IT Contracting - Is it Worthwhile

R

robgolfer72

Guest
Hi all,

I'm evaluating the option of going contracting. I have been offered work but I must set up as a Limited Company. After some investigation my understanding of how it works is as follows

My company pays a salary to me subject to full employee PRSI/PAYE tax

The accounts would look something like

Gross Income based on daily rate
- salary (employee pays tax)
- allowable expenses
Remainder is subject to Corporation tax @12.5%
Anything left is retained in the company

If you withdraw the retained bit it is subject to Income tax

When you take into account the costs of setting up a company, accountancy fees, Insurance, own training costs etc there seems little benefit other than what you can squeeze by maxing out on the expenses e.g. home office, mileage etc

Am I missing something ?
 
Re: IT Contracting - Is it Worth While

Call CxC , askfor Olga, and she can talk u thhrough all the pitfalls.

But with a good pension plan, maxing expenses you should retain 80-85% of invoice.

setting up a company, accountancy fees, Insurance, own training costs are all allowable expenses.
 
Re: IT Contracting - Is it Worth While

Usually you need to be earning more as a contracter to make it worthwhile financially. However there is value in the experience of running your own company, the experience of being a contractor instead of the mindset of an employee. You also more experience and more varied than you would as a regular employee. I enjoyed moving around, working in different places and meeting different people. Downside is you don't really bond with people as you would as an employee, and you can be treated a bit like a number. You really see your worth/skills laid bare too. Which is a good thing for your head. I enjoyed it. I'd still be doing it, only a permanent job came up, which I ended up staying in.

That was my experience of it. Peoples experience will vary obviously.
 
Re: IT Contracting - Is it Worth While

Disadvantages:
- You'll lose your employee's PAYE tax credit.
- You'll become an 'S' class director, losing many state benefits.
- You'll have to file personal accounts every year
- You'll have to file company accounts.
- You also have to keep track of VAT and administer/pay it
- Corporation tax if you make a profit
- No training, you'll be expected to know everything
- Need to keep up with new technology in your own time - or stagnate
- May also have to move around, or revenue will treat you like an employee
- No real expenses benefit that I ever found. Can buy a laptop from the company, that's really about it.
- No company benefits like pension schemes, paid holidays.
- Maybe more responsibility.
- Accountant fees and tax deadlines, have to pay to get company set up (and dissolved) and make sure you're CRO compliant as well as revenue compliant

Advantages
- The illusion of being your own boss.
- Maybe more money, if you hire a good accountant.
 
Re: IT Contracting - Is it Worth While

I can't argue with the points umop3p!sdn makes. In fact I would add that at some point in your career, probably in the 10-15 years experience bracket in IT, that permanent employees will earn roughly the same as you as they have climbed the career ladder. So after a while the money becomes less attractive.

Having said that, the reams of negatives and 2 positives above I think are too harsh. Most of the disadvantages around having to set up company, file returns, file VAT, etc. etc. can be mitigated by your accountant. If you pay for it they will do all that for you. The is some extra record keeping alright (like receipts).

I've never in practice seen any long term contractor have any issues with being with a company too long.

About expenses, you'll be able to claim stuff like phone/broadband too. Public transport. Training costs (books, courses, etc.). Basically anything (or at least most) that is necessary for work.

Some industries are most 'transient' than others. Perhaps IT is one of them. My advice is the go look at the job rather than the employment status. Alot of permanent jobs are about as unstable as contracts now anyway.

Me, I'm a contractor for now.
 
Re: IT Contracting - Is it Worth While

There are undoubtedly pros & cons to contracting, to some it is the only way to go whereas others prefer the stability of salaried employment.

Looking at it from a purely financial point of view, the daily rate on offer should be about 20-25% higher than a salaried position, to make up for the loss of holiday pay, sick pay etc and also the additional costs incurred.

As for the costs of running your own limited company, a good accountant will look after all of this for you, and while having your own personal company is definitely the best option in the long term, for first-time contractors umbrella companies can be used in the short term - there are no setup costs and the monthly costs are generally cheaper than having your own company. If you find out that contracting isn't for you then you can get a P45 and walk away from the umbrella company with no responsiblities or obligations.

feel free to pm me if you want a calculation done of your nett income after taxes etc using a limited company or umbrella company.

Regards

podowd
www.prima.ie
 
Thanks all,

This gives me a good bit more details and ideas to check into in more detail.
I had a naive impression initially that contractors did not pay paye and could claim everything against tax but I realise its not quite so simple.
 
I had a naive impression initially that contractors did not pay paye and could claim everything against tax but I realise its not quite so simple.
Click to expand...

Sounds like you're confusing it with being a politician.
 
Re: IT Contracting - Is it Worth While

Kerak said:
Call CxC , askfor Olga, and she can talk u thhrough all the pitfalls.

But with a good pension plan, maxing expenses you should retain 80-85% of invoice.

setting up a company, accountancy fees, Insurance, own training costs are all allowable expenses.
Click to expand...

Hi Kerak,

cXc are very professional but they have their own agenda. They push their own pension which is far worse value than the likes of LABrokers. I've argued with them that if they want to be accountants they shouldn't have the wealth management arm because to me they're not promoting the best deal in the market. They're expensive enough already so if I get a poor value wealth/pension product pushed at me again I'll leave. I'd welcome cXc to rubbish this but they need to compare against the LABrokers pension and say they beat it for value. I am not associated with LABrokers by the way, but I evaluated both.
 
Re: IT Contracting - Is it Worth While

But your are not obliged to use there Wealth management arm. I have found their service meets the needs I have. Their online expenses managment is very simple to use, they have listened to suggestions from their clients and made improvements to the service, so I'm happy.
 
Re: IT Contracting - Is it Worth While

Fair point Kerak, You aren't obliged so I didn't. Overall I believe they provide a very good service. I just found the wealth management stuff a bit annoying.
 
Hi Gearoid - There seems to be some confusion here. CXC set up a wealth management company to provide the best value pensions to CXC clients. We can guarantee the best rates available on pensions to CXC clients. It is important to note that this is a non obligatory service that is freely available to CXC clients. I will pm you to ensure we clear up any confusion here.
 
Not quite true. If you have a fellow director and you own under 15% of shares you won't lose paye credit
 
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