Contracting - how much could I earn?

PeteW

With another baby on the way, we're in need of a bigger house which means I need to earn more than I do currently. One option could be to start contracting rather than working in a permanent position as I do now.

From my research I imagine I could charge around £400 a day, and am wondering what that would mean in terms of annual take-home. I realise I would have to cover my own sick days/holiday, there might be occasional periods where I have no work, so it's not just a simple matter of £400 x 260(?) days a year. Plus it's all taxed differently and you have expenses to take into account so I'm not sure how that would all work out.

Does anyone have any tips or know of any resources that could help me work out an estimate? Or even better is anyone willing to share what their day-rate works out at over a year after tax?

Cheers

Pete

jungle_jane

What line of work are you in?

Some trades have a lot of expenses attached to them and some don't. Some trades have tons of work so no downtime. Remember there if you get sick you don't get paid and you probably need indemnity insurance. Plus accounting fees if you have an accountant.

PeteW

It's predominately desk-based work so no huge expenses and its an in-demand role so hopefully little downtime. I'd likely be mostly working in London though so paying a few grand a year on train fares.

ajsexton

Ok I'm guessing this a IT/Development type contract (seems typical of the rate for London).

I've no direct experience of contracting though I've spent a lot of time looking into at various times.

First, do not assume you will have 100% take up, assume no more than 75% as a reasonable safety margin, plus the 25% downtime includes seeking new contracts.

Secondly take home pay can be VERY tax efficient if done correctly, but that will almost certainly involve having a specialist contract accountant look after your books and tax returns. Other options include umbrella companies.

Also you need to be very disciplined at keeping and filing receipts, invoices etc.

Don't forget you will probably need some kind of professional indemnity insurance too.

Plenty of contracting resources online such as contractoruk.com

Gavin83

Unless your very specialist your likely to struggle for work until you build your experience up. If it is IT I work closely with a number of IT contractors. I would say £400 a day is about average but unless you have the contacts this is probably to much to charge as a startup contractor. I would expect someone who had contracted on several jobs previously for that amount so you may need to charge less.

As another downside you'll likely be travelling some serious distances until you've built up the experience and can choose your jobs. You need to consider if your prepared to see your new baby at all during the week as it's not unrealistic that you'll be working hundreds of miles away from home. Every contractor I know who started out had projects literally 400+ miles away from their home and only returned at weekends. You also need to consider the lack of holidays and sick pay.

It is however potentially very lucrative and £1000+ sums per day isn't unrealistic. I've known IT contractors to be the best paid person in that company, even earning more than the CEO. It's also extremely easy to cut your tax, paying less than you would be by earning that sum in a normal job.

Good luck.

PeteW

Thanks all. It's not IT exactly but is semi-related, I'm a user experience designer - a role where demand currently outstrips supply. I get emails/phone calls most weeks offering me contract work even though I'm not looking for it. Having spoken to a couple contractors I've worked with they've said that I'd have no problem finding work at all. In terms of travel, the bulk of the work is in London which is perfectly commutable from here.

In terms of rates, I think £400 is on the cautious side of realistic. I'm experienced, have plenty of contacts and also I've specialised in the financial services sector for the last 3 years, contract roles for which are usually significantly higher.

I think really it's the tax side of things I'm most unsure of, and although I understand it can be more tax efficient than PAYE, I've no idea how much. If we say I worked 200 days a year at £400 a day, that's a net income of £80k - any thoughts on what I'd actually take home from that?

Cheers

InsideInsurance

The "problem" with contracting is the joys of IR35 and therefore there is the decisions to be made about how far you are willing to push it (as well as a matter of if your partner/ wife would be part of the company and what their current status is).

Therefore there is no set answer to be able to calculate these things unlike being an employee. There are some off shoring schemes that claim to legally get you 95% of your fees as net takehome where as more cautious people are probably closer to 65%. The majority are probably somewhere between the two.

jungle_jane

PeteW wrote: »

I'm a user experience designer

Cheers

Then we do the same job! :T

Feel free to PM me and I can give you the full lowdown - i've been a contract UXD for the past 10 years....it would be useful if you let me know [STRIKE]what sector you specialise in and[/STRIKE] how much experience you have.

Heck, I can probably even point you in the direction of the best IA/UX recruiters for freelance work:-)

PeteW

Amazing! Thanks Jane, will drop you a PM.