IT Contracting

S

SteelBlue05

Guest
Hi,

I am considering going contracting next year in IT in the area of Web application development (ASP.Net),Database development (SQL Server) and Reporting Development (SQL Server, Crystal Reports). I would be focusing on systems development for small to medium sized companies, essentially in the area of MIS (Management Information Systems).

Leaving a side the whole area of tax issues or whether to set up a company for it or go as a sole trader etc does anyone here have experience of contracting in this IT area in Ireland (any region, not just Dublin). Contracting seems to be in demand and has been for most of this year but the rates seem to have come down a bit?

Obviously its a bit risky as I'll be leaving behind a fixed salary but do you feel IT contracting is going to be in demand in 2006?

As I have a fairly hefty mortage I could probably only be able to afford to be out of contract for about 3 months and even then I dont exactly want to hit my savings to cover off this quiet period.

I suppose its hard to know if its a risk worth taking until I take it? If I found a 6-12 month contract I think I'd give it a go. Whats the typical lenght of most contracts?
 
Hi Steel Blue

I have been contracting in the MIS area for the past 3.5 years. I spent 1.5 as a sole trader and 2 as a company.

I got into it as after a short career break/long holiday a former site I worked on offered me an 8 month contract and I saw it as a way back in to the workforce. I am still in the same site - getting 6 month contract renewals with lots of projects still to come on stream. It can be beneficial - but if you cant handle the uncertainty of wages then its not for you. One thing to be really strict about is making sure you put your Tax away immediatly - and dont use it to supplement the breaks between contracts. You can easily get screwed at year end this way.

I didnt go thorugh an agency - so dont get all the contracts sent out to me - but occasionally I see something worthwhile. Its a game of chance - and playing the field - use your contacts where possible - and good luck!
 
contracts vary from rolling 6-12 mnths, or it might be for something specific, say 3-4 months. If youre any good tho, contracts tend to roll as theyll keep you on for further work.

minusses
Its up to yourself to keep yourself skilled up with courses etc. Youre not paid if you're out for sick/holidays/bereavement etc. You may not be invited to company parties no matter how long youre there. Theres no health/pension package. Theres no bonuses.

Plusses
More in control of your destiny. Money can be a lot better.

notes: Agree overtime rates. Agree holiday/time off well in advance as while employers tend not to like being given short notice of time off from employees, my experience is that its even less so with contractors. "youre going on holidays again!! whens your contract up for renewal?"
 
thanks for the replies.

I have spoken to some contract agenices and they will only go for contract work via a limitied company i.e. I would have to set up a limited company and contract through that.

I understand a small amount about how to set one up but I have a question on payments. If I have a contract for say 6 months then the client essentially pays my limited company the agreed contract amount. Is this then subject to corporation tax before I get paid through the limited company? So even before I pay income tax the amount is already reduced?

And roughly how much per annum would you spend on accountants fees etc?

I suppose my question is if I was contracted out for 230 days a year (which is what I work at the moment i.e. 260 week days per year less holidays and public holidays) then how much extra would I have to earn from contracting to make it worth while.

Take this example, if I currently earn 50k per year, then would I have to make say 60k per year contracting to match that i.e. the 10k extra will be lost to corportation tax, annual accountancy fees etc before I get paid?
 
cant answer the question on the corp. tax, but on the other one, its something ive considered in the past.
As well as your base salary, how about any training, health insurance, pension, life assurance, stock options, expenses etc? Add those to your salary.
Also put a price on having permanent job status, current job satisfaction and add those to your current salary too.
after doing the above, how much would you have to make above that figure for you to be happy with losing them?

Personally speaking, if I was making 50k, Id put a price of at least c80k on a contract salary or else IMO it just wouldnt be worth it. But thats just me.

HTH..

edit: dont forget contract rates fluctuate. Ive seen rates go down from 600e to 250e and back to 400e a day in the last couple of years. (note, thats in my field, not sure of the rates for yours but the percentages would probably be similar)
 
Yes I was suprised with the rates for my area, 280 to 300 per day which when you add in all the things mentioned above doesnt really make it very attractive.

Maybe if I could contract direct to a company rather than through an agency then the rates might be better.
 
Corporation tax applies to the profit that the company makes. Your salary will be deducted before that even applies. In fact you will normally try to ensure that the company makes no profit as there is little benefit to having money sitting in your companies current account.
 
Maybe if I could contract direct to a company rather than through an agency then the rates might be better.
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Maybe, but in my experience 2 things should be noted, 1. companies are aware of market rates the same as an agency is. and 2. a company that goes directly to the market for contractors could be trying to cut costs and may be offering even lower rates, which Ive seen evidence of, and has backfired as the calibre of staff they get isnt all that it should be.

In the end I decided contracting is for those who want to make a lifestyle choice, ie, you do a few months, save a few quid, go off and do whatever whatever you want with your time (travel, hobbies, kids) for the next few months and then go back contracting.
When the rates were higher 2-3 years ago there was a definite financial benefit to contracing but Id say thats negligible if at all these days. Unless of course youre at the top end of the market and have a real name for yourself and can hire yourself out for the bigger bucks.
Good luck with it anyway.
 
darag said:
Corporation tax applies to the profit that the company makes. Your salary will be deducted before that even applies. In fact you will normally try to ensure that the company makes no profit as there is little benefit to having money sitting in your companies current account.
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Right, that makes sense.
 
At the moment there seems to be a big demand for business analysts, which is really the new term for systems analysts, and not so much for developers, so if you can tweak your cv & sell yourself in this capacity as well it might help your chances.
Accountants fees will be in the region of 2.5 to 3k per year. When I got work through an agency they insisted I set up as a ltd. company (setup cost = €340), they wouldn't accept sole trader. I think Revenue Commissioners insist they do this.

If you can get in with a big company, chances are you could end up being there for quite some time.
Bear in mind that permanent salaries aren't shooting up like they used to, so if you're on a good salary now & go contracting, & in 6 months decide to return to a permanent role, it could be tricky to get a job at the salary you're on now. But who knows what's ahead,
 
car said:
Maybe, but in my experience 2 things should be noted, 1. companies are aware of market rates the same as an agency .
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I was thinking of cutting out the middle man! But what you are saying makes sense in that a company going direct to a contractor may in fact be trying to save themselves the agency fee so in the end it of no benefit to the contractor. But I am sure each situtation is different.
 
I only started contracting today myself. I went through all those questions, but I really value my free time so contracting suited me. Also I have no time for office politics, which I find you need in perm jobs. I went through cxc who set up a managed company for me. It costs, but I don't have to worry about anything only expenses and time sheets. Not many companies are accepting sole traders these days due to European law- if you can be shown to be an employee then the co hiring you must pay prsi, sick pay, holiday etc.
 
If I was to earn say 60k contracting through my limited company then can I just pay that 60k as a salary to myself and essentially have 0 profit for the year and therefore pay no corporation tax?

I know I will have annual accountancy fees in preparing and submitting accounts but I was wondering does anyone know if I have to pay corporation tax first and then pay whats left as a salary. I understand corporation tax is payable on profits but can I just take all the companies revenue and pay it as a salary so to avoid paying corporation tax?

I will be talking to an accountant in the next few days but I thought someone would have an idea?
 
shnaek said:
You won't pay coporation tax but you will pay employees and employers PRSI.
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How much empoyers PRSI would you have to pay on say 60k earnings? I cant find what % you pay from the revenue site.
 
Actually my understanding is that you DO NOT have to pay employers PRSI, only employees PRSI if you are the only recipient of a salary from the company. Perhaps someone else can confirm for me?
 
Lauren said:
Actually my understanding is that you DO NOT have to pay employers PRSI, only employees PRSI if you are the only recipient of a salary from the company. Perhaps someone else can confirm for me?
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I think that is correct if you are marked as a director of the company, just read that somewhere.

So if my limited company earns 60k I can take all that out as a salary and pay the usual employees PRSI and income tax and not pay employers PRSI or Corporation tax? Seems too easy!
 
Given the skills you mentioned however, make sure that overall you are earning more than 60k (not sure if you were simply using that number as an example or not). To compare properly make sure you take into account any extras you might be entitled to as a permanent employee like bonus schemes, "lifestyle" allowances, gym memberships, pension contributions, VHI etc not to mention considering that you don't get paid holidays, public holidays etc.
 
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