Some questions for IT Contractors please
- Thread starter Nazbit
- Start date
Out of interest, what happens if they don't and you end up getting paid say 35 days later anyway? Is there some penalty clause/interest added etc.. in the contract or do you just suck it up regardless?
This pretty much answers it for you mate - https://www.contractorcalculator.co.uk/contractors_late_payment.aspx
That website in general is very good for contractors btw.
Soldato
Soldato
Then they wouldve breached the terms of the contract. Doing so would result in me having to call out the bailiffs on them.
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Cheers, useful site indeed, that is good to know, I guess you don't want to ruin any relationship with an agent over the occasional delay of a day or two but it they start taking the Mickey then...
Yeh I currently work for an agent, who contract me out to a consultancy, who are the supplier to the government. So middle men making it slow, unfortunately I can’t really negotiate because there’s so many contractors who are with them and accept the terms, it’s the supplier who are slow with making payment sadly.
@Nazbit difficult to say as I'm only in my second contract, but between my first and current it was about a week and that was through my choice - I was flying back from Sweden, wanted a bit of time to settle back home etc.
In terms of take home, my salary is £702/month, dividends can vary depending on how much I need but the portal I use for my accounting tells me how much I can take in dividends. I don't think it's as much as 80% (it could be but you'd pay a higher rate of income tax) and I prefer to keep money in the business account for VAT, self assessment, any purchases I need and also rainy day fund should I have some time out in future between contracts.
If you're on a fairly standard rate of £450/day and working a full month then you're invoice would be circa £11k (with VAT) so your take home could be £4-5k per month? A good way around higher rate of dividend tax is to get your partner as a director and pay them salary and dividends too (depending on their work situation, my wife currently doesn't work).
Take the online take home pay calculators with a pinch of salt, I remember looking back thinking "wow I can earn £6-7k per month" and yes whilst that's true, come self assessment time you'll be in for a shock!
In terms of take home, my salary is £702/month, dividends can vary depending on how much I need but the portal I use for my accounting tells me how much I can take in dividends. I don't think it's as much as 80% (it could be but you'd pay a higher rate of income tax) and I prefer to keep money in the business account for VAT, self assessment, any purchases I need and also rainy day fund should I have some time out in future between contracts.
If you're on a fairly standard rate of £450/day and working a full month then you're invoice would be circa £11k (with VAT) so your take home could be £4-5k per month? A good way around higher rate of dividend tax is to get your partner as a director and pay them salary and dividends too (depending on their work situation, my wife currently doesn't work).
Take the online take home pay calculators with a pinch of salt, I remember looking back thinking "wow I can earn £6-7k per month" and yes whilst that's true, come self assessment time you'll be in for a shock!
Man of Honour
That's quite a low take home on £450 a day
scared of a bit of tax? 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. I used to pay myself similar to the above just to keep my tax bill to a minimum, but ultimately, having money build up in your business account isn't that useful unless you plan on taking lots of time off or worried about not getting a contract. If you want to take it out later on, you still need to pay tax on it anyway, even if you liquidate the company, albeit a lower amount.
Payment in account with tax is a very useful thing providing your income remains fairly consistent
Soldato
Will you be doing your own accounting?
No point taking more than you need and paying tax on itThat's quite a low take home on £450 a day
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. I used to pay myself similar to the above just to keep my tax bill to a minimum, but ultimately, having money build up in your business account isn't that useful unless you plan on taking lots of time off or worried about not getting a contract. If you want to take it out later on, you still need to pay tax on it anyway, even if you liquidate the company, albeit a lower amount.
Payment in account with tax is a very useful thing providing your income remains fairly consistent
No point taking more than you need and paying tax on it
True, an old colleague of mine was apparently on quite a fat daily rate, let most of it build up in his company account. He decided to go travelling after a few years so closed the company down and apparently used entrepreneurs relief to take the big cash lump sum out at a low rate.
Edit, should note, AFAIK the above is quite risky and you can get stung if you’ve blatantly just accumulated cash.
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.
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.
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?
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.
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.
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
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?
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.
Don
I just have my own accounting spreadsheet that keeps track of my tax liability so I make sure I always have that in my bank accounts plus a couple of years worth of backup to cover any lean times that might crop up in the future.
There’s two reasons why you might defer taking dividends, it might but you up a tax bracket for that year, and at some point you might want to quit contracting/retire - at which point you could shut the company down and take everything with only I think a 10% entrepreneur tax payment.
I’ve heard people using this to flip companies every couple of years as well, but I would think that would be on shaky ground with HMRC
There’s two reasons why you might defer taking dividends, it might but you up a tax bracket for that year, and at some point you might want to quit contracting/retire - at which point you could shut the company down and take everything with only I think a 10% entrepreneur tax payment.
I’ve heard people using this to flip companies every couple of years as well, but I would think that would be on shaky ground with HMRC
How do you get the money out in that case? AFAIK if you qualify for entrepreneurs relief you get it out at 10% but if you let the cash build up then HMRC won't allow that and you'll instead pay CGT. What do you do re: cash building up if you're not going to close it down - surely you're just getting it out via dividends at some later date?
Man of Honour
As @Maccy said, if you have a decent accountant (we both use the same one), then the online portal tells you the max you can take out (leaving in enough to cover any corporation tax owed etc)
Soldato
All that matters is that you are able to meet your deliverables. It’s none of their business how much time you take off so long as you deliver to your milestones etc. I usually take 8 to 10 weeks off a year for example.