13May '10

Death and Taxes

Whatever Moira Stewart might say in those silly “tax doesn’t have to
be taxing” adverts, the UK tax system is complex, confusing and
completely unfair to contractors.

 

In this post I will recap how basic income tax and PAYE works and then
explain how it works for contractors using an umbrella company like I
am.

 

Anyone thinking about becoming a contractor will need to get their
he’d around this in much more detail than I’m covering here – this is
just establishing common ground with all readers so that you can
understand the bombshells that make contracting a bit less lucrative.
And don’t forget, this is a dramatic oversimplification.

 

Income Tax

 

Gross Annual Income
Minus Personal Allowance
Equals Taxable Income

 

Taxable Income
Minus (20% of first ??37,400 of taxable income)
Minus (40% of taxable income between ??37,401 and ??150,000)
Minus (50% of taxable income above ??150,000)
Minus employees’ National Insurance (more complex but reasonable rule
of thumb is 12% of taxable income)
EQUALS net income.

 

Pay as You Earn

 

Gross Income for the month
Minus (one twelfth of personal allowance)
Equals Taxable Income for the month

 

Minus employees’ National Insurance
Minus income tax (same rates as above, to one twelfth of the limits)
Equal net pay for the month.

 

The Bombshell

 

Employers also have to pay a different type of National Insurance
which is currently 12.8% of gross income above ???110? per week.

 

One way or another, if you’re a contractor, you have to pay that too.

 

The only good news is that this amount reduces the gross income for
tax purposes, and allowable expenses come off before all taxes and NI.

 

So for a contractor the calculations are:

 

Gross income from client
Minus expenses
Minus umbrella company fees
Minus employers’ NI
EQUALS taxable income

 

That minus income tax and employees’ NI
EQUALS take-home pay.

 

Do those sums and you’ll see that a contractor is taxed more heavily,
and you wouldn’t necessarily be quite as well off as you might think.

 

Also, watch out for umbrella companies pulling the wool over your eyes
about expenses. If you spend money, it’s got to come from somewhere,
and that somewhere is your gross income from the client. Since it
reduces the tax you pay, it “costs” you less than it otherwise would –
roughly, I I spend ??100 on accomodation, that is ??60 that won’t be
going in my pocket – but the umbrellas like to make you think that
expenses are reimbursed 100% as they would be for a regular employee
of a company.

 

So, with all this extra tax, surely there must be a better way? There
is, and that’s running your own company, not using an umbrella, paying
yourself a minimum-wage salary (and that’s all you pay standard income
tax and NI upon) and paying the remainder as shareholder dividends.
Unfortunately a specific piece of legislation usually referred to as
IR35 prevents that for many (most?) contractors.

 

If you think of contractors as highly-paid all-year-round employees,
then yes, IR35 and the extra employers NI are perfectly fair. But this
gives no consideration to the risks we run looking for contracts, the
potential for being “on the bench” for months at a time, and the lack
of employee benefits (we don’t get holiday or sick pay, remember!).
Taken from that perspective, it’s grossly unfair. E

 

Before the election, the Tories promised to look into this issue. That
didn’t affect my voting decision, but now it’s all over… I won’t be
holding my breath for the abolition of IR35.

 

Next post: some technical details about my experiments with node.js
and websockets.

 

Matt

 

Sent from my iPhone

12May '10

False Economies

For the sake of saving twenty quid, I’ve turned my two-hour commute
into a three-hour one and hit the limits of my endurance!

 

Previously I was buying a zone 1-6 travelcard plus a train season
ticket from Dartford into zone 6, for ??60 a week. Since I’ve still
not been paid, I have to save every penny I can so I discovered a pair
of interesting anomalies about the London bus system:

 

Firstly, zones don’t matter on a buses. Even a single-zone travelcard
works throughout the whole network.

 

Secondly, those travelcards are still valid on London buses which
travel outside the zones entirely as part of their route.

 

Putting these two together, I’m now walking about a mile to the bus
stop (down from twice that to the train station), getting a bus from
Dartford to Plumstead station (in zone 4), getting the same train I
would have caught at Dartford into Waterloo East, and finally getting
my usual train to Brentford.

 

This is all fine in theory.

 

In practice the bus journey, which should take 30 minutes, takes a
good hour in the mornings so I have to get an earlier one, so now I’m
setting off at 6am to arrive before 9 :-(

 

BUT there is light at the end of this tunnel! I’ve found a room to let
(via http://www.spare-room.co.uk) just five minutes’ walk from where I
work, for a tiny rent! (well, it’s more than I pay for a three-bedroom
house in Sheffield, but it’s a pittance by London standards) I’ll be
there from next week, so all of this commuting misery will be a thing
of the past… if I can make it till then!

 

Next post: contractor taxes and how the umbrella companies try to
deceive the unwary.

 

Matt

 

Sent from my iPhone

4May '10

Talking Tech

Re-Reading my posts recently, i can see I haven’t said much about what I’m actually doing in terms of technology and tools. Partly this is because the work the team I’m part of does is commercially sensitive, but there are some general observations I can make. Apologies in advance to non-techie family and friends for whom much of the following will be gobbledegook!

 

The job title on my ID card says “Linux Systems Administrator” which is a bit less impressive than I’d hoped for, to be honest – but for the money they’re paying, they can call me whatever they like! I work in the “innovations team” who dream up, and prototype, technology projects, some of which fly, some of which don’t. There are web apps (PHP/Zend Framework/JQuery mostly) iPhone apps, Adobe Air apps, and no area or idea is out of bounds.

 

Agile dev methodologies are part of the DNA of this place (not just my team but everywhere) and seeing what I’d known about in theory (and tried, fairly unsuccessfully, to implement at Insight) working so well in practice is great and teaching me a great deal.

 

I’m here because of my expertise in Linux, PHP and version control systems. Last Friday I presented a range of projects which I think should be undertaken to improve the team’s development infrastructure, and I’ll be starting some work this week around two of those, improving backups and server security. There will be an interesting project ahead that will involve patching OpenSSH to get public keys from an LDAP (AD) server and I’m really looking forward to that one.

 

There’s a big part of me that misses managing people, but it’s a great trade off – loads more money, much less stress, and the chance to learn from a “dream team” of developers who are each respected experts in their field.

 

I’m beginning to Believe in Better – but the Best is still Yet to Come :-)

 

Matt.

3May '10

Best of times, worst of times

I love London. I always have done, since I was a little kid. I get
this little surge, an excited, contented psyched-up peacefulness, as
soon as I get inside the M25. The grubby bits, the shiny bits, the
tubes and the traffic – it all feels so familiar, so right. Working
there is in many ways, a dream come true (though I always thought it
would be in a very different capacity, but that’s a different story)

 

Yet, I’ve lived in Sheffield now for more than twelve years. It’s more
than my legal residence, it’s Home. And leaving my wife and four
gorgeous children behind every week is like an undeserved punishment
for some uncommitted crime.

 

The job is amazing, I enjoy the business of travel so much, and we’re
saving for our family’s future, undoing years of mistakes and failures
in months of deferred gratification.

 

It hurts, but I love it.

 

Matt

24Apr '10

Tie a yellow ribbon…

Well that’s the end of my first week as an IT contractor. I’m in a
taxi back from Sheffield station to home right now.

 

The job is simply beyond awesome and I love being in and around
London. The travel is pretty rough, but it’s getting easier. The only
real trouble is that I have so little free time.

 

However I think I’ve found somewhere affordable to stay in London
itself, which should halve my travelling time daily.

 

I also need to get a new laptop as soon as I can afford it. I went to
Tottenham Court Road and looked at a Sony Z Series (13″ 1920×1080
screen! Dual SSD’s in a RAID 0, Core i5 CPU…) but everyone at work
says I should get a Mac. But the screen res is too low for me on the
13″, and I’m wary of the 15″ since I really want to travel light. But
we’ll see! The lure of being able to do iPhone dev may be too much…

 

Well I’ll be home in a few moments so I’ll sign off. It’s been an
amazing week!

 

Matt

 

Sent from my iPhone

21Apr '10

Whoa…

I’m heading in for my third day now as a contractor at ___ and I have
to admit that I’d completely underestimated the impact of all the
travel. My day starts with a thirty-minute walk to Dartford station,
then it’s a train to Waterloo East, another short walk to the “real”
Waterloo, a train to Brentford, and a mercifully brief walk to Grea
West House.

 

On Monday I left the house at 6am on the dot and got home at just
after 8pm. Wearing a suit, and lugging my monster Dell M90 laptop
along (its powerpack weighs more than some laptops, no exageration),
when I got home I was utterly exhausted!

 

I’m negotiating with my agency to try and get my invoices paid a bit
sooner than the 30 days terms they specify. Once the money’s flowing I
can stay in a hotel much nearer to brentford. Meanwhile, at least I’ll
get fit!

 

The job itself is brilliant though… More on that later!

 

Matt

 

Sent from my iPhone

19Apr '10

Hi-ho, Hi-ho…

After yesterday’s journeys on the not-so-mega bus, and some defintely
mega hospitality from my wife’s family in Dartford, I’m now seated on
a train heading to Waterloo. Then I’ve got to catch another train out
of there to Brentford!

 

I can’t say exactly which leading broadcast company I’ll be working
for, because a clause in my contract says I need to keep that under
wraps for the first month (no idea why). But I’ll be based here :
http://www.afreshview.com
and working in the “innovations team” doing some hardcore Linux
stuff with probably more than a dash of PHP.

 

So… why am I setting myself up for this gruelling commute? Well the
job itself is obviously a great fit for my skills and experience, but
as a contractor, basically, I’ll be taking home between two and three
times as much pay as I used to… And after six months, if we’re
careful, we’ll have a decent deposit for a house. I turn 35 this year,
so really it’s now or never. Plus, after almost eight years working
at Terry Street in Sheffield (first at PlusNet, then Insight), I was
really ready for a change.

 

Next time: how I found the job, and the hoops I had to jump through to
get it!

 

Matt

 

 

 

Sent from my iPhone

18Apr '10

On the (mega)buses…

Welcome to my new blog, where I’ll be telling the story of how and why I gave up a permanent, relatively secure job managing four PHP developers in the UK and seven more in India, to risk pretty much everything as an IT contractor working in London.

I’ll share with you the highs and the lows, like the pain of leaving my wife and four children alone in Sheffield five nights a week. I’ll be honest about the problems, and hopefully you’ll be entertained and informed along the way.

Right now I’m sitting on the MegaBus (which costs just £5 for this journey, compared to £80 for the train! I need to manage cash-flow very carefully, as my next payday could be six weeks away.) I’m very pleased to say that it’s half empty, so I’ve got plenty of room. And fortunately none of the other passengers are drunk, unlike last time I took the MegaBus!

We’ve almost arrived at Victoria coach station now so I’ll sign off. Next time I’ll talk about the decisions I’ve had to take to get here and how I landed the opportunity of a lifetime!

6Oct '09

Work in Progress

Trudging to work
To a stopgap of a job
That somehow became a career
Through dream-killing drizzle and dark
I have to keep believing
What God has promised me:
the Best
Is yet to come. Today
I’m going to give everything I can
To make the team of failing nobodies I lead
The best team of developers
The world has ever seen
For;
If I can’t encourage and motivate and stir up greatness from within this ragtag band-
How can I ever hope to lead the mighty people of God?
Finally
It’s time.