How to be profitable as a contractor

strawberries1

RobHT said:

DE_612183 said:

are you looking inside or outside IR35?

Outside, inside looks a joke...

What's the benefit of inside IR35? I started locuming 2yrs ago but always inside IR35. However, since December I've been in a role outside IR35. What benefit should this be to me?

Grumpy_chap

It's perfectly valid to consider contract roles and the OP has assessed they need £700 per day to make that viable for them.

The OP has also found that the market will only pay £400.

That is a large gap that will not close easily, so it is not viable for the OP to take a contract role, unless the OP can present his value-added in a better way that means the potential Clients will pay the required rate to make it viable.

Has the OP assessed the alternative business models for offering contracting services?  Can the OP identify efficiencies that mean they can offer the service at £400 per day market-rate?

If the OP cannot make a viable living on contract, the alternative is to secure regular employed work.

How does the OP make a living at present?

Sandtree

strawberries1 said:

RobHT said:

DE_612183 said:

are you looking inside or outside IR35?

Outside, inside looks a joke...

What's the benefit of inside IR35? I started locuming 2yrs ago but always inside IR35. However, since December I've been in a role outside IR35. What benefit should this be to me?

No benefit of being inside IR35 which is why outside roles are so coveted 

In an outside role you can operate via your own LTD which gives you a variety of options for being more tax efficient. 


As to the OP - what salary are you on as a perm? 

Personally over the last decade I would argue that salaries have increased faster than day rates. Assuming you can secure an outside role, of which there are growing numbers again, you should be able to notably exceed a perm salary inc factoring in pension etc... if the excess is sufficient for the risks you are taking is a personal decision. 

RobHT

Grumpy_chap said:

It's perfectly valid to consider contract roles and the OP has assessed they need £700 per day to make that viable for them.

The OP has also found that the market will only pay £400.

That is a large gap that will not close easily, so it is not viable for the OP to take a contract role, unless the OP can present his value-added in a better way that means the potential Clients will pay the required rate to make it viable.

Has the OP assessed the alternative business models for offering contracting services?  Can the OP identify efficiencies that mean they can offer the service at £400 per day market-rate?

If the OP cannot make a viable living on contract, the alternative is to secure regular employed work.

How does the OP make a living at present?

Roughly speaking, I think that up to 700 a day as a contractor, it is better to be employed, let's say with a salary of 100k, which is my current salary average.
But I'd do the same for 800 a day to be honest, it's simply not so much more money on the table to justify the risk and pain of switching job frequently.

Certainly, the way of working as a contractor may be more interesting for engineers or some specific work, I noticed that once you are a contractor, you make the game, which means that you can't end up working on a role you don't want, or doing tasks you are not paid for.
Plus, contractors are NOT easy to find, the competition may not be so high as with a standard employment contract.

It's true though that many of these contractors do several tasks, reason why the range of 400 daily is wrong from both sides (pay + tasks), so you end up being the houseman which is very annoying, especially in IT where there are way too many technologies. You could also accidentally build up a bad reputation.

RobHT

strawberries1 said:

RobHT said:

DE_612183 said:

are you looking inside or outside IR35?

Outside, inside looks a joke...

What's the benefit of inside IR35? I started locuming 2yrs ago but always inside IR35. However, since December I've been in a role outside IR35. What benefit should this be to me?

If you ask this, then you'll have some trouble...

Anyway, I'd stay outside IR35 all the time, no discussion on it, plus for certain amounts is even necessary.
Switching between them is also not good because it complicates your tax return... If you did it, fine, people need to eat, but try to avoid it.

RobHT

Sandtree said:

strawberries1 said:

RobHT said:

DE_612183 said:

are you looking inside or outside IR35?

Outside, inside looks a joke...

What's the benefit of inside IR35? I started locuming 2yrs ago but always inside IR35. However, since December I've been in a role outside IR35. What benefit should this be to me?

No benefit of being inside IR35 which is why outside roles are so coveted 

In an outside role you can operate via your own LTD which gives you a variety of options for being more tax efficient. 


As to the OP - what salary are you on as a perm? 

Personally over the last decade I would argue that salaries have increased faster than day rates. Assuming you can secure an outside role, of which there are growing numbers again, you should be able to notably exceed a perm salary inc factoring in pension etc... if the excess is sufficient for the risks you are taking is a personal decision. 

One fundamental thing about the private LTD is to play with the taxes and pension contribution, you could pay to yourself the minimum salary and eventually making a "salary sacrifice" as much as possible towards your pension AND/OR SIPP account...

In 1-2y, you could have been set for your pension, a very fat pension. The rest of the contributions in life could be simply at the minimum, easy.

Sandtree

RobHT said:

Grumpy_chap said:

It's perfectly valid to consider contract roles and the OP has assessed they need £700 per day to make that viable for them.

The OP has also found that the market will only pay £400.

That is a large gap that will not close easily, so it is not viable for the OP to take a contract role, unless the OP can present his value-added in a better way that means the potential Clients will pay the required rate to make it viable.

Has the OP assessed the alternative business models for offering contracting services?  Can the OP identify efficiencies that mean they can offer the service at £400 per day market-rate?

If the OP cannot make a viable living on contract, the alternative is to secure regular employed work.

How does the OP make a living at present?

Roughly speaking, I think that up to 700 a day as a contractor, it is better to be employed, let's say with a salary of 100k, which is my current salary average.
But I'd do the same for 800 a day to be honest, it's simply not so much more money on the table to justify the risk and pain of switching job frequently.

Certainly, the way of working as a contractor may be more interesting for engineers or some specific work, I noticed that once you are a contractor, you make the game, which means that you can't end up working on a role you don't want, or doing tasks you are not paid for.
Plus, contractors are NOT easy to find, the competition may not be so high as with a standard employment contract.

It's true though that many of these contractors do several tasks, reason why the range of 400 daily is wrong from both sides (pay + tasks), so you end up being the houseman which is very annoying, especially in IT where there are way too many technologies. You could also accidentally build up a bad reputation.

So you are currently on £100k but think contracting only becomes interesting at £168k (£700/day)? That's not mentioning the potential tax advantages which could make that £168k more akin to £200k+

Rates vary massively by industry, I'd argue more than salaries. Plenty of £700+ developer roles if you know about investment banking/their products... saw a couple at £1,500/day (inside IR35) if you are good with Java and FX

Sleepysophie

From someone who has lived with an IT professional for many years there are certainly different types of contractors. There are many different skills - some of which are in demand, some are over-subscribed. What is your niche? 
If your skills are in demand and there is a small pool of you with those skills and experience I am sure you can decide to charge near enough whatever you wish. However, if you are a contractor with the same IT skills and qualifications as many of the others then the person employing you will be able to shop around and probably get a better deal than the £400 / £600 you quoted. 
So far as the person you mentioned with the large mortgage -
Does he live alone or have someone else helping him with that?
Has he added the property to his business portfolio rather than a personal mortgage?
Did he have a large deposit? 
Is he contracting other people beneath him and therefore earing income from their work too? 
If he has set up as a limited company he may have paid for sickness cover (indemnity)
It might not be as simple as you think. 

easy

I'm posting here as a professional bookkeeper who works in an accountant's practice -  My husband was a freelance IT contractor for many years,  so we have personal experience of how he system works.

If you are considering working as a contractor outside IR35 then firstly you need to ensure that you fully understand the conditions that need to be fulfilled to comply. There is a useful article here ...https://www.contractorcalculator.co.uk/prove_contract_outside_ir35_key_evidence.aspx
Then go and have a chat with an accountant,  who will advise you on forming a Ltd company,  correct record keeping, and your obligations as a director.  They should also have access to a personal tax specialist (we have one on the staff) who will be able to advise on minimising your tax liability,  maximising your savings and pension potential.  Yes you will probably have to pay for a professional consultation,  but see that as an investment in your future rather than as a cost -  Free advice is usually worth what you have paid for it!  Go to a small independent accountant -  their fees will be lower,  and you'll be able to build a relationship with them -  your accountant should become a friend (albeit sometimes a critical friend),  who will advise and look after your interests. 

It is perfectly possible to do very well contracting as long as you keep your business costs down,  and understand that you become 2 entities -  the ltd company,  and the personal you.  Don't mix the 2 up,  don't use the company's money as your own personal bank account.  Draw measured,  trackable amounts out to pay into your personal account.  and use that to pay  for your holidays,  socialising,  fashionable suits,  whatever.  Your accountant will explain the taxable benefit of taking a minimum director's salary,  and other payments as dividends.  

Do be aware that you would probably need 2 or 3 years of trading accounts before you would be able to get a mortgage  (although your accountant might be able to help with that).  Also be aware that if you claim tax deductions on using your home as a business premises,  you can leave yourself open to paying capital gains tax on any increase in the value when you sell it -  It's a complicated area,  which is why you need an accountant/tax advisor.  Always ask their advice before you take a financial/business decision -  it's easier and cheaper than trying to unravel an unwise course of action later. 

Good luck !!

Grumpy_chap

RobHT said:

my salary if fine at the moment and I'm not a contractor, 
Regarding my wishes, there is no salary that can match my expectations, 

Those two statements seem to be inconsistent with each other.  Your current salary, which is "fine" would appear to match your expectations.  

RobHT said:

Grumpy_chap said:

It's perfectly valid to consider contract roles and the OP has assessed they need £700 per day to make that viable for them.

The OP has also found that the market will only pay £400.

That is a large gap that will not close easily, so it is not viable for the OP to take a contract role, unless the OP can present his value-added in a better way that means the potential Clients will pay the required rate to make it viable.

Has the OP assessed the alternative business models for offering contracting services?  Can the OP identify efficiencies that mean they can offer the service at £400 per day market-rate?

If the OP cannot make a viable living on contract, the alternative is to secure regular employed work.

How does the OP make a living at present?

Roughly speaking, I think that up to 700 a day as a contractor, it is better to be employed, let's say with a salary of 100k, which is my current salary average.
But I'd do the same for 800 a day to be honest, it's simply not so much more money on the table to justify the risk and pain of switching job frequently.

Certainly, the way of working as a contractor may be more interesting for engineers or some specific work, I noticed that once you are a contractor, you make the game, which means that you can't end up working on a role you don't want, or doing tasks you are not paid for.
Plus, contractors are NOT easy to find, the competition may not be so high as with a standard employment contract.

It's true though that many of these contractors do several tasks, reason why the range of 400 daily is wrong from both sides (pay + tasks), so you end up being the houseman which is very annoying, especially in IT where there are way too many technologies. You could also accidentally build up a bad reputation.

Yes, I am a contractor.
It suits me well and has lots of benefits and flexibility that I value.  The rewards are good as well - job satisfaction plus financial reward.
The added value is when a Client buys my service as a product solution - far better for me than day-rate tasks.  It is not practical to mix the two so I target entirely different industries with the different approaches.
I certainly don't do tasks that I am not paid for unless there is a compensation event in the offing or a strategic reason to do so - why would I work for free when I can go bust on the beach?

Being a contractor is certainly a mind-set thing and it does seem as though you are more comfortable in a well-paid salaried role (which £100k is) than contracting at £700 per day.  That is a perfectly rationale consideration.  
For planning, as a contractor, you might get max 220 fee-paying days per year (44 weeks), the remaining weeks from the 52 are used as follows:

• 5 weeks annual leave
• 8 days Bank Holiday
• 2 days sickness
• 1 week doing business admin

That's realistically the most you can plan on, so £700 x 5 x 44 = £154k turnover
Less if you have void period or need to spend time on sales activity (required for "product" rather than day-rate work).

The total package from £100k salary will be rather higher than that in terms of "total cost to employ" for an employer, as they need to consider pension (adds to your package), employer's NI contributions, "slack" days when output is reduced for whatever reason, training / development / team days, accruing costs liability in the event the business ever needs to dispense with your services.

The economy actually needs people who want to be a contractor and people who want to be staff and the monetary side needs to just work for each group plus the employers / Clients.  Quite often the overall rates can come quite close in terms of cost to the employer / Client, particularly for the straight-forward day-rate arrangements.

There is absolutely nothing wrong with preferring the staff role and good that you have taken the time to investigate and understand that the contractor does not necessarily have it easy or "creaming" it.