Software developer contractor

[jonneymendoza]

Hi.

i am now going to become a contractor instead of perm so i can jump through different companies/projects to help me improve my skillset even further and also earn double or more or on what i currently get as a perm.

The industry right now is booming. soo many jobs out there for Software developers, i think now is a fantastic time to become a contractor.

I know some of my software developer friends who are already contractors earning typically i the range of 350-500 per day.

I am going to do a few things to set myself up in the right legal track so correct me if ma wrong and of course offer any advice and tips along the way.

1. Create my own limited company(can u help me in this part. is there a website? a place to go to? what are the requirements?)
2. Create a Business account
3. Hire an Accountant
4. Find a contract job

There are lots of tips already that my friends have told me about like:

• Pay yourself a lowish salary
• Pay yourself dividents every quarter or once a year
• Note down all teh relivent things as expense such as travel card, laptops, phones(developing mobile apps i am doing) So u dont get taxed from those expense

Cheers all and cant wait to kick start this. I am off on Holiday for a month between mid feb till mid march so i am hoping i can start my new contract at that time when i come back.

i am on a 3 month notice as well but i have seen others in my company leave for less. what i think i will do is actually possibly hand in my notice soon and ask if i can leave in a month.

Thanks all

 

[jonneymendoza]

Thanks

 

[jonneymendoza]

Things to be aware of and to save or make provision (budget) for:

- Sick pay
- Pension
- Being out of work (demand changes, and you could find yourself without a contract for extended periods of time)
- Training and keeping yourself up to date
- Mortgage (if you don't already have one, there's just a few more hoops to go through if you are on a low income - no biggie, just something to be aware of)
- IR35, you need to be careful that whoever you end up contracting for (either directly or via an umbrella) don't make it hard or difficult for you to step outside IR35, so watch for things like benefits which apply to everyone, like a free/subsidised lunch, free gym, that sort of thing.

Consider using a specialist company such as Crunch (http://www.crunch.co.uk/) who I have had recommended to me, but not used myself (as I'm still a dirty permie).

Good luck!

u can be sick for half a year and still earn more then a perm

i dont believe in pensions. i will manifest my own way of dealing with this in the future.

I am a versatile programmer, prepared to learn the next best thing. if Android dies tomorrow and windows 8 becomes the next big thing i will simply hit the books and start reading and start developing and learning and before u know it, back to earning 400-500 a day developing this time for windows 8, rinse repeat. only way my line of work will be affected is if the software industry collapses all together! Then i will just learn a new trade lol.

jonneymendoza, let us know how you get on.

I've been a software developer for over 5 years now and have been considering contracting for a long time now.

If you stumble upon any gotchas or issues, let us know

thanks

Will do and i think now is the time for u to do it yourself. i have been in the game for 5 years also. nearly 6 actually.

I have been a freelance web developer for ~3 years. I have quadrupaled my salary in that period of time.

The golden rule is: get yourself a good accountant. Don't be afraid to spend £1200 a year on one. They'll save you more than they cost.

I would also strongly recommend using Free Agent. A lot of accountants will offer this as part of their package.

Earning £350-£500 per day is easily doable and frankly I wouldnt even get out of bed for less these days.

Everything else you have mentioned is true. Setup a limited company, pay yourself a salary of ~£620 per month and take the rest as dividends. Expense any purchases such as laptops, computers, mobiles etc. You can also get away with travel and lunch as well.

For all those saying it is tax avoidance - I pay way more tax being a contractor (corporation tax, VAT etc) than I ever would being a perm



oh, and do not use Crunch

i may use the same accountant my friend is using thanks.

what is the current Threshold for dividends that are tax free per year?

 

[jonneymendoza]

i am thinking of handing in my notice now actually to start the ball rolling.

going for a nice long month holiday bnetwen feb and march and want to start a contract once i get back

 

[jonneymendoza]

I've flirted with the idea of contracting as a project accountant, but the uncertainty is just too stressful when you have a mortgage and a young family.

Like someone else said, perm roles are not that secure anymore. i got made redundant once already and nearly twice had i not left before they told us we was going to be made redundant..

Today you may feel safe in your nice perm role but tomorrow they could tell u your time is up without warning.

yea they can give u redundancy pay/notice that will last u a month or two but when you are a contractor u can practically take a year off with the amount of money u have saved.

And if u go contract, it doesnt mean u cant go back to being a perm later

 

[jonneymendoza]

I think the thing that has stopped me from looking into contracting further is having enough savings to take the first step. Think I read somewhere that it was recommended to have a years salary before taking the 'risk'?

depends but in my industry u only need a months salary to start this up as i ahve said, theya re soo many perm and contract roles out there i get calls form agency daily.

 

[jonneymendoza]

just out of interest, what type of jobs?

Back 3 years ago before my current role, I'd get calls daily from agencies about "roles" they want to put me through but in the end they were always fishing for companies I recently had interviews for.

Software developing jobs

What type of background/qualifications do you need to become a good candidate for the agencies? Any reputable courses I could study part time/evening to become suitable over 1-3 years?

In my domain, experience and i have nearly 6 years and people who have recommended me to do contract work are people who i use to work under as them being my line managers.

That is a very good point. Some contracts can take you far away from home, 400ish miles for me and you have to factor in whether it would effect your family or relationship.

Also if you are career minded then you aren't really going anywhere up that career ladder.

this i do not understand. if a contract role takes u 400miles out, so does a perm role of the same job.

SOmeone said that contract is not good career wise? i disagree. it is fantastic for your career! why?

because you get to learn and gain more experience then a perm job doing the same old stuff for years not progressing.

Also, if u love programming, u really do not want to move up the career chain becoming a PM or something as many developers do not like writing documentations and reading emails every day.

 

[jonneymendoza]

I can imagine that anyone that has children, contracting would be very tough going.
.

Depends on the role and location. if your type of expertise has lots of jobs around that are within an hours travel, its a none issue.

you get payed double or triple and have a family life as well.

i know another guy at work who just turned perm actually whilst being as a contractor for like 4-5 years.


His married with kids and guess what, he owns two properties, rents one out and is looking to buy another property.

When u can potentially save 20-30k per year no TAX, u can easily invest in that in many ways and live a good nice life for you and your family if u play your cards right and do well as a contractor.

Contract roles depends on a lot of things but if everything ticks the boxes such as job availabilty, your skillsets at present, location and going rate, then why not?

 

[jonneymendoza]

It still needs to be catered for. What about if you are long-term sick? It's the kind of thing you will probably never need to call on, but it costs so little to get some form of critical illness cover that it's stupid not to.



That's fine, but having a company provided pension is important in terms of being tax efficient, it's just another way of keeping that taxable income low and letting the company pay for things. For instance, I put in £100 (tax free) a month to my pension, the company puts in over £500. It's a strange individual who wouldn't take advantage of something like that, and it's a large benefit for permanent employees.



The money in contracting doesn't really come from cutting edge tech. It's more to do with existing and perhaps even obsolete tech. and perhaps some specialised specific vendor (small vendor, not Oracle - for example) knowledge which makes all the difference.

And you *have* to take time and money aside in order to keep up to date enough to be able to hit the ground running.

Don't get me wrong, I'm not poohing the idea, I'm just making you aware of the additional costs and aspects of contracting that are often overlooked. The majority of my day-to-day work is done with contracted software developers - so all this comes directly from conversations I've had with them when I ask them what's so good about contracting (as I had been considering it myself for a while until a few years ago...)

Yes indeed but the key thing about a contractor is to be able to learn stuff. to not sit your your backside doing same thing but actually look and read stuff u do not know about.

i understand your points. i am not saying contracting is perfect. it aint. it has its downsizes but u have got to ask yourself if its worth it. weigh in the pros and cons like i have for months and months and make a decision

I did not all of a sudden decided "hey, lets do contracting" i have been thinking about it for the past year

 

[jonneymendoza]

You asked for tips, so I'm giving you tips.

*shrugs*

Cheap critical illness cover is worth thinking about, as is setting up some form of pension to assist with tax efficiency. Putting aside a defined budget for training and planning your skill-set is important too. None of these were mentioned by you, so I thought I'd mention them.



On another point - if anything, having children, etc. contracting makes MORE sense - as you are contracted to work certain hours - unlike most permanent roles, where you are supposed (contractually) to be flexible with your working hours.

I certainly work longer hours than the contract developers.

no need to shurg man i appreciate yours and everyones comments Yes i will factor in such things and the pension stuff i will take a look at. i can always set that up any time right? its not something i need to setup from the get go so i can concentrate for now just creating my Ltd and finding a decent accountant thats close by

 

[jonneymendoza]

You may be lucky to find a contract that you learn new skills, but firms that hire contractors want people for a very specific set of tasks and they want people that hit the road running. They don't want to pay you the sort of hourly rate and have to teach you new skills. They want you for your particular skill set and as such there isn't a ladder you can climb. If you aren't interested in climbing any career ladder in a firm then great for you but some people do and so should understand that the money in contracting isn't the only story.

i must comment on this and say once again it depends on the industry and role.

for us software developers, even specifying on a certain skillset u can still learn more from a contract role.

basically for us software devs, contract roles are like this:

employers offer me a contract to develop a new project for them using the skillsets i know already.

They dont try and simply find someone that already has made a carbon copy of the same kind of application they want. they simply want someone who CAN make it.

developers are always learning new things during work especially on a new project. companies requirements are very dynamic and therefore there is always something new to learn.

people in the job i am in now have contractors who have told me how they have easily progressed and learn new stuff whilst being here. not because they dont know what they are doing but because the companies requirements and business needs are unique and developers learn new tricks to meet those requirements.

bottom line is, it depends on the industry.

 

[jonneymendoza]

Hey guys,

Have been very interested in this post. I'm halfway through my third year applied computing, from a decent uni and would like to know what to aim for after my degree. I will have a degree in about 6 months but plan on doing final year for honours to get a full degree. I feel confident in many languages I have used but in no way professional. The further I go nothing seems daunting as it used too. Its all basically the same OOP with different syntax. The main problem I face is what to learn. There's far too much to specialise in. What did you all do after your degree ? I want to aim for as big as company I can get and learn all I can from them. K

after my degree i went out to look for a job. took me half a year to find one but managed to do so.

 

[jonneymendoza]

U get taxed more if u are a perm. when you are a Ltd you can save up to 20% tax on say 100k GROSS which is 20k saving!

that is huge especially for contractors.

going ltd is the way to go if u want to become a contractor

 

[jonneymendoza]

As mentioned, it's all to do with percentages.

Before I started contracting I was a perm on 25k a year. Of that, lets say I'd pay 4-5k in tax.

Now if we look at life as a contractor. For the accounting year 2011/2012 my company turnover was about ~80k.

I then also made 2.5k for being on the flat rate VAT scheme (I charge my clients 20%, but only pay 14.5% (13.5% for the first year)

We then deduct expenses for accountancy fee's, computer equipment, travel etc). Much to my regret, I didnt expense much in this year. This totalled £1700.

We can then also deduct my salary, which was 8k.

This left my company with an operating profit of ~73k, less Corportaion tax of 14.5k. So my company profit was about 49k.

As the 100% shareholder of my company, I pay this profit out as a dividend... to me.

The above example doesnt show my VAT returns which I would pay every quarter. This would also have totalled about 12k.

So without taking any of my income tax into account, my company paid 26.5k in taxes during the accounting year of 2011/2012.

I then enjoyed ~55k after tax in my pocket. I guess the equivilant perm salary would be in the region of 80k?

Im on target to make sales in excess of 100k this year

nice!

well done! if u was earning 80k as a perm, they would take off 32k leaving u with 48k compared to 55k .

How much do u give yourself for salary and do u pay tax and NI for that? student loan?

 

[jonneymendoza]

My salary is £624 a month which keeps me just below the tax free threshold whilst ensuring I pay the minimum NI contribution. It is done this way so that I can still claim a state pention later in life.

I personally could not live off like that especially at the start of my business/contract.

is that the amount u take home with all your tax and NI deducted?

How often do u take out dividents? can u take it out whenever u feel like it or u have to set it up to do so on a specific timeframe?

Most contractors I know essentially are practicing some form of tax avoidance, you'd be silly not to if the options are there to minimise your tax bill legally. Paying yourself a small salary and a large amount in dividends avoids some tax etc...

But when are u allowed to take out dividends?

 

[jonneymendoza]

How have people managed the transition from permanent to contracting? Presumably, handed in notice first, waited, then began looking for contracts.

Well i am thinking of doing so now as my notice is quite long and going on holiday in a few months!

 

[jonneymendoza]

I was only there for 6 months before jobs became unstable, so it was an easy decision to make!

I take a dividend each month.

ahh ok so u can take it out every month on top of your base salary? nice

 

[jonneymendoza]

You can. Just ensure that you (or your accountant) ensure that you have a dividend voucher for everything you take. It's easiest to keep track if you do that at the same time.

Cool. i am under the impression that i can simply take out a dividend myself from my business account to my own personal account via internet banking or some sort and then note it down or notify my accountant about the transacion?

 

[jonneymendoza]

Thanks

 

[jonneymendoza]

Use Free Agent; does all of this for you.

You just simply link it to your business account and then explain transactions. Couldnt manage without it tbh

U use that on top of an accountant?

i am guessing the Accountant has access to your Free agent account and does all the ammendments for u and u simply can browse and look at the figures yourself and make dividents payments whenever u feel like it?