What to charge if working as a freelance?

[parisianwife]

I've accepted a part time (well, 4 day a week) job nearer to home, for slightly higher annual salary (if I was fulltime, clearly I'll only be paid 80% of that), but most importantly, the costs associated with work will reduce drastically (petrol, wear and tear on the car, and childcare, as well as gains stress/sleep wise!). I'm very very happy about this. Onto my dilemma.

At work, I'm in a role which only 2 other staff members do, and I'm the only fulltimer - one other is a contractor who is hired on a regular basis depending on order volume (generally in blocks of a few weeks), the other is a woman who's part time on 3 days a week who doesn't want to work fulltime. On Friday, my manager suggested working for them on a freelance basis, depending on work's order volume, as and when they need me and I'd like to.

Pros:
The work is easy.
They need me more than I need them - I can dictate when I take on work.
I wouldn't mind some extra cash.
I know the work would be reliable (recession proof industry).
There are no set up costs associated with the work I'd be given (I'd only be given the work that can be done from home).

Cons:
Potential issue with IR35 status?
Finally, I have no idea what to charge.

It's that last one I was hoping to get some MN advice on.

My employer is badly paying at the best of times, and I know that if I agree to this they'll expect my rate to be something crap. I don't think we'll need the extra cash, and since I'll basically be doing them a favour, I'm not really interested in charging £10/hr for something that the contractor is being paid at £400/day for (yes, really!).

Is there a formula which is a good suggestion for what an hourly rate would be for this sort of thing? I.e. if I was being paid £16/hr at my employer, freelancing on an hourly basis... would it be fair to double the hourly rate? What would others suggest here?

Charge the same as the contractor. Say an 8 hour day, so divide 400 by 8 = 50 per hour.

What are the benefits over perm contract?

Would you be able to look for work with other firms.

It's all very well charging more but remember that you get no sick pay, redundancy pay, may not get holiday pay and if they are your only client you could well get stung under IR35 so may not be much better off financially.

I think 50-80% more than what you would expect as perm is a rough guide.

Thanks to you both for the input I didn't know whether dividing by a day's work (8.5hrs or so, for a day rate, based on my fulltime hours) was totally off the mark or not.

generousoffer this would just be one or two days a week, at random times. Due to the nature of the business it's very dependant on levels of customer orders - so I could get 2 days in a six month period, or get 3 weekends offered in a row. Very flexible - and my manager made it clear I could turn down as much as I wanted to, to fit in with my new job (which is on a 4 day a week contract, permanent). I wouldn't rely on them for anything like sick pay or redundancy, etc - that would come from my new main job. Also no issues around handcuffs from my new job, I've checked this evening and it mentions that as long as there is no conflict with customers (basically poaching suppliers or customers) there's no stipulation about working for others (it's very common in my industry due to the seasonality of the work).

p.s. there's also no issue around lack of work - it's basically a recession proof job, pretty much always has been, as far as any job can be. In laymen's terms, it's sort of like saying that a Doctor will always have ill people to see, or an accountant will still always have potential people that need to pay taxes, the products we sell pretty much solve a need (a problem/pain) so there's no issues around lack of demand, short of competitors winning our customers or distribution points of course. It is very seasonal though (summer is rush months). So I wouldn't worry about redundancy from the freelance work - if anything, I expect there to be TOO much work now that I'm leaving - it's certainly been the cast that for the last 4 summers I've worked in that company, we've been rushed off our feet (which is good!)

If the contractor charges £50 per hour then why not you? or are they more valuable to the firm than you?

Are you working through your own Ltd company? If you are then you need to think about IR35. If not then it doesn't apply. In your case I'd say IR35 will more than likely apply as you've worked there as perm in the past.

If you are working through your own Ltd factor in around £500 a year of running costs for an accountant etc to do the final returns (unless you know what you are doing). You also have to factor in employers national insurance as you'll also have to pay this.

You need to think about the "what if there is no work" argument. Just because there is work doesn't mean that you will get it. Remember being freelance = no redundancy pay or promise of work.

General rule is divide your annual salary by 1000 to get your hourly rate.

Yes the contractor is getting £400 a day (which is fairly average for a contractor) but they are not getting 48 weeks a year work. It quickly makes a dent in the £2000 * 52 weeks a year calculation that people do when looking at contractors. If your expecting more continuous work then charge less if its going to be more sporadic then more.

Even if not through a ltd company, you will need to consider the tax aspect - will they pay you PAYE or gross? Even if gross, this is unlikely to be classified as self-employed by HMRC, so need to factor in employers NI etc.

You can always make a return as a sole trader. Unless you have assets you need to protect against personal liability, in which case putting everything through a ltd is the best idea.

If it suits you you can offset any tax you pay now against any you might pay later in the year if you become an employee.
If you earn under the taxable threshold you can offset any losses against future earnings. But you'll need to pay your NI or Social insurance, (or whatever it is in France?).

I'd give the revenue a call and ask them - they're usually very helpful.