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I've spent my entire life as PAYE.
However, recently been offered an opportunity as a contractor. Been told it's outside IR35 and that I need to set up a limited company.
I'm sure plenty on here have done this before but I'd be interested to know your experience and what the potential pitfalls are.
Looks like I'd need to sort my own vehicle to cover 20 to 25k pa, suitable for use on double track. I guess I need public liability and professional indemnity as well. Also, need to be Vat registered.
Might be a how long is a piece of string question, but roughly what percentage of the gross could I expect to see make it into my bank once everything that needs to be paid has been paid.
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No one can give you a figure unless we know what you are charging. Work out your outgoings, take them off your incomings.
I’m a Sole Trader now, I shut down my Ltd. Co. a couple of years ago as it wasnt paying keeping it open. Typical costs for me are (all yearly)- van £3k, accountant £500, tools £1k, training £1k, Insurance £400, van running cost - 45p/mile, non-payers/wasted stock-£500/yr. Professional fees £1k/yr, and loads of other smaller expenses, such as occasional days off to go to trade shows, or having to take another exam/test to keep my competency up to date.
If I turn over £50k (labour only), I expect to see around £30k after expenses/fees/tax/NI.
Being limited does not change those figures much. There are added costs in needing an accountant (I dont bother now), and extra hassle with VAT. There are very slight tax advantages, which are not as good as people say. You can take a minimum wage, then take the profit as dividends, which are taxed at a lower rate, but the saving isnt great until you are earning £100k+, and, you need to live on the minimum wage until well after the year end accounts, until you get the dividend pay day. And the downside, you do your daily work, and you need to run a business too. Accounts/emails/hassles in the evenings/weekends
Fair point, I probably should offer a bit more info. They are talking about 4 years worth of work offering £700 for a 10 hour day.
Feels a bit low for the industry but I've not been contracting before.
£700 a day for 4 years!
Done this.
you should be able to make the numbers work at that rate, even factoring in holidays. Compare it to the market rate for your industry, but factor in others may have agency fees on top, that you don’t by going direct. Also easier to manage and keep the client relationship without an agency messing things up.
without knowing the industry, Ltd company does provide you with limited liability, which for some industries is key, without being Ltd co I would not have got any contacts.
I’m not up on the current situation, but HMRC and the govt have director dividends in their sights (as they have for years to be fair), so the tax advantages have been reduced from what they once were.
As an experience, being your own boss with all the responsibilities etc that come with it and opportunities, I thought it was worth it.
edit, contact term would be an interesting negotiation point - you mention 4 years of work, see if you can secure a longer initial term, maybe 18 months.
At that day rate, you'll only be saving on national insurance contributions unless you distribute your dividends to more than 1 person (your better half?) and they are a lower rate tax payer. One thing to watch out for is whether you will be "IR35 compliant". The government changed the enforcement of IR35 to make the clients liable to fines if you can't prove your outside IR35. There are a few simple tests you can run (do you provide all your own tool and training, is it up to you when you work, can you deliver the work through someone else as long as they are equally qualified, etc.). It is a good idea to pay an expert to review any offered contract before you agree to anything.
You might make a little through flat rate VAT depending on your work classification.
I've spent my entire life as PAYE.
However, recently been offered an opportunity as a contractor. Been told it's outside IR35 and that I need to set up a limited company.
I'm sure plenty on here have done this before but I'd be interested to know your experience and what the potential pitfalls are.
Looks like I'd need to sort my own vehicle to cover 20 to 25k pa, suitable for use on double track. I guess I need public liability and professional indemnity as well. Also, need to be Vat registered.
Might be a how long is a piece of string question, but roughly what percentage of the gross could I expect to see make it into my bank once everything that needs to be paid has been paid.
Huge difference between "inside IR35" and "outside IR35" in terms of expenses, tax treatment, financial flexibility etc.
Getting a robust contract is the first step in getting an "outside IR35" determination, if it is even possible. Depends on the nature of the services being provided, etc etc.
Insurance - at a minimum I'd expect professional indemnity, employers liability, product liability, public liability to be discussed. Again depends on the nature of the work and deliverables.
Not sure what you mean by "suitable for use on double track". But in general terms, buying / leasing an EV within a company is very tax efficient.
If you don't know what you are doing, then getting an accountant to help in company setup, VAT registration, and running your accounts will save you a lot of headache.
It can be a very tax efficient way of providing bicycles for all staff...
Best not to share too much over a public forum, but if you want to PM me then I'd be happy to chat
A VERY rough rule of thumb is a 100% increase for going self employed/contractor, eg if you get £35k PAYE then you want £70k self employed *. There are so many factors that can make a big difference and if you manage it well you would actually be a lot better off financially and have more control but it doesn't suit everyone. Honestly I'd happily take a pay cut for all the fringe benefits but as it happens I'm a fair bit better off.
* Or pro rata, eg still get £35k but only work half the hours.
The thought of ten hour days for the next four years is a bit shocking. I contract, and the appeal is that I can take months and months holiday each year without having to ask or beg for time off.
4 years of work sounds lovely but I’d work on getting about 3 months of it and go from there. Just having one client offering your security for that long without any other work, when mid afternoon on any given Friday they can drop you an email saying soz, got nothing for you for the foreseeable seems a bit risky to me
A VERY rough rule of thumb is a 100% increase for going self employed/contractor, eg if you get £35k PAYE then you want £70k self employed *
Yes, thats not too far off what I said above, I reckon £50k gives me £30k take home (I never earn any more than that, and am quite happy at that amount). I’m not sure being truly self -employed is worth much. Currently I’m getting £26/hr employed (self-employed/CIS) through an Agency, and its far easier work than getting my own work and billing Customers, then hoping they’ll pay me. I get paid weekly, with 20% tax deduction. Thats great, as at the tax year end I’ll have some savings when I get the tax refund. It’s almost like being employed, but no PAYE/ Contract, so it isnt the most secure of work, but today I’ve been told I’m there at least until Christmas, and probably until next March, in the Construction Industry, that’s pretty long term.