An introduction to the world of IT contracting. Presentation given at Barcamp Sheffield 2011.

1. “Everything you always wanted
to know about Contracting *
* But were afraid to ask”
Matt Saunders, Tidzo Limited
BarCamp Sheffield 2011

3. Carpe Diem!
London Elsewhere
QA £150 - £350 £100 - £250
PHP £200 - £350 £150 - 300
Sysadmin, Java Dev,
£250 - £500 £150 - £350
Scrum Master
+£££ extra for Finance or Security Cleared roles

4. END CLIENT
pays the invoices of
EMPLOYMENT AGENCY
pays the invoices of pays the invoices of
UMBRELLA LTD YOUR CO LTD
Director
Regular Employee Agency Employee Umbrella Employee (Employee/Officer)
and Shareholder
WORKER

6. Regular Employment
For Comparison:
END CLIENT
Employer pays £30k salary
In your pocket £22,750 ish Regular Employee
Employer also pays about £3k
Employers’ NI WORKER
Holiday Pay, Sick Pay, benefits

7. Agency Employee
Rare in true IT contracting; END CLIENT
common for temping pays the invoices of
Usually no expenses paid EMPLOYMENT AGENCY
Employees of big Regular Employee
consultancy firms pimped
out to clients WORKER

8. Umbrella Employee
END CLIENT
Umbrella invoices agency
pays the invoices of
Takes a cut (fixed fee best)
EMPLOYMENT AGENCY
Pays from what’s left: pays the invoices of
Your valid expenses
UMBRELLA LTD
Employers’ NI Umbrella Employee
Your salary, less Tax/NI WORKER

9. Umbrella Employee: Example
Umbrella invoices agency your £300 a day, £1500 a week
Pays your expenses, say £75, from your money
Takes a fee, say £25... avoid %-based fees!
Pays HMRC Employers’ NI of about £150
Pays you a gross salary of £1250, less:
Income Tax £310
Employees’ NI £90
In your pocket £850... about 56% of invoice value :-(

11. Your Own Company
END CLIENT
YourCo invoices agency, plus VAT
pays the invoices of
Pays your expenses
EMPLOYMENT AGENCY
Pays your tax-efficient salary pays the invoices of
Pays Corporation Tax and VAT
YOUR CO LTD
Gives Shareholders profit Director
and Shareholder
About 70% invoice value in your pocket WORKER

12. Taxes
VAT
YOUR CO
CT HMRC
LTD
PAYE

14. VAT Flat Rate Scheme
Add VAT to all your invoices at 20%
Quarterly, pay your FRS % (eg 13.5%) to HMRC.
Invoice for £1000, add £200 VAT
Pay 13.5% of £1200 = £162
Surplus of £38 is extra profit (subject to CT, sadly)

15. VAT Flat Rate Scheme
FRS % varies by trade sector. Most IT is 14.5%
1% reduction for first year in business
Can’t reclaim VAT you spend
But a “single purchase of capital goods” > £2K is OK
HMRC say “single” could be “A pizza oven, a fridge and a dishwasher”.
But three laptops probably not ok.

17. NI Thresholds
Employee &
Employer NICs due
Primary Threshold £7225
Employer NICs due
Secondary Threshold £7072
Counts as work,
But no NICs due
Lower Earnings Limit £5304
Does not count as
a year worked

18. Director Salaries
Directors not necessarily covered by Minimum Wage
Money paid here (including NI) not liable for CT
Pay < £7K and NI Credited but no need to pay
Might be better off paying Min Wage though (BIKs)

19. Invoices
- VAT
- Expenses
- Salaries and NI
= PROFIT, liable to CT

20. Corporation Tax
20% of profits after expenses and salaries
Payable 9 months after your company’s year-end
So you need to save it up!

21. Dividends
Distribution of Profits to Shareholders
Dividend Tax Credit: your theoretical income for tax:
(10/9) * actual amount
eg you receive £5000, your income is £5555.55
No extra tax to pay up to BR limit

22. Your Co: Example
YourCo invoices agency your £1500+£300 VAT for 46 weeks Total £82k.
Pay VAT on FRS, about £12K
Expenses Reimbursed, £10k
Salary to you, £7k; to spouse, £3k
Profit liable to CT = £60K, so pay 20% CT = £12k Distributable £48k
Dividend to each 50% shareholder:£24K (£26.6K gross)
In your pockets £58K... about 70% of invoice value

23. Expenses
Collect Receipts for everything
Record everything ASAP
Mileage: 45p/mile

25. The 24-month Rule:
Expenses only valid for travel to temp workplace
Based on the worker not Client, Agency, Employer...
Caught once you know you’ll be there >24 mo, 40%
No loopholes...?

26. IR35
Contract Terms less important than Working Practices
Control
Substitution
Obligation
Risk
If caught, Ltd Co still probably better than umbrella

31. Finding Work
jobserve, cwjobs, jobsite
Re-post general keyword-optimised CV regularly
Send specific updated CV to agent once they nibble
LinkedIn!

32. Resources
http://blog.tidzo.com
10% discount on FreeAgent for me and you
These slides and more
http://forums.contractoruk.com/