From PAYE to self-employed

[Marine 8]

Any pointers on my situation would be much appreciated.
I have been offered a deal by my current employer with a lump sum to leave plus a contract to do pretty much what I'm doing at the moment but from home. The company will supply me with the technology to do the job and say I can take on other work as well.
It's a lifestyle change that will suit me despite my annual income dropping to around 50k. Conflicting advise recommends setting up a a sole trader or as a company. I have done a little research and know there are pitfalls in both areas. I am more than happy to pay an initial consultation fee with an independent advisor who can point me in the right direction to make the most of my new situation...tax avoidance rather than tax evasion! After that if I need an accountant as a company, or can file returns myself as a sole trader, I'm happy to pay. I've checked out the moneydoctor and done a bit of googling but I don't need mortgage advice, life assurance policies or pension plans. Some relatively risk free investment/savings advice wouldn't go astray. Anyone recommend an advisor in the Leinster area?
Thanks in advance.

 

[buckrodgers]

My advice would be to set up as a sole trader. I made the unfortunte mistake of setting up as a company after advice from an accountant. This was a big mistake. I had a family berevement the first year and missed the filling date. This meant I missed out on the audit exemption for small businesses. I did very little business but I still had to pay the accountant €3500 to audit my books and now I've been landed with the same bill again this year as you cant claim audit exemption for two years if you are late for one. Unless you are going to be earning big money I would keep well away from a company.

 

[davidoco]

tax avoidance rather than tax evasion!

Revenue may see it as the company doing some tax evasion as in the PRSI they will avoid. Why don't they just let you work at home and continue to operate PAYE. I wouldn't let my job security go for less than 3 years gross wages.

Will the lump sum be subject to tax? Is it a redundancy payment? If so they may be able to claim back part of the lump sum that you thought you were getting as a nice gesture, but claiming a 60% rebate from the SIF would probably be void if they took you back on a contract basis.

It's a very gray area but some of the tests to see if you are genuinely self employed or a PAYE worker dodging PRSI and to a lesser extent tax are

Whether a person is exposed personally to financial risk.
Whether a person decides their own work hours.
Whether a person owns their own business or can provide the same service to a number of people or businesses at the same time.
Whether a person is entitled to expenses, subsistence payments, travel payments etc.
Whether a person provides their own insurance cover.
Whether a person has their own fixed place of business to take orders or bookings for contracts etc.


I personally never saw the point of sub 100k earners establishing a company except when they were in a business where they might be exposed to severe financial losses and wished to protect certain assets.

 

[ubiquitous]

I personally never saw the point of sub 100k earners establishing a company except when they were in a business where they might be exposed to severe financial losses and wished to protect certain assets.

On the contrary as a practising accountant I have seen numerous cases where people earning a lot less than €100k have saved themselves a lot in tax by operating via a limited company.

The argument about using limited liability to protect oneself against personal financial risk is now largely obsolete following the introduction of the 2001 Company Law Enforcement Act which allows for directors to be held responsible for the debts of insolvent companies.

 

[ubiquitous]

I am more than happy to pay an initial consultation fee with an independent advisor who can point me in the right direction to make the most of my new situation.... I've checked out the moneydoctor and done a bit of googling but I don't need mortgage advice, life assurance policies or pension plans. Some relatively risk free investment/savings advice wouldn't go astray. Anyone recommend an advisor in the Leinster area?

You should at all costs avoid mixing up investment advice (ie the money doctor or suchlike) with accountancy/tax advice. They are totally different. In my view, you would be absolutely crazy to depend on the advice of someone like the Money Doctor on the question of "employee or contractor" or whether you should set up as a limited company or sole trader, although I would imagine that the Money Doctor himself would be the first to agree. If you end up dealing with someone less scrupulous than him, you run a serious risk of getting very dodgy "advice".

 

[davidoco]

On the contrary as a practising accountant I have seen numerous cases where people earning a lot less than €100k have saved themselves a lot in tax by operating via a limited company.

Fair enough. Although I guess though that the compliance cost of operating the company (eg accountant and CRO fees) can sometimes outweigh the benefits.

My experience is from various self-employed accountants (earnings approx €70 to €120k per annum) who would have always been sole traders. They saw no benefit in a Ltd Co for themselves.

 

[ubiquitous]

My experience is from various self-employed accountants (earnings approx €70 to €120k per annum) who would have always been sole traders. They saw no benefit in a Ltd Co for themselves.

Are you sure that this is not because accountants who are authorised & regulated by a professsional Institute for audit and certain other categories of work are prohibited from practising in these fields except as sole traders - effectively as certain other professionals such as solicitors, doctors etc?

 

[cousin_borat]

I thought that the reason that most Architects, IT Contractors, etc would be classified as Service Providers. Therefore it they are going on their own it makes more sense for them to go as Sole Traders.

Whereas Plumbers, Electricians make more sense to go a Limited companies. I'm only starting to investigate this area as well since I've been contracting in various countries since last September paid to my bank account in Ireland and wish to create my own invoices rather than work under an umbrella company in each country.

 

[ubiquitous]

The vast majority of one-man-band IT contractors in this country (and on this board) are set up as limited companies.