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I am thinking of contracting, but do not know how to compare contract (inside and outside IR35) with permanent rates, within the United Kingdom (specifically England).

So far I have considered:

That on a permanent contract I worked 5days a week (37.5hours/week), less 25 days holiday and 8 days public holiday.

There are then the different tax schemes.

As a contractor I have to pay employers national insurance at x%

Then there is a 5% something if I am inside IR34.

And expenses, some like mileage have nothing to do with the contract, but are related to permanence of place of work.

Is this correct, and can you help with making it clearer and simpler?

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I posted an answer to a similar question at answers.onstartups.com/questions/1758/… .. not quite what you're looking for (doesn't consider U.K. specifically), but food for thought. – Chris W. Rea Aug 8 '12 at 17:44

1 Answer

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Double what you're currently earning as a permie and you won't be far off a reasonable approximation of a contractor income.

My last permie salary was approximately 80K a year, for which I got £4300 a month after tax. I don't count bonus because you really can't count on this as it is discretionary.

My first contractor role was paid at £500 a day. I worked about 230 days a year and so billed for 115K. I got to keep approximately 75% of this, so 85K. This worked out to about 7K a month. This was all done outside IR35. If I had been within IR35 I would have had to pay another £1400 a month in tax. This would have left me with a take home of £5600.

Don't so the tax schemes. I had a couple of friends who did this and ended up not getting paid for months when HMRC changed the rules about 18 months ago. This caused them a lot of hassle.

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