Money matters

[Nick W]

If cabinet maker A were to work for cabinet maker B, in B's workshop, but on a self-employed basis, what would be a reasonable hourly rate of pay to pass from B to A? For the sake of this discussion let's assume that A is pretty competent.

 

[tim]

Between £20 and £25 per hour would probably be about right. Thats just based on reading ads and seeing what salaries are offered for cabinet makers and then dividing it by the standard 1,000 billable hours in a year.

HTH

Cheers

Tim

 

[Nick W]

Tim,

Thanks. That, though, is presumably for B employing A (and hence also having to pay NI, SSP etc. etc. etc.)?

 

[tim]

I suppose it depends if you are A or B.

The argument can be spun both ways - if you are employed then the employer needs to pay NI etc but if you are self employed then the employer also has to cover the fact that the worker is self employed and may decide to stop work as and when.

I don't think there are any hard and fast rules here.

Cheers

Tim

 

[devonwoody]

If he is self employed he cannot negotiate a rate of pay? the N.I. people would say he was an employee.

 

[tim]

If he is self employed he cannot negotiate a rate of pay? the N.I. people would say he was an employee.

???

 

[RobertMP]

You'd have to be very careful you can prove the self employed status can be justified. 'A' would have to use his own kit and have other clients he can show he still works for.

A tax audit can cause major headaches (and bills) if you get it wrong. I was in business until just over a year ago and we got caught out by the self employed person no longer getting income elsewhere and hence being deemed an employee.

 

[orangetlh]

Unforunatly if you are working for cabinet maker B there is a new law coming into practice that you can no longer be self employed and working for an employer for a certain amount of time. The employer has to pay your tax and NI for you as if you were fully employed. i think its the governments idea to get rid of the CIS card. A more reasonable wage for someone on this scheme would be £8-£10 an hour in our area anyway. £20-£25 an hour around here would be more apropriate for a fully self employed skilled fitter using his own tools, van, and general running costs of business.

 

[mr]

If he is self employed he cannot negotiate a rate of pay? the N.I. people would say he was an employee.

???

I believe what DW is getting at is new IR rules (IR56) that "state" that contractors / freelancers etc cannot be paid on an hourly / daily rate basis but rather must be paid according to job spec / quotation. Contractors paid on an hourly or daily rate become employees rather than self employed. It's not quite as simple as that there are guidelines as to what makes one self employed. ie can A supply someone else to do the work, is there a risk that A may lose money rather than make money. If the answer to either is yes then A is self employed, if the answer "no" then A is deemed an employee.

Employee

If you can answer 'Yes' to all of the following questions, you are probably an employee.

* Do you have to do the work yourself?
* Can someone tell you at any time what to do, where to carry out the work or when and how to do it?
* Do you work a set amount of hours?
* Can someone move you from task to task?
* Are you paid by the hour, week, or month?
* Can you get overtime pay or bonus payment?

Top

Self-employed

If you can answer 'Yes' to all of the following questions, it will usually mean you are self-employed.

* Can you hire someone to do the work for you or engage helpers at your own expense?
* Do you risk your own money?
* Do you provide the main items of equipment you need to do your job, not just the small tools many employees provide for themselves?
* Do you agree to do a job for a fixed price regardless of how long the job may take?
* Can you decide what work to do, how and when to do the work and where to provide the services?
* Do you regularly work for a number of different people?
* Do you have to correct unsatisfactory work in your own time and at your own expense?

Further info on IR56 and regs here http://www.hmrc.gov.uk/pdfs/ir56.htm#2a

Hope that helps some, interpreting the regs is a minefield, I have been self employed for aeons and some of my clients have been with me for the duration but they haven't managed to keep themselves up to date with the regs meaning that if they were to be inspected by HM tax inspectorate they might experience some embarrassment. Other clients are aware of the regs and find ways around them, some (very few) abide by the letter of the law so to speak.

Going back to Nicks original question, the how much a self emplyed person needs to charge to make a living is a question of how much they want to make and what their day to day costs are. NI, Tax, accounting, health insurance, public liability insurance etc etc etc .

Cheers Mike

 

[woodbutcher]

just to throw another spanner in the work's what about a partnership?



woodbutcher

 

[mr]

just to throw another spanner in the work's what about a partnership?



woodbutcher

What about a partnership ? FOr tax purposes theyre similar to self employed. But not relevant really to the OPs question probably.
Cheers Mike

 

[Nick W]

... what about a partnership? ...

Go on... :-k

 

[mr]

To set up a partnership you need to draw up a document outlining the articles of partnership ie who takes what out of the business, who puts what in etc. The business then makes £x PA which is divided out amongst the partners after expenses according to the arrangements the partners have made and each partner then pays tax accordingly. The rates charged are kind of irrelevant. A partnership obviously doesnt have to be a 50 : 50 thing. In a way it may be easier because there's no requirement to prove self employement. A & B are named in the articles of partnership and registered for tax accordingly.

EDIT
To get back to Nicks original question the thing to do to arrive at a rate of pay which is then disguised however for tax arrangements, is for A to work out what his annual expenses are and what he requires on top of that for a comfortable living. "x + y = ..." sort of thing.

Cheers Mike

 

[Nick W]

But presumably the businesss gets clobbered on VAT for the total turnover?

 

[mr]

But presumably the businesss gets clobbered on VAT for the total turnover?

If VAT registered then yes. (This will also apply to a self employed person, ie not a business or partnership) I think the threshold for VAT registration is somewhere around £50K PA. Revenue above that requires registration and below does not. Registration can be made retrospectively if it looks like revenue will go past the threshold level in any given year. Dont quote me on the £50 K, it's somewhere round there but I can't recall exactly.

Incidentally Im not convinced that there are only 1000 billable hours in a year.
I would suggest that there is at least twice that and at the rates mentioned above £20-£ 25 per hour it's entirely possible to become vulnerable to VAT pretty fast.

Cheers Mike

 

[Steve Maskery]

Incidentally Im not convinced that there are only 1000 billable hours in a year.

I'm afraid that is actually a very sensible figure to work on. Billable hours, not ones you work.

As self-employed there are lots of tasks which take up lots of time and for which you can't send anyone a bill. If you go on training, it's work, but you can't send out a bill. If you go to see a prospective client, it's work but you can't send out a bill. When you are doing your books it's work but you can't send anyone a bill. When you go on holiday, you can't send out a bill, when you have no work -- OK I'm labouring the point.

1000 billable hours is a good rule of thumb.

So if you charge £25 per hour you can expect 25K pa on which to run your business and pay your salary. If you can get a mark-up on your materials too, that may help.
Cheers
Steve

 

[mr]

I believe the figure recommended for calculations is actually 1600 hours. which is 2080 less 120 for 3 weeks holiday, another 90 for enforced holidays - bank holidays and the like and sickness, then remove a further % for non billable time. In my own case I calculated 25% and came to a billable hours figure of almost 1400 - which I believe is on the light side. You still only end up with somewhere less than 30 billable hours a week even though you may be working 100 hour weeks.

Cheers Mike

 

[tim]

I believe the figure recommended for calculations is actually 1600 hours.

I'd be interested to know where you've seen that? The only one I've ever seen quoted is 1000.

My thought on the 1600 is that it probably assumes that you also have a guaranteed, continuous supply of work which is not usually the case in this game. When I worked in insolvency way back, the number of businesses that went bust based on unrealistic forecasting was staggering so I prefer to be more prudent and underrate it.

....and I work on 6 weeks holiday a year....... 8) :lol:

Cheers

Tim