long as you go the ltd route)
Gives you the ability earn extra money with private work legally as you'll be insured on top of the contracts.
If your looking to only contract short term you can use an umbrella and its a good way to show what you can do then they'll offer you a permie role. So its like a try before you hire.
 
There is a bit of extra work (on the admin and managing side of things) and obviously requires the effort to chase more work in between.

If you want good cash at the expense of job security and a bit of paperwork, then go for it. If the only motivation is a couple of grand extra a year, then the extra work isn't worth it.
 
I suppose one other bit of advice is, if you do go for contracting (You may already have savings) but you should continue if possible on the same wage as you were, for a while.

EG if you used to get £1000 a month and could live fine and your new job you can get £2000 a month, save £1000 a month for say 6 month so you then have 6 month to fall back on if you loose work.
 
I'm not sure if it's the same for Ltd companies, but as an ex self employed person I had to pay tax up front for the next financial year. Something that totally caught me out come self assessment time!
 
You don't need a company. You can work as a self-employed entity paying tax & NI by self-assessment (SA). In this mode you, or your accountant, wil submit an SA tax return every year and you will be taxed half a year in arrears and half a year in advance, based on the previous year's SA earnings declaration.

If your work might leave you liable for any public or private claim you should either have public liability insurance or set up a limited company (which protects your personal assets when the company is sued).

I suspect Osborne is going to kybosh personal service companies (tax & NI 'efficient' implementations of a ltd company).

If you earn more than £82k you must register to charge and pay VAT on your services.
 
That's a pretty wide question you have asked, particularly on the accounting side.

I've been both a contractor and permanent. and was a contractor before the days of IR35 and loved it. Massive tax break and loop holes but then the treasury started turning the screw on IT contractors and the whole business didn't seem worth it any more and I found my knowledge slowly slipping away along with my future pension so I went in to permanent employment since around 2002


Contracting

pros
- Good Money
- Flexible

Cons

- You must provide you own pension prevision
- Making time for accurate accounting. Even if you are employing an accountant, you will still need to keep a good book.
- Managing/Agent Fees
- Can't take time of as when you like.. Not allow because you don't get paid but because mostly you are thee to do a job.
- No stability or continuity.. Be prepared for having no work between contracts
- Unless it's for a specific job, there's no training.. So you will need to keep up to speed which in the world of It you can soon get left behind.
- Paying tax on account


Permanent

Pros

- Tax and accounting is all done for you
- Pension
- Benefits such as Personal health care, bonuses etc
- Training, courses and personal development.

Cons
- Not so good on the pay but if you weigh up the costs of contracting you might be better off (pensions for example)
- You can get a little to institutionalised.
- Not as secure as it once was.

Speaking from experience, I can't emphasise the importance of pensions and training.


Tuppy_Glossop said:
You don't need a company. You can work as a self-employed entity paying tax & NI by self-assessment (SA). In this mode you, or your accountant, wil submit an SA tax return every year and you will be taxed half a year in arrears and half a year in advance, based on the previous year's SA earnings declaration.
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I'm not sure this is right for IT contractors.. Whilst this might work for builders etc, i don't know of any companies that would take on a contractor on a self employed basis.. I might be wrong but i think it's an regulatory requirement so that income and expenses on both parties are fully accountable and can be audited.

bloodiedathame said:
I'm not sure if it's the same for Ltd companies, but as an ex self employed person I had to pay tax up front for the next financial year. Something that totally caught me out come self assessment time!
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Tax on account catches a lot of people out. I was fortunate that i was advised of this and saved the money. Nice big tax break at the end when i went into perm :)
 
One major upside of being a contractor if avoiding office politics and having the hassle of yearly appraisals in the hope you may or may not get a pay rise. Contracting, I'm going to provide X service for the next Y months at Z rate, done!
 
Admiral Huddy said:
I'm not sure this is right for IT contractors.. Whilst this might work for builders etc, i don't know of any companies that would take on a contractor on a self employed basis.. I might be wrong but i think it's an regulatory requirement so that income and expenses on both parties are fully accountable and can be audited.
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It certainly can be, and is, done.
 
When I did i went down the LTD route, and paid for a decent accountant which is more or less free after the savings you make.

Cons.

No paid holidays (you end up working more)
No Sick Pay (that day you took off for just feeling meh, no can do anymore)
Normally 1 weeks notice
Get a receipt for everything, copy it and pass onto accountant.
A little more hassle in paperwork

Pros

More money, Pay yourself minimum wage for 3 months for tax purposes then take a dividend, if you cant afford this then your losing out. So you need 3 months savings or normal pay.

Flexibility. I used to like taking 3month contracts, when it overruns (as always) say you only have time for 3months as another contract is awaiting, negotiate another couple of quid on your hourly rate, take a week off and crack on for another 2 months then leave taking 2 weeks off :)

This was CAD engieering not IT
 
All the contracts I've had you've ever got to use umbrella or have a ltd. Self-employed doesn't give the organisations the protection they need is the rubbish I've always been told. Then obviously the "recommend" companies that they make a nice little commission off.
 
Oh and you will need a business account, don't pay for this service either no matter what anyone tells you. Try Cater Allen for example of a free one.
 
The topic seems to be missing the critical point that contracting is a little bit non-progressive from a career point of view. There are some steps you can take, but you are unlikely to spend some time contracting as e.g. a business analyst, then project manager, then suddenly a contract general manager/director. Those leaps are possible in the permanent workplace but very rare in the contract one. You usually need permanent experience to qualify yourself for your first contract role - most businesses aren't willing to take a chance on a contractor charging £500+/day.
 
I couldn't hack contracting, especially as I get the following 'perks' as a perm:

25 days paid leave + bank holidays
Sick pay
Free BUPA membership
Matched pension scheme up to 8% of salary
Massively discounted holidays (like 90% discounted)
Interest free travel loan
Rewards scheme (I get a permanent 5% discount on any Sainsburys purchase by using a re-loadable, discounted giftcard)
Tax stuff all done for me
 
if your a software developer, you can get trained or have time to train yourself in a contract job. believe me.

Also software devs who are contractors have the potential to earn triple the amount a permie makes.

You also get more exposure to different projects and skillsets and therefore have the opprtinity to learn more.
 
PMKeates said:
The topic seems to be missing the critical point that contracting is a little bit non-progressive from a career point of view. There are some steps you can take, but you are unlikely to spend some time contracting as e.g. a business analyst, then project manager, then suddenly a contract general manager/director. Those leaps are possible in the permanent workplace but very rare in the contract one. You usually need permanent experience to qualify yourself for your first contract role - most businesses aren't willing to take a chance on a contractor charging £500+/day.
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well for software developers u can actually move up the latter as a contractor all the way up to an architech/tech lead
 
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