Thinking of going contracting as a .Net software developer. Some advice needed.

[Wizardskills]

So I have got to the point in my career where I feel like a need a bit of a change. I've been working as a Full Stack .Net Developer via being an employee for the last 13 years. I've enjoyed this work but now feel that I have pretty much plateaued in what I can achieve in my current job. As such I feel like now is good time to consider contracting.

From my limited research the day rates look very attractive (£300 - £500 per day). Obviously there are other things to consider such as no sick or holiday pay and also the fact I would have to run everything through a small Ltd company with all the expenses that would incur (Accountant, business bank account etc...).

I was just wondering if anyone here was also in this field and could offer me any advice or tips? There don't seem to be many of these contracts offered on the job sites I would usually use, I assume the agents don't need to actively advertise these roles or maybe I'm looking in the wrong places? Also, if anyone has any recommendation of agents to use that would be great.

Many Thanks, Wiz

 

[Diagro]

You need to look at your wage now, vs what you could earn as a self employed contractor.

I for example, have done the last 2 months as self employed for my new company. I earnt £4k per month. BUT I now need to do my own Tax, expenses and stuff with that money.
I've absolutely no idea wat to expect, so I stuck 2.5k in a separate account for when the tax man comes a knocking.

I then asked my employer to be put on PAYE, which they agreed. My take home will be £2.8k after tax and student loans.

I like the PAYE system. 1 payment into the bank, no worries with sorting my own tax or stuff. I value my own time off work, and I don't feel spending hours sorting tax returns is worth the small savings.

Sorry for the rambling type post. Those are just my views from my head.

 

[RobHu]

Depending on where you live I'm not convinced contracting as a software engineer is as worth it as it used to be. Anecdotally looking at linkedin day rates don't appear to have changed much if at all over the last 10 years. Salaries however are at what must be an all time high. Years ago I thought the only realistic way to >£100k as a software engineer was to go contracting, now however I get pushed a lot of perm jobs around that mark (not even including the obvious US tech companies). Once you add in sick, holiday leave, potential IR35 issues it becomes much harder to justify in my opinion.

 

[Wizardskills]

Thanks for the replies guys.

You need to look at your wage now, vs what you could earn as a self employed contractor.

I for example, have done the last 2 months as self employed for my new company. I earnt £4k per month. BUT I now need to do my own Tax, expenses and stuff with that money.
I've absolutely no idea wat to expect, so I stuck 2.5k in a separate account for when the tax man comes a knocking.

I then asked my employer to be put on PAYE, which they agreed. My take home will be £2.8k after tax and student loans.

I like the PAYE system. 1 payment into the bank, no worries with sorting my own tax or stuff. I value my own time off work, and I don't feel spending hours sorting tax returns is worth the small savings.

Sorry for the rambling type post. Those are just my views from my head.

Yes, this is something I will have to sort out but I don't think it'll be too much of an issue tbh. My father was a chartered accountant so will be able to guide me for the most part.

Depending on where you live I'm not convinced contracting as a software engineer is as worth it as it used to be. Anecdotally looking at linkedin day rates don't appear to have changed much if at all over the last 10 years. Salaries however are at what must be an all time high. Years ago I thought the only realistic way to >£100k as a software engineer was to go contracting, now however I get pushed a lot of perm jobs around that mark (not even including the obvious US tech companies). Once you add in sick, holiday leave, potential IR35 issues it becomes much harder to justify in my opinion.

If you don't mind me asking, what area do you work in where a permanent job is paying around £100k? I'm not earning anywhere near that at the moment and from what I have seen from jobs locally (Milton Keynes) getting anything over £60k is not going to be possible (which again, is more than I'm currently on). Also, is Linkedin a good place to look for contracting opportunities?

 

[RobHu]

If you don't mind me asking, what area do you work in where a permanent job is paying around £100k? I'm not earning anywhere near that at the moment and from what I have seen from jobs locally (Milton Keynes) getting anything over £60k is not going to be possible (which again, is more than I'm currently on). Also, is Linkedin a good place to look for contracting opportunities?

London. Investment banks, hedge funds, some fintechs, some startups, US tech companies and a few others all pay at or around that much, sometimes more. Getting in isn't easy but it's possible if you can make yourself take the time to prepare properly (by that I mean spend a lot of hours grinding on leetcode or similar). Don't get me wrong also, the majority of companies even in London pay probably £50-80k for senior engineers, and this is still a good wage.

You have to look at it relative to cost of living in your area obviously, £60k in MK would probably equate to significantly more in London. I suppose in that context a £500 day rate might make a lot more sense? It'd be double the money - holiday/sick/other expenses. A contractor friend of mine told me that his target income was around double what he could get for a permanent position to make the risk worth it for him.

I don't know much about getting contract roles but I imagine linkedin is fine for it.

 

[sHo0sH]

So I am a recruiter, and I place contract software engineers - my take on the situation.

IR35 has massively changed the market for at least the long-term forseeable and maybe permanently. The days where you could contract at X day rate via your own LTD company and be able to optimise your tax are almost over. The amount of clients that are willing to engage this type of contractor now have shrunk massively. I would say 90+% of the jobs that I have worked this year have been "Inside IR35". Whilst it will still be possible to find roles outside of IR35 they are now the exception rather than the rule, and I would expect people only open to these jobs to have down time in between contracts, which will effect their median day rate over time.

If you are happy working inside IR35 via the PAYE system, then it can be more lucrative than permanent employment, but not as much as before. For example a day rate of £500/day you are going to have to work back from for both employer and employee side tax payments, so would roughly net just over half of that. When you compare that to a well paid permanent role, with benefits and holidays the differences now can be as little as 10-15%.

If you are in a poorly paid role, then maybe the differences would be greater for you - at your length of experience you should be on at least 60-70k with your current employer.

 

[Maccy]

@Wizardskills there's quite a few of us contracting on here, I've been doing it for almost 4 years and have been outside IR35. There's plenty of roles available in all sectors, but a lot of the time they're not advertised - building up a good network of recruiters helps.

Suggest you find a decent accountant that does everything for you, including your required business and liability insurance - I use Clever Accounts and they're not bad - happy to refer you if you'd like.

Any specific questions then just ask, but I definitely prefer it than being permanent/PAYE.

 

[dlockers]

You're so close to London and can work remotely. A good full stack developer can command a premium without the headache and lack of perks as contracting.

 

[Wizardskills]

@Wizardskills there's quite a few of us contracting on here, I've been doing it for almost 4 years and have been outside IR35. There's plenty of roles available in all sectors, but a lot of the time they're not advertised - building up a good network of recruiters helps.

Suggest you find a decent accountant that does everything for you, including your required business and liability insurance - I use Clever Accounts and they're not bad - happy to refer you if you'd like.

Any specific questions then just ask, but I definitely prefer it than being permanent/PAYE.

Thanks for the tips. I had a feeling that all of the good positions are not getting advertised at the moment. A lot of the stuff I'm seeing on the job sites seems to have sat there for a couple of weeks.

My father has recently retired as a Chartered Accountant so he will be able to advise me on the accountancy side of things. With regards to the professional indemnity insurance, I'm assuming you only need that as you are working outside of IR35? If I'm working through an agency umbrella company, wouldn't that be something they would have to have in place?

You're so close to London and can work remotely. A good full stack developer can command a premium without the headache and lack of perks as contracting.

Yes, working remotely for a London based firm would be doable. That said, I don't want to be commuting every day into London. I think that would destroy my will to live and pretty much negate the financial benefits of a London salary.

 

[Maccy]

@Wizardskills yes I'm outside of IR35, properly assessed as well. It was always a requirement as part of the initial contract that I had proper insurance in place - so you'd need to check with the client.

 

[mid_gen]

Depending on where you live I'm not convinced contracting as a software engineer is as worth it as it used to be. Anecdotally looking at linkedin day rates don't appear to have changed much if at all over the last 10 years. Salaries however are at what must be an all time high. Years ago I thought the only realistic way to >£100k as a software engineer was to go contracting, now however I get pushed a lot of perm jobs around that mark (not even including the obvious US tech companies). Once you add in sick, holiday leave, potential IR35 issues it becomes much harder to justify in my opinion.

Don't forget employer pension contributions.

It's definitely not as appealing these days.

 

[dlockers]

Yes, working remotely for a London based firm would be doable. That said, I don't want to be commuting every day into London. I think that would destroy my will to live and pretty much negate the financial benefits of a London salary.

Honestly, I don't know many/any developers working in an office anymore. Other than those who chose to. And even if they do, they typical "do their own hours".

 

[mid_gen]

Honestly, I don't know many/any developers working in an office anymore. Other than those who chose to. And even if they do, they typical "do their own hours".

Decent programmers can pretty much dictate terms these days....even if a job isn't offered remote, you can probably make it.

 

[nine_tails]

So I am a recruiter, and I place contract software engineers - my take on the situation.

IR35 has massively changed the market for at least the long-term forseeable and maybe permanently. The days where you could contract at X day rate via your own LTD company and be able to optimise your tax are almost over. The amount of clients that are willing to engage this type of contractor now have shrunk massively. I would say 90+% of the jobs that I have worked this year have been "Inside IR35". Whilst it will still be possible to find roles outside of IR35 they are now the exception rather than the rule, and I would expect people only open to these jobs to have down time in between contracts, which will effect their median day rate over time.

If you are happy working inside IR35 via the PAYE system, then it can be more lucrative than permanent employment, but not as much as before. For example a day rate of £500/day you are going to have to work back from for both employer and employee side tax payments, so would roughly net just over half of that. When you compare that to a well paid permanent role, with benefits and holidays the differences now can be as little as 10-15%.

If you are in a poorly paid role, then maybe the differences would be greater for you - at your length of experience you should be on at least 60-70k with your current employer.

This is spot on. It largely depends if you get a contract outside IR35 and only then it makes sense to go contracting..

 

[OspreyO]

I only contracted for a few years and I was more of a hack than a developer. But I found I gained a huge amount of experience very quickly as a contractor. I worked in Pharma, a Stockbroker, Telecoms, accountancy companies in the space of a few years. I gained a huge of amount of business experience and dealing with different types of people. I've been permanent now for a very long time, I'm now in DevOps, but it very obvious when applying for new roles, how being permanent has constricted my recent experience and skillset. Though in the last couple of years I've made real progress in steering myself to mainly work in new/current technologies. The pressure to work in older, or proprietary technologies, and even support is difficult to stay away from in a permanent role. Maybe I'm too obliging. Though the quality of life and work/life balance is much better in a permanent role. Which is why I originally made the change.

 

[MikeTimbers]

To be truly outside IR35 (only way for contracting to be really worth doing IMO), you need to have more than one client, your own Ltd company through which you directly contract with your client, via a clear fixed price statement of work. Your role needs to have no line management, no-one telling you how to do the job, no-one else in the company doing the same role as an employee. At the end of the job, the client (never employer) either pays you or not. You manage their expectations throughout the work and pre-ensure that they will be happy when you think you are done.

This is how I work. It's lucrative, with freedom to decide who I work for and where, what I do and how I do it. In nearly five years, I've had a few months of downtime here and there but never anything that was uncomfortable.

But I'm a consultant who can easily work alone. That's rarely the case for a developer who is usually alongside other devs in a team so if any of those are employees, then so are you (OP). At best you would be able to work as a fixed term contractor but that tends to be rarely better paid than being a FTE. Be very wary of anyone saying they can do outside IR35 through an "umbrella company". Very dodgy.

 

[mr tommo]

Thinking the same myself but the only way it makes sense to me is if outside IR35 and if the tax benefits are to be believed.

Contractors I speak to talk about dividends, director loans and basically only paying 20% tax for anything over their salaried amount (£30-40k). Is this anything like accurate without being illegal?!

 

[Maccy]

Thinking the same myself but the only way it makes sense to me is if outside IR35 and if the tax benefits are to be believed.

Contractors I speak to talk about dividends, director loans and basically only paying 20% tax for anything over their salaried amount (£30-40k). Is this anything like accurate without being illegal?!

Director loans are a thing of the past now (generally speaking), it's minimum salary and the rest in dividends. That, and maximising pension contributions and legit expenses.

 

[mr tommo]

Ah ok, it sounded dodgy. So £500 per day you're looking at around 7-7.5k take home per month excluding any expenses then.

That's assuming £18k Salary, £100k Dividends. @Maccy are Clever Accounts good with advice on maximising this stuff and expenses or better off with a local specilist account for advise the first couple of years would you say?

 

[Maccy]

Ah ok, it sounded dodgy. So £500 per day you're looking at around 7-7.5k take home per month excluding any expenses then.

That's assuming £18k Salary, £100k Dividends. @Maccy are Clever Accounts good with advice on maximising this stuff and expenses or better off with a local specilist account for advise the first couple of years would you say?

Depends how much you want to take in dividends, I don't take anywhere near that much but on paper you could - I'd def recommend maximising pension contributions directly from the company though. Salary you'd be better off taking £736/month and making up the rest in dividends - read up on dividend tax though so you know how much you need come self assessment time.

I'm with Clever Accounts, generally pleased with their service and their portal is great for tracking everything - happy to refer you if you're serious