D Beddows
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| posted on 4/5/06 at 09:59 AM |
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Anyone do contract work?
I was made a job offer at the begining of last week, great job,lots more money - equivilent of being signed for Chelsea in the industry I work in etc
etc, the only snag is that a recruitment agency is involved in the process  . The upshot of this being that I have to work on contract for the first
3 months before changing to a full time permanent contract with the company.
That bit is fine and sorted BUT does anyone have any advice regarding working on contract - specificaly the getting paid bit  The recruitment
agency are pushing me to set up my own limited company but as I'm only intending to do contract work for 3 months I'm wondering if it
wouldn't be a lot less hastle to sign up with one of the 'umbrella' type outfits who do all the admin/tax for you.
Anyone been there, done that, got the T shirt?
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MikeR
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| posted on 4/5/06 at 10:02 AM |
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I use contractors at my place and the thing i'll tell you is this! Agencies are useless and charge a fortune. What ever you're getting
paid the agency is probably adding on 25%
An umbrella company is probably easiest for what you're going to do but they'll also want a percentage. Make sure that this isn't a
scam to hire you for only 3 months.
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stevebubs
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| posted on 4/5/06 at 10:04 AM |
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25% is probably on the low side...what industry are you in?
[Edited on 4/5/06 by stevebubs]
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David Jenkins
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| posted on 4/5/06 at 10:10 AM |
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I was a contractor for 5 or 6 years - loads of money, but don't forget the overheads. If you have a limited company then you have to do serious
book-keeping, and the books will have to be audited once a year - very expensive. You will probably have to be VAT registered, which is not too hard
but a heap of paperwork - also you don't want to cross those people! 
The other overhead is that you will not get paid for holidays, and you will not be earning anything, so mortgages & bills have to come out of your
reserves.
Finally, you will have to pay both employee's and employer's national insurance on your earnings, and income tax for both as well.
I was told up-front that you have be paid roughly twice as much as a permanent employee to end up with the same money in your pocket. This estimate
isn't far wrong.
All in all, if you are only talking about 3 months then an umbrella company is ideal - just make sure that you avoid the ones who say that they can
maximise your earings by reducing your tax commitment (or similar language); they are usally trying to fiddle the books on your behalf and some
contractors have felt the full force of HM Customs & Excise & Inland Revenue due to some half-arsed attempt to cheat the system. Try to find
some company that will play it totally straight - you'll still make good money, with no worries.
As for the agency percentage - look at what you are getting, not what the company is paying the agency. If you are happy with your share, why
worry?
Have fun,
David
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D Beddows
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| posted on 4/5/06 at 10:16 AM |
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Don't worry I've made quite sure I'll be getting a proper contract at the end of 3 months
I work in the shopfitting industry as an Architectural Technician/Designer (aka CAD monkey lol )
Recruitment agencys are the spawn of the devil imho and if I had any choice......... it's a means to and end tho so I can live with it for a
bit.
Anyone able to recomend a decent umbrella company then?
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James
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| posted on 4/5/06 at 10:16 AM |
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quote:
Originally posted by David Jenkins
Finally, you will have to pay both employee's and employer's national insurance on your earnings, and income tax for both as well.
Heard of IR35? It's a tax system that came in about 4 years ago. To catch what they call "disguised employees" ie. people who are
effectively regular employees but who work via their own limited company etc.
IIRC people caught by it pay 55% tax!
Dave, I've sent you a u2u.
Cheers,
James
------------------------------------------------------------------------------------------------------------
"The fight is won or lost far away from witnesses, behind the lines, in the gym and out there on the road, long before I dance under those lights."
- Muhammad Ali
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Donners90
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| posted on 4/5/06 at 10:27 AM |
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I am currently a contractor, working under a umbrella company. Effectively I am a director of a company with 1 share in that company. My wages get
paid from an agency to the umbrella company. The company then pays me at £5ish an hour for the hours worked, and the rest comes in dividends (of the
one share). Obvioously there are charges and tax involved, but I'm approximately £100-150 a week better off, over PAYE!
The company I use is Giant http://www.giantgroup.com
[Edited on 4-5-2006 by Donners90]
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David Jenkins
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| posted on 4/5/06 at 10:29 AM |
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quote:
Originally posted by James
Heard of IR35? It's a tax system that came in about 4 years ago. To catch what they call "disguised employees" ie. people who are
effectively regular employees but who work via their own limited company etc.
IIRC people caught by it pay 55% tax!
Yes - I was lucky - I went permanent just before that came in.
All the hassle of running a company, with none of the benefits...
David
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MikeR
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| posted on 4/5/06 at 10:39 AM |
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IR35 only really affects computer contractors, thats who it was designed for.
(i'm in the IT industry).
With it only being for 3 months you should be fine. We run into problems (well my staff) when we've had them on the books for 5 years. Luckily
he does his 40 hours over 4 days and works for other companys on his 5th day (sometimes another division of my company) but this gets him round
IR35.
My objection to agencies is how much we spend paying them to do feck all when i could save that money or give it to the contractor.
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James
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| posted on 4/5/06 at 11:14 AM |
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quote:
Originally posted by MikeR
IR35 only really affects computer contractors, thats who it was designed for.
(i'm in the IT industry).
With it only being for 3 months you should be fine. We run into problems (well my staff) when we've had them on the books for 5 years. Luckily
he does his 40 hours over 4 days and works for other companys on his 5th day (sometimes another division of my company) but this gets him round
IR35.
My objection to agencies is how much we spend paying them to do feck all when i could save that money or give it to the contractor.
I work in the IT industry as well.
Sorry to disagree, but it doesn't affect IT people only (although it was EDS who were responsible for it). My Father is in the electronics
industry and would potentially be caught by it if he was a disguised employee. As are various colleagues/friends of his.
But I agree anyway that IR35 may not be a problem for a 3 month contract.
I suggest anyone in this sort of position joins the PCG (Professional Contractors Guild) as they have a huge amount of advice of these matters.
HTH,
James
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"The fight is won or lost far away from witnesses, behind the lines, in the gym and out there on the road, long before I dance under those lights."
- Muhammad Ali
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John.Taylor
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| posted on 4/5/06 at 11:42 AM |
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A friend of mine worked for Tickford, then Prodrive and is now at Bentley. Throughout all this time, he's been a self employed contractor and
has used a company called Brookson (add a www on the front and .co.uk on the end) to handle his affairs. From what I gather, they set you up as a
limited company, you pay yourself a minimum wage which you get taxed on, then pay yourself a dividend (bonus), which you don't pay tax on!
Bentley want him to come off contract but he won't as he'll take a 40% pay cut. Thats how good it is!
Also, they sponsor racing events and give their customers free tickets. Went to Oulton Park last year to see Parmer Audi, VW Cup, Formula Ford,
Ferrari Cup, etc.
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Tiger Super Six
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| posted on 4/5/06 at 12:02 PM |
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Some mixed answers there!!
Setting up as a limited company will not mean that you will need to earn twice as much as you would on PAYE to make the same money. The reason for
going onto a Limited Company basis is so that you can adopt a low salary and dividend strategy which can be more tax efficient. Really you either need
to go under an umbrella company, of speak to a decent accountant. If they are good they will save you far more money than they cost and will be able
to advise on IR35 issues and the best way of setting up (i.e. self-employed or limited company). You need to look at what you will be earning, what
can be offset etc etc.
IR35 does not just impact IT people, although they were the main reason that it came about. Basically you can't just work for one company and
contract to avoid taxes etc. You should be fine as it is only a temporary contract of 3-months.
HTH
Mark
Tiger Avon
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Taz Surfleet
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| posted on 4/5/06 at 12:21 PM |
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A Ltd company is designed so that if you go tits up you as a director are only liable for the value of the shares that you hold, the paye benefit is a
side issue and they are starting to crack down on the way dividends are paid out and how much tax they attract eg you cant pay yourself a monthly
dividend anymore and expect to pay tax at 10% on them, as far as a short three mnth contract is concerned the agency should be able to put you through
their books as a temp, you may have to pay on a week one basis but the cost and hassle of setting up a ltd company isnt worth it. In the end you will
get the tax back if youve overpaid the only down side is youll have to wait for it. As far as IR35 is concerned, you should be able to work for one
company as long as the term of the contract exists including extensions .The main criteria is that you arent using the clients equipment all the time
(eg you provide your own laptop and use their stationery etc) it helps if you are able to bill more than 1 client ( this basically proves you are
self employed) A Ltd co gets round the IR35 because you are in affect a full time employee of your own company (whose name the contract will be in)
and are therefore liable to pay tax at the standard rates ( this becomes expensive as the company is liable for the employers half as well as you your
own ie you pay twice).
[Edited on 4/5/06 by Taz Surfleet]
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David Jenkins
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| posted on 4/5/06 at 12:30 PM |
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quote:
Originally posted by John.Taylor
From what I gather, they set you up as a limited company, you pay yourself a minimum wage which you get taxed on, then pay yourself a dividend
(bonus), which you don't pay tax on!
You will always pay tax! The only thing you used to be able to avoid was paying National Insurance on the bonus, which can add up to a tidy
saving.
Now, under IR35, I believe that loophole is either gone, or will go soon - They will certainly get twitchy if you pay the bulk of your money as
bonuses. Modest bonuses should still be OK, just not the wee-taking ones.
David
P.S. Maybe the "twice as much as a permie" requirement is an exageration - but you certainly have to earn a fair bit more to cover the
incidental expenses.
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Kissy
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| posted on 4/5/06 at 01:48 PM |
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Brookson - a colleague works 'through' them as a limited co. They don't tend to pay up until they've been paid (has been
6wks), and they do tend to take more of a cut. I work through my agency, who typically take 15%.
IR35 - You just need to be careful.
As for benefits - I pay myself £5k/annum, then I claim my mileage at 40p/mile up to 10k miles, then 25p/mile (I do 600+/wk) then the rest is
dividends, taxed at 19%. As a guide you put 25% of turnover to one side and that should cover your taxes and the accountants fees. If you go VAT
registered, and register for the flat rate scheme, you can make on that too, typically 60 quid per thousand turnover - not too shoddy.
Trouble is once you've been a contractor you'll need a lot of persuading to commit 'permicide'.
U2U me if you need a not too greedy agency to talk to (who pay up bang on time too), or if you need further convincing.
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Kissy
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| posted on 4/5/06 at 01:50 PM |
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BTW, my accountant charges £600/annum and is s***hot. I do my own VAT.
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David Jenkins
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| posted on 4/5/06 at 02:19 PM |
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quote:
Originally posted by Kissy
Trouble is once you've been a contractor you'll need a lot of persuading to commit 'permicide'.
I know what you mean - I committed permicide after Y2K was over and there were too many IT contractors around. I've been a permie for nearly 6
years now, and (looks over shoulder furtively) now considering going back to it.
Above all, I love the basic honesty of it - if the company thinks you're good enough, you keep the job - no annual appraisement crap, trendy
management courses, etc. Not too hard to move on if you end up hating your current job.
David
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jimmyjoebob
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| posted on 4/5/06 at 06:43 PM |
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At least contractors get paid, even if they have problems being paid by the company. I worked for a company that regularly ran out of money -
contractors never lost out!
If at first you don't succeed, hide all evidence you ever tried!
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