Looking for a new job and some of the vacancies are interim roles

Always been permanent before never done any contracting

Any tips in terms of how best to get paid, expenses, etc.?

And what’s the most accurate way to turn a day rate into an equivalent annual salary? Assume there are tax advantages to offset the lack of pension, sick leave, holiday, car allowance, etc.?

There’s a lot to it, but it’s not complicated.
Have a look here: http://www.contractoruk.com/first_timers/

the easiest way to start out is to get the contract and use an umbrella company for all the accounts stuff, they will do it and sort tax etc .

then once you know its the life for you, set up your own company, first find a decent accountant and can do it for you. Then sit with him and talk to him about the level of tax to expect to put aside until you have to pay yer tax bill. He can probably do the VAT quarterly for you if you cant be bothered.

if you can, build up a fund as a safety net in case contracts aren’t renewed or you spend time looking, aim for six months.

job done.

Also, some ‘interim’ roles will just be fixed-term PAYE.

From tax advantage point of view, the best way is through your own limited company. A lot more flexibility and control, and you can work outside of IR35 so long as your client work is not obviously similar to being permanently employed.

You also get advantages with travel and subsistence for up to two years with a client, and various ways of claiming expenses or having the company pay for things that provide a tax advantage.

You can take dividend payments from your company, which are taxed less than PAYE income, though are taxed more than they used to be.

Speak to a good contractor specific accountant. Strongly advise using one. They know the rules, the changes to the law and the best options.

Or go the umbrella route. You take home less that way but could be easier. Though the government keep trying to kill off umbrella companies.

As said, build up a fund for times “on the bench”. If you use a ltd company you can work it so that you’re always employed by your company and getting a salary/dividends from it and client money comes and goes. So long as there’s enough coming in to keep the company and your income going.

Assume there are tax advantages to offset the lack of pension, sick leave, holiday, car allowance, etc.?

A lot of the offset comes from the higher money they pay you. Technically clients are paying a similar amount to the overhead amount they are shelving out for a permanent employee. It’s just they’re giving your company all the cash so you can spend it on pension, holidays, sick, etc. More flexibility on how it’s spent so you generally profit from it.

Sadly a lot of companies or especially managers don’t understand this point and claim their contractors are more expensive. They are to their budgets, but overhead cost to the company can be the same. Or less as contractors are cheaper/easier to hire (and also to fire 😉 ).

Of course contractors can demand higher rates and companies may pay higher if there’s no choice and they can’t get permies, so in that sense they can be more expensive 😀

Good advice above (ie try it and if it seems for you including the relative insecurity then set your own company up)

I have done mainly PAYE but had a bit of time “self employed / ltd company” too. Personally I have found job security something that is declining fast so why not contract and take a bit more cash upfront and with some room for manouver with regard to income and tax.

As for comparisons its a rough and ready calculation and some thoughts

No paid holiday 52/46 = 13%
No pension 5-10%
Short notice period can work both ways
Less job security – arguable as so little anyway these days
Possibly more flexibility on holidays eg I have know a few contractors who never worked during a football world cup or took anything from 6 weeks to 3 months for skiing

.. Apologies for the hijack but it’s related! I’ve been working in one area of IT for 8 yrs but have just moved to a different but related area and have been doing that for 6 months. How long would I need to do the new role for in order to not be laughed out of an agency? My old role has lots of transferable skills . Ta

I’m 2 months into my first contracting engagement. I run a limited company and extract funds from the company via a basic salary + dividends (haven’t drawn any dividends so far).

An accountant specialising in contractor finances is a good place to start, they will have all the answers. I can recommend a good one (email in profile) if need be.

It’s all quite easy to setup and manage.

FWIW best money to with draw is ‘expenses’, no tax at all.

Therefore ANYTHING you can claim, claim.

^^^ good point. Again, an accountant can help out here. I claim for my daily travel + lunch. Other stuff like liability insurance, accountancy fees, office equipment, use of home for business matters etc all go through the company too.

^^^ This. Just you need to keep a record of it all and be prepared to justify it come an inspection. You’ll need to declare stuff on P11D each year also but if you can claim all the expenses are purely work related then little or nothing to declare. More so if the company card pays it rather than repaying you personally in expenses.

Got to get used to putting two hats on basically. Think about you personally with your employee hat on, and then as the company with your directors hat on.

We use a proper expense form, just like you would’ve when claiming expenses thru a company.

And ‘use of home’ is now only a £1 a week, but you can sell the business everything it needs 🙂

Also go fixed rate vat.

Is that what your accountant recommends ?

I claim more than that.

Yes.

So did we previously, 1/7 of the mortgage interest and utilities etc.

But if you work from home rather than just do your admin etc, maybe different. But then you could have council issues with running a business etc. So they recommend not to.

Good advice there. I don’t bother claiming for lunch as I’m too lazy to keep the receipts. Everything else tho goes through the LTD company. I make sure all my contracts say ‘consultant’ on them and it’s shown it’s not ‘directed work’ so I never will fall into IR35 territory.

Flexibility is good. I took a summer off and quite a few holidays. Keep enough in the bank to assume six months of not working. Don’t take the p!ss with rates as most of my clients are higher education and while that’s a very loyal group, it’s not the highest paying sector. Don’t care, enjoy the work and the flexibility of not working for one person.

That’s the big thing for me. I’ve just about got to the stage where I have many different clients and I don’t work full time for any of them. The problem with that is as a company of 1 person, you have no scale so it tends to be feast and famine. Currently a bit too feast-y but I’m always convinced lean times are round the corner.

Nice thing about working this way is my plan is to semi-retire in 5-7 years. If you’ve got loads of clients who have engaged you part time, this can be pretty seamless.

Freeagent + phone app is my friend. 🙂

Thanks all – in principle is there anything stopping me being paid the gross daily amount and then sorting out my tax and NI through my tax return?

Thanks all – in principle is there anything stopping me being paid the gross daily amount and then sorting out my tax and NI through my tax return?

No, but be aware that a company shouldn’t pay your invoice into a non-related bank account (ie not your personal account).

And you don’t want to be structuring your ‘earnings’ so that you pay NI 😉

While the set-up you describe sounds a bit like self-employed, and (I guess) fine in principle from a tax perspective, the practical arrangements with the client are likely to be a more substantial issue.

My guess is the client (where you are doing the interim work) would require Ltd or Umbrella. It protects them as much as you.

Have you spoken to an accountant? An initial meeting won’t cost much (if anything), and will probably help you get everything clear (and it’s a deductable business expense).

On day rate – take the annual salary you want and divide by 100 for a starting point. Sick/holiday/pension are up to you!

edit: spelling

Ltd company is often required and recommended for yourself anyway. Liability is with the company then and generally can’t touch your personal finances if things go TU (although you can be declared bankrupt as a director).

Also, it may be worth being VAT registered. Even if you bring in less than the limit that requires you to be registered. Typically because you can then go on the flat rate VAT scheme and you pay less VAT back than you take in (idea is to simplify VAT returns and the difference accounts for typical expenses but often you profit from it). Also some clients prefer to deal with VAT registered companies.

Accountants, look for a contractor specific accountant who knows the ropes.

Big name, not the cheapest at all, but been okay for me and they have been proactive on suggesting the best ways to structure things: http://www.sjdaccountancy.com/

Even if you don’t use them, there are some good guides on their site for first time contracting.

Nobody mentioned you’re all money grabbing, tax-dodging, mercenary bar-stewards yet?

Standards are slipping round here…

I am supposed to start a contracting role next tuesday.

I have been working as a VAT registered sole trader for the last few years. Agency called me on friday to tell me they need me to switch a Ltd company.

Emailed accountant but not heard back yet, hoping it can be done quickly and easily, I did have a look online and it seems okay and I just need to transfer my VAT liability but thought it best leave it to the accountant. I suspect I will also need a business bank account as I have been using my personal one, any tips on the lowest fee ones?

Also confused over the car thing, 70 mile round trip and the contract should be 1 year. Was planning on leasing a BMW i3 (business) or buying a (personal not company) T5 and claiming mileage.

Make sure your not just a disguised employee when claiming all those expenses…

Also remember to allocate your holiday and sick pay so that your not the guy dribbling snot on the keyboard as the mortgage is due that week. Work out your quarterly and annual income not weekly so that you remember you have paid yourself to have some holiday.

I suspect I will also need a business bank account as I have been using my personal one, any tips on the lowest fee ones?

My accountant (SJD) had a deal with Cater Allen – free banking if you kept to certain conditions (I forget what they were now).

Also confused over the car thing, 70 mile round trip and the contract should be 1 year. Was planning on leasing a BMW i3 (business) or buying a (personal not company) T5 and claiming mileage.

It’s a contract so they could get rid of you during the week…, don’t (initially) create yourself any long-term fixed costs. IMO just use your current vehicle and charge (your company) 45ppm.

FWIW both me and the wife have been contracting for 15 years (on/off) and have always just bought our own cars and charged mileage money. Some years you do over the 10k and so are down at 25ppm, but still means you’ll cover the costs.

good point on the lease. I could just pay the whole lot up front through as it’s not a huge amount and I need a new car. Might just see if I can get the old banger through it’s next MOT and treat myself to a nice T5 and split the mileage (18-20k/year business). I will be continuing with my own work on the side but that is very much in the development stage as I am working on some materials R&D and developing new test equipment but a house build, new office/workshop build and lack of funds are in the way of that one so a years contracting will come in handy cash wise, for my sanity working with people and networking as I will be a research centre working with top people and companies in the industry so a good move but will be my first real going to work every day job so a bit odd.

The holiday thing is annoying as I wont want to take days off as I will just see them as loosing a days pay.

Great advice as ever STW – thanks.

Not sure about the divide by 100 thing I’ve been using 260 working days per annum and then deducting some for holidays

Just not sure how long I might be contracting for – could be as little as 2 weeks could be 6 months or more – hence why I’m not sure whether to go down umbrella route as Ltd. seems overkill if I only end up doing a few weeks