Some questions for IT Contractors please

[Nazbit]

Hi there,

I've been a Software Developer for 10 years and I'm thinking quite seriously about going contracting. I've been looking at sites such as contractoruk.com, contractorcalculator.co.uk and itcontracting.com and I've also read all of the contracting threads on the last 10 search pages on here.

I wonder if any of you could spare a few minutes to help me with some questions, mainly about the practicalities of getting set up?

How does the actual recruitment process work?

Presumably (once set up as a limited company) I register with various agencies and they find suitable placements to put me forward for. I would also be using linked in and job sites to do my own hunting.

Do you still have job interviews? Are they with the recruitment agency or the client company? Who chooses which contractor to hire, the agency or client?

Is there a financial difference between arranging a contract directly with a client compared to going through a recruitment agency? Presumably the agency take a cut, is that from your end or are they billing the client seperately?

I assume that you keep timesheets and then once a month invoice the client for your time worked. Is the agency involved anywhere in this process?

Do you have a solicitor review the contract before you sign?

Do you have an IR35 specialist review it before you sign?

What percentage of your contracts have been through agencies versus direct with a client?

What percentage of your contracts have fallen inside of IR35?

I have more but I'll leave it there as I don't want to put people off reading and replying to a wall of text.

Thanks for your help.

 

[Nazbit]

Thanks. I know that a lot of these things seem very simple / daft questions but it's one of those things, if you don't ask you don't know.

So I think that the set up process would go something like this...

1 - Register the company
Register a limited company with companies house
This basically seems to be a case of picking a name which doesn't infringe on anyone else, identifying directors and shares.
Do you pay for a registered office address and mail forwarding for privacy reasons? Do accountants typically throw this service in?

2 - Find an accountant
Find an accountant specialising in IT contracting Who will offer IR35 review.
Do you use someone local or a national chain with online / telephone interaction?
How important do you think it is to meet in person? Do you do this often?

3 - Set up basic services
With advice from accountant/solicitor/financial advisor set up:
Business bank account
Indemnity / liability insurance
IR 35 tax investigation insurance (??)
Pension scheme
VAT registration if needed

Did I miss anything?

Any extras like life insurance, loss of earnings insurance, healthcare plan etc bearing in mind they may attract taxable benefit in kind, might be better off buying privately than as a company - see accountant.

4 - Getting Paid
Again all down to a conversation with an accountant but my understanding is it would go something like this:

• Pay self around 11k annual salary as an employee
• Pay employers NI on that salary
• Pay employees NI on that salary
• Pay tax free pension contributions
• Pay business expenses such as travel, computer equipment, training, insurance, accountant etc
• Then pay 19% corporation tax on remaining profitR
• Remaining profit to be taken as dividends as and when required and subject to tax at 7.5% to 34k and 32.5% from 35-150k.
• There would be more and less tax efficient times to take dividends depending on the tax year and how much I've worked.
• Enough money to be left in the company at all times for cash flow and to cover tax obligations.

Am I there or there about?

Thanks

 

[Nazbit]

@Maccy How do you deal with references as a contractor?

I will have some references from my permenant jobs but further down the line will former clients be willing to receive phone calls from new clients for references? I assume not?

Is it worth asking them to write a "testimonial" that you could keep on file?

 

[Nazbit]

I thought that the reason for 11,850 salary is that it's the personal tax free earnings limit. So yes there will be an amount of NIC (about 350 employees and about 400 employers) due on that amount but it will be 11,850 tax free. With the remaining money taken as dividends at 7.5% up to 34k and 32.5% after that.

 

[Nazbit]

If it's true that the unused tax allowance is added to your 2000 dividend allowance then yes I'd agree your way would work out better.

We need to find an accountant

Where are you on your contracting journey? Just mulling it over or made a start?

 

[Nazbit]

I think that you have to be every careful going from a permenant position to contracting for that same organisation. That is specifically one of the "disguised employment" scenarios identified by HMRC.

I think that they will tighten up IR35 regularly but that creative accountants will probably find loopholes.

If it all gets shut down I guess the worst case scenario is we have to go back to permenant employment.

In terms of getting in to trouble I think as long as you research and speak to suitable accountants etc it's probably as safe as you can be. Get contracts reviewed and keep a statement of working practices on file. Tempted to get the first couple of contracts reviewed by more than one party and then at least I can demonstrate doing everything possible to determine the IR35 status and pay the appropriate tax

You can also get IR35 tax investigation insurance at different levels to cover you for either an investigation, a barrister and potentially even insure the payment of a fine up to a certain amount.

 

[Nazbit]

Linked in could be useful for this, plenty of contractors regularly ask for endorsements from former clients and they're displayed publicly on their profile.
.

Yes I think that would be a good idea.

QUOTE="dowie, post: 32634662, member: 66955"]
In terms of official references in general, plenty of employers just confirm your job title and dates of employment, the current HR department at any former employers can do that on request.
.[/QUOTE]

Is that the case for a contractor though. As there was no actual direct employment was there.

 

[Nazbit]

@DAIR thanks

 

[Nazbit]

@DAIR @Maccy

What's the lowest you've gone between contracts whole trying to find work? (Not intentionally taking a break)

What percentage of the day rate figure is your take-home overall? Is 80% about right? (Salary + Dividends + Pension etc)

 

[Nazbit]

Thanks for all of the contributions so far.

How do you all get on with holiday / time off within a contract? I guess in theory on a 3-6 month contract you'd probably only want to take the odd day as necessary. But on a 9-12 month contract is it reasonable to take a week or two out?

I guess in theory if you're outside of IR35 then you have the ability to decide not to work on a given day if you can accept not being any to bill anything.

But in reality could there be pushback and threats to terminate the contract?

Where I've worked in the past contractors have just delivered the news "I won't be in tomorrow and I'm away for a week next month" and faced no resistance but I don't know if that's representative.

If you're on a fairly standard rate of £450/day and working a full month

Is this a London rate? In the North West (Liverpool, Manchester, Crewe, Chester etc) I'm seeing most contracts in the £300-400 range and even the odd public sector offering of £250.

No point taking more than you need and paying tax on it

I'm happy to pay a bit more tax and then just max out my income while still leaving enough to build up for a small period in between contracts.

This is something that slightly confuses me.

My assumption is that when you wanted to pay a dividend you'd ask the accountant to tell you what you could afford to take, keeping enough in the company to cover tax payments. You'd also know if you had any significant expenses coming up so you'd leave money in for those as well.

As far as I can see the rest of the funds could be taken at any time?

The only advantage I can see to leaving it in the company would be if you planned to take a good few months off later in the year or next year and you could use that period to drip feed it out in a more tax efficient way. If you intend on going to contract to contract or ideally with only a couple of weeks off in-between each one then isn't it better to keep taking dividends?

Unless there are other factors I'm not aware of, not taking funds so as not to pay tax seems like cutting off the nose to spite the face?

Will you be doing your own accounting?

I'll try to get recommendations on a good accountant, one with IR35 experience. I assume I'll just use their software tool of choice to submit paperwork and have them take care of it.

 

[Nazbit]

If you're considering dipping your toe in to contracting than an umbrella company may be a good first step. Your take home WILL be less but it removes the need for insurances or worries about IR35, just choose a reputable one with lots of history!

Any idea of take home from the umbrella route?

Also if I see a role with a contact for the recruiter I'll add them onto LinkedIn to create a personal connection and expand your network for the future.

Yes I've been doing this and started getting 2-3 approaches a month for both permenant and contract roles. Obviously varies as to how attractive they actually are.

CV library

Not familiar with this, will have a look.

The main issue with the leap to contracting is to forget you're not an employee. If the client tells you on Friday that there's no work for your Monday then regardless of your notice periods then there's nothing to bill and therefore no money coming in.

Can you elaborate on that? Are you referring to a contract being terminated early or are you saying you could find yourself mid contract with no work to do for a week and therefore no pay before the work mounts up again?

What line of work are you looking for?

Oracle Developer - SQL, PL/SQL, APEX, ODI.

Thanks again for all the info

 

[Nazbit]

I accept the early termination thing. It is after all why you're receiving a higher rate than a permanent employee.

I think that generally you'd be able to see it coming in terms of renewal / lapsing / early termination wouldn't you? I know that in my 10 years as an employee it's always been fairly obvious to me which contractors were going and staying and I assume it was to them too.

But yes it could come out of the blue.

1st to 2nd is often hard and IS affected by the time of year.

When are the peaks and troughs during the year?

As well as your skillset location is another important consideration. How far are you willing to travel? For me it's 1.5hrs each way per day. Some are happy to work away but I did enough of that in various perm roles to be over it!

I would be happy with up to 1.5 hours each way. That puts me in range of Manchester, Liverpool, Chester, Wrexham etc.

For Oracle Database the highest paying contracts appear to be in the big banks and financial institutions in Canary Wharf and the "City".

Locally I'm seeing £300-400 whereas they are paying £500-600 and upwards. However attempting to do the maths is looks like the extra would be burnt entirely on accommodation and Monday / Friday travel even as tax deductible expenses. Don't have children but don't think it would suite me anyway to be honest.

Worth noting that the IR35 landscape is changing.

From my research it seems like the big risk is with companies and agencies being responsible and liable for determining IR35 status some will just blanket everyone inside for safety.

You'd have to hope that this will lock them out of the best talent and they'll eventually come round. It will probably take a while for the industry to come up with a decent solution for managing the new IR35 changes but I suspect agencies and companies will soon find clever wording and tests to show that they're not inside IR35.

If it's true that 50% of vacancies end up within IR35 how will they fill them? Who wants to work on a contract basis with the pay of a permenant role? How can they hope to attract talent?

It's definitely uncertain but I can't imagine an IT industry that doesn't run projects by loading up with contractors for the build and then winding down to leave the BAU to in house.

Obviously my viewpoint is coming from a permenant employee so I could be wrong but I've worked with contractors for 10 years. I'm interested to hear what you all feel the industry would look like and what you personally would do if a large portion or majority of roles were trapped by IR35. I just don't think its feasible and the agencies, the contract wording etc will just evolve to stay ahead of it.

 

[Nazbit]

So we've talked in this thread about the future of IR35, when the client has to make the determination as to whether a contract is inside or outside of the rules and the possibility that they may be tempted to apply an arbitrary blanket judgement of "inside" to reduce their own liability.

This article published today uses the word "unlawful" to describe this practice in relation to Network Rail.

However it does not elaborate on how or why this illegal or provide any basis for that determination.

https://www.contractorcalculator.co.uk/unlawful_network_rail_blanket_approach_550010_news.aspx

Is anyone aware of why, if the client is responsible for the decision, applying a blanket decision of inside IR35 would be unlawful? Undesirable yes, immoral...maybe, but I can't find anything to say unlawful.