Tech contracting - still lucrative?

Bookmarking.

I have been looking over the past few years but IR35 seems to have killed a lot of contacts. I was looking for short term contracts and there seemed to be zero to very very few however I may be looking in the wrong place?

I've never contracted but I know over the last year or so we've had to start taking on contractors again as there's not enough people with the right skills looking for permanent roles (or at least not at the rate the company I work for is offering but presumably it's at least market average if they can afford contract rates instead).

Not sure what agencies we use but rates we're paying seem similar to what was being offered 3-4 years ago (when we last had to go to the contractor market to fill roles).

One tip I'd say is try and find a contract that will put you through SC and preferably DV clearance, that opens up a lot of other opportunities and I think a lot of the time you're probably competing against less qualified (than average) people for the roles as the pool is much smaller.

are umbrella companies still a thing to avoid the IR35 rules?  Used to be all the rage I seem to remember.  Pretty out of touch with recent events in this space

I'm pretty sure our company had to increase its contractor rates when the new rules came into place.  We seem to have fewer 'doers' on temp contracts, but plenty of senior / mgmt grades.  Told its due to hiring issues, often the interims are in place for 2+ years.  In which time you would have thought you could have given an internal the opportunity and developed them.

useful tip on SC and DV.  Thats the sort of thing I'm after.

are umbrella companies still a thing to avoid the IR35 rules?

you mean, will umbrella co’s let me avoid paying my fair share of tax right?

Given hmrc will have the end client on the hook if tax isn’t paid, many companies will choose only to allow contractors to use an Fca accredited umbrella co, through which there are limited opportunities for them to avoid paying tax

Other more dodgy umbrella outfit’s exist, however many firms won’t allow engagement through them

Umbrella companies mean the correct amount of tax is paid. They are fully legit and mean a contractor is taxed higher than a permanent employee…..completely wrong in my opinion.

I contracted for 20 years and have just gone permanent about 18 months ago, mainly due to being forced to use Umbrella companies. I am pretty much earning the same as I was a contractor when I was working through an Umbrella. I still keep an eye on the contract market and the rates seem to be fairly strong. I personally wouldn’t make the jump, but my pension is what is keeping me perm rather than potential lack of opportunities.

They are fully legit and mean a contractor is taxed higher than a permanent employee…..completely wrong in my opinion.

No? Surely the higher day rates will compensate for that? And if they don't, then they will have to rise until they do otherwise no-one will contract.

No? Surely the higher day rates will compensate for that? And if they don’t, then they will have to rise until they do otherwise no-one will contract.

That's the theory. Reality is that if you've painted yourself into a corner with a specific set of skills e.g. GDS UX and then all the contracts in that sector go inside IR35 then then you have to choose between going perm or accepting the lower take home, compared to the previous outside IR35 position, with the inside rate.

I've been contracting 12 years and I view the shift to more outside contracts as a bit of a first world problem. Most contractors are well paid and they should be able to suck up the additional tax payments. Yeah sure, there's some that truly are mini businesses, with multiple concurrent clients, but the majority are disguised employees.

Having said that, I've been in situations where there's been 3 intermediaries between me and the end client on inside IR35 contracts, all taking a slice of the pie.

Me > Recruiter > Umbrella > Service Provider (e.g. Capgemini) > End client

It’s the additional sneak tax that contractors pay that annoyed me, can’t remember what it was called.
But by the time I’ve considered my pension and holidays, I’m financially no worse off as a permanent employee.
Being able to suck up the additional tax is fine, we have choices to make. Contract for X amount or Perm for Y. Contracting comes with more significant risks and the pay is pretty much even between the two.
I may go back to contracting in the future, depends on how my permanent career goes.

I’m in the financial sector, I work in senior management at an investment bank. Other sectors may be different.

Me > Recruiter > Umbrella > Service Provider (e.g. Capgemini) > End client

That was the case with almost every job I did. Good to be supporting all the extra hangers on eh?

Don't forget the costs of training/sickness/holiday/benefits are baked into the Contractor sticker price. It's not all jam.

useful tip on SC and DV.  Thats the sort of thing I’m after

I recently  got SC and have had a lot more interest from recruiters.

It's the lack of short term contracts that stops me. I need some 6 month or less contracts.

I’m in the financial sector, I work in senior management at an investment bank. Other sectors may be different.

Possibly but to fair the wages in finance are so different to other sectors already I think you reach a limit. Other sectors I have been looking at contacting it still better (financially) but the difference is much closer and the real danger is if you occur expenses that you would have been able to pay pre tax that you are now paying post tax.

Some areas of tech got rid of a lot of people which seems to mean there are more people contracting (which inevitably will pull rates down) but good contractors with proven track records are still commanding high rates.  I’m not sure this is the time to jump from perm to contract.  In financially difficult times contractors are very easy to cut loose.  We expect a contractor to cost about 2x the rate of employing someone (which means about 3x an employees daily rate if you take holidays, pension, private medical, ni etc into account), accordingly we work them harder and take no prisoners on choices about renewing contracts.

It’s the lack of short term contracts that stops me. I need some 6 month or less contracts.

interesting… is that an agency in the middle causing the problem?  We often have “3 month problems” and the contractor agencies all want us to commit to 6 month contracts.  We’ve got a few people we go back to for little 1 month projects and they fit it in between other contracts but the agencies huff and puff about it.

take no prisoners on choices about renewing contracts.

That's my approach with end clients too. Thankfully, must are reasonable.

Did some sums on this recently and contracting does not appear to really give much financial benefit over perm these days, when you take into account other perks of permiedom.

Yes it is a bit more money if you are outside IR35, but that looks to be largely outweighed by risks or stuff you'll have to pay for yourself (pensions, life insurance, health insurance etc)

Did some sums on this recently and contracting does not appear to really give much financial benefit over perm these days, when you take into account other perks of permiedom.

Depends very much on the role and the associated rates. The more senior the role, the greater the difference between perm and contract in my experience.

I suppose I'm not necessarily asking whether it's a good idea or not.  looking to research as mitigation in case my perm role goes south.

or if possible to 'top up' my perm salary if mortgage payments get too much hence the gig question, it doesn't seem to be a thing in contracting from what I can tell.  I thought it would be, it meets the definition of a work package quite nicely to be outside ir35

and my experiences of contractors in the past was often they were held to lower standards than perms.  often they were seen as just plugging gaps.  I've been away from that side of things for 5 years now though

Depends very much on the role and the associated rates. The more senior the role, the greater the difference between perm and contract in my experience.

My sums were for enterprise architect looking at about £600 ish day rate compared to £80k ish + bonus permie rate.

Obviously quite a lot of variances in rate in different job ads, but what it boiled down to based on my fag packet calcs was about an extra £10k take home per year as a contractor

Assuming outside IR35 and also assuming working same amount of days as a permie. Which you might easily not be if on the bench for a bit.

Edit: which does not really seem worth the risk. It's not like doubling your money like ye olde millennium bug times

Ps, I've been perm for last 10 years but prior to hat was contracting for about 6 years.

I did prefer the no corporate bullshit aspect of contracting. Turn up, do what you are there for, go home. No long term expectations and a lot less company politics.

interesting… is that an agency in the middle causing the problem? We often have “3 month problems” and the contractor agencies all want us to commit to 6 month contracts. We’ve got a few people we go back to for little 1 month projects and they fit it in between other contracts but the agencies huff and puff about it.

Just been told they don't  exist by agent. Might just be my skillset / experience doesn't open doors to the technologies that have short term work.

Edit: which does not really seem worth the risk. It’s not like doubling your money like ye olde millennium bug times

Indeed 🙂

My sums were for enterprise architect looking at about £600 ish day rate compared to £80k ish + bonus permie rate.

The rule of thumb used to be that the day rate was 1% of the perm salary, so in this example, the day rate would be £800. I think perm salaries have increased more than contract rates over the past few years though.

I keep meaning to enquire what they'd pay me as a permie 🤔

One of the key principles of Contracting which is mostly forgotten by both sides is flexible headcount. I Contracted 'cos I wanted to work 6 months on/6 months off. Try this as a Permie and you'll soon get some difficult questions. There were enough for me when I was expected to be gone within 6 months.

On the Client side, I think they often overlooked flexible headcount as flexing was/is a Royal PIA when they often viewed Contractors as pseudo Perms.

Just been told they don’t  exist by agent. Might just be my skillset / experience doesn’t open doors to the technologies that have short term work.

I wouldn’t be at all surprised if that’s agents playing silly buggers.  Tell the client there’s no contractors who will take less than six month deal.  Tell you there’s no placements for less than six months.  Get same income form 1/3rd of the work as three 2 month stints!

or if possible to ‘top up’ my perm salary if mortgage payments get too much hence the gig question, it doesn’t seem to be a thing in contracting from what I can tell.  I thought it would be, it meets the definition of a work package quite nicely to be outside ir35

it will depend what your skill set is but freelance stuff is around, gig economy doesn’t lend itself well to stuff where you need to understand the company’s own processes, systems, or documentation.  If you are in the sort of role where you can just turn up, do an hours work and the client has something to show for it then you should find people who will take ad hoc help - it may not be advertised, we’ve done that in the past but mostly word of mouth - “do we know anyone who could help with this on a day a week” type stuff.

and my experiences of contractors in the past was often they were held to lower standards than perms.

again it will depend on the sector.  Many years ago when I worked in a lab contractors were just cheap east Labour and if you proved yourself you could end up perm and probably on more money.  But for big money contracting in IT I’d say it’s the other way round  - I guess if you are earning more per day than the person employing you they want to see results!

I guess if you are earning more per day than the person employing you they want to see results!

Indeed, the standard of quality productivity from the perms in the orgs I work in is usually significantly below what I expect from contractors. And it's easy to see why when they get sucked in to office politics, crappy culture, narcissistic aspirational middle managers trying to climb the slippery pole of promotion. I have to continually remind myself to guard against going native.

One of the real downsides of inside IR35 contracts is that you can be expected to take up line management duties - **** that!

Umbrella companies mean the correct amount of tax is paid. They are fully legit and mean a contractor is taxed higher than a permanent employee…..completely wrong in my opinion.

Not really, it's just that contractors see what they cost the company. If I was a contractor and could increase my wage by £10/hour, I'd pay that much more (£1.90-£2.30) corporation tax, the client/company however would make £10 less, and pay £2.30 less in tax. Same with employers NI. Same with the risk/reward of having to employ someone through a quiet period when they're not productive. If the takehome is the same then that's just a function of the relative risk/reward (i.e. is there none) and supply Vs demand for the workforce (in principal there's nothing to stop companies offering less than the permeant rate if they need work doing in a quiet period for the market)
.

Where the system is unfair is how it's unevenly policed. It's damn near impossible to work as a contractor in broadcast TV, despite the fact you could be working for 3 companies in a week using your own equipment and have no idea when you'll be working next (could be nothing, could be 2 months of 7 days a week). You're forced into entering a PAYE relationship with each of them because HMRC leans heavily on them, at least partially because people scream about the talent being paid millions to ex-footballer.ltd to host a show, and forget it's the guys at the bottom of the pyramid that'll actually get screwed.

Whereas engineering and IT it's normal to work at a desk, in an office, 9till5, 5-days a week using equipment they supply.