Limited Company and Contracting
 

First apologies for the newbie, nothing to hide from you guys but colleagues know I frequent this site.

I currently work for an IT consultancy that specialises in a particular area. I'm full qualified with plenty of experience and I get paid a very decent wage. The company I work for is fairly small and although I have some shares, the majority is privately owned by 2 or 3 individuals.

There is an extreme lack of skills in this area, and as a result we find it very difficult to recruit decent calibre people. The main reason for this is that contractor daily rates average 550 a day. This would be a significant increase in take home pay, and as the market is extremely bouyant it would not be that risky. There are various reasons why I've not done it before, mainly around loyalty and to be frank having the balls to do it.

Myself and a colleague have discussed setting up together. We have complimentary skills although overlap in the core areas. I believe we can chase services work for medium sized companies, and in turn employ other contractors thus making some decent wedge. We both have an excellent reputation in the market which we can build on. There is also the option of jobbing on the circuit, contractors currently with us have been there for a fair while.

Now the questions. We will obviously set up a company each owning 50%. We are well aware that we may earn different rates, and in the unlikely event one of us is out of work for any period, dividends must be split equally. Expenses may also be variable and again this may favour either one of us.

The advantages as I see them, is a greater IR35 compliancy and the ability to complement each other where we can find work together. The possibility of growing the business is also very tempting.

In the worst case scenario the company gets dissolved and we set up independently.

Does anyone have any experience, dos and don'ts and such like. Please be aware this is not a situation where two developers are partnering up, the business is very much about services delivery, implementation and process consultancy.

Not PSLewis

(Nearly signed with my real name there :D)

j4ckos your man

Having previously been a contractor (not in IT though) for a number of years I will say there are some plus points.

However, dont forget there are some serious down sides, lack of hols, pension, car, phone, computer, sick days and IR35 / govt in general trying to get rid of contractors.

For example, the headline rate that I was on was very good, but if you took off 25 days rate for leave, pension contribution, few sick days a year, costs, insurances, bookwork etc then it all adds up.

I reckon at the end of the day after all was said and done I was on about 15 grand a year more than I was as a perm doing the same job.

Then you may have to support you co-contractor if he cant get a project for some time. Suddenly 500 a day turns into 250, or about 220 after tax.

All well and good if you have the work but if you dont I can see problems.

IMHO the people that make the money from contractors are the actual companies that run the shop, i,e they have 10 - 20 projects with a few contractors on each one. I know the company I used to contract for was making just under 20 million a year.

Maybe this is the route you can look at going down, use your xp and rep to get customers but put other contractors in to do the work with your supervision. Rather than doing 5 days a week at one customer you could do 1 day a week at 5 customers..

Anyway ranting now, best of luck!

Pension makes no difference these days, the days of final Salary are well over so makes no odds.

Insurances are relatively cheap, we have an accountant friend charging £400 pa so again not a massive cost.

8 weeks leave costed into my calcs.

The scenario you describe is exactly where I'd like to go, start small and build up. The market at present is unlikely to mean both out of work. Potential earnings are double net current take home so even a short period eere one of us is out of work will not cause too many issues.

Depends what pension deal you have, mine was good - so I had to carry on with my own private one. The only plus point of that is the regs around LTD co's and pensions which are quite handy but still costs you at the end of the day. Depends if you have other investments etc.

My main concern would be competition and building a customer base. Its easy enough to get a position as a contractor as the contracting company has already won the contract, but getting the deal in the first place (having done contract negotiations before) is not easy - esp when you have 3 or 4 companies all bidding at once.

You could set up two companies. One for personal work, one for joint work. For joint work, you really need to split the profits equally if you have any intention of growing the business beyond just the two of you. Once you do that though, you'll end up doing a lot more project management than you expected.