IT Contractor - Estimated Net Income?

[simo sepper]

Hi all, I try to assess what net income an IT contractor can reasonably expect based on the daily rate. I need some input this since I am not an expert in the field.

Say annual income is 230 days * 400 daily rate = 92000
I plan to set up limited company with myself and spouse being a director. I pay myself (41.800 annually) and her (23800 annually) which according to deloitte tax calculator will give us a combined net annual income of 53760 (I ignored pension’s contributions in the calculator, have kids and am not a proprietary director (?)).
End of year there is 92000 – (41800 + 23800) = 26400. If I extract that I have to pay 41% tax, 7% USC and 4% PRSI so net will be left 26400 *48% = 12672. Total net income is 66432.

- Are the above calculations correct? For instance, I pay tax, PRSI etc as if I was an employee. Correct? Or do I pay less being director?
- I ignored pension side of things (manage that myself). Or are there major advantages one can benefit from pension wise when in limited company
- What is best practice on expenses, would that add to net income?
- Did I miss any other major factors that can influence net pay?
Cheers!

 

[vandriver]

You are a proprietary director.

 

[Firefly]

Hi simo sepper,

As a former IT contractor I would highly recommend getting yourself a good accountant. Employing Mrs Firefly as a director (as you outline above) was especially beneficial for us as it tied in nicely when she was at home with the kids until she went back to work herself. One thing to be wary about though is the attitude of some posters here and indeed from other contractors that you can write-off all and sundry as expenses....you certainly can, and it won't matter until the Revenue do an audit.

Another thing to remember (and your accountant will advise you on this) is the Professional Services Surcharge on Undistributed income - just Google it. This in effect means that income not taken out of the company is subject to a surcharge (in additions to corporation tax). You are then taxed again (triple tax?) via normal Income Tax if/when you do actually pay yourself this money. Therefore unless you have a speciific requirement to leave the money in the company you will probably withdraw most/all as income.

 

[Capefear]

it contract

Hi simo sepper

You dont mention if the 92000 is before or after vat at 23% so we will assume its before vat so 92000 @23% vat is 74795. we will assume that you take all this out as salary with no pension or expenses just so you get an idea of the tax involved.
Salary €74795
PRSI Class S
Cutoff Point €65600
Tax credits 3300
PAYE 13589
USC 4554
EE; PRSI 2992
Net Pay 53658

No as I mentioned the above figures don't include pension or expenses.

Expenses: You should read the IT51 & 54 information leaflets from the revenue and become familiar with the civil services expense rates you can claim for mileage and subsistence.

These are generally the only afew ways you can take money out of a company.
1. Expenses that are incurred wholly, exclusively and necessarily in the performance of the duties of the employment.
2. Wages: the more you put through as salary the more tax you pay, so less is best within reason .
3. Pensions: just say Im wrong in assuming the 92000 includes vat and its 92000 after vat and you have paid yourself a gross salary of 74795 so you have a profit of (92000-74795) = 17205 left now you have two options
A. You leave this money in the company and pay corp tax on it and also the close company surcharge or
B. pay this profit into your pension and by doing this you dont have to pay corp tax etc. The only thing to take into account with pensions that you are restricted to the amount you can put in each year depending on age.
4. Civil Service mileage and subsistence rates. See IT54 & 51. These are your expenses that you don't need a receipt for but need to keep a diary. A word of warning here, these expenses can be a good way to get money out of the company but don't take the pizzz as was mentioned above its great paying no tax until you have a revenue audit. And according to a tax specialist I was talking to last week the revenue are doing a lot of desk audits on motor expenses & subsistence etc. So you just need to be smart in how you claim these expenses. Eg say you need to stay an over night in a hotel, pay the hotel using your personal laser card. Say the hotel costs you €50.00 you can claim back €140 ( i dont have correct figure to hand) using the civil service overnight rates, once you keep a log in your diary no receipt needs to be kept just who you had the meeting with and you submit and expense form to the company for €140 and your up €90.00.
As I said just be clever and dont talk the pizzz.

Also just bear this in mined, when you become self employed you and the wife are taxed at prsi rate S so you wont have the same entitlements as paye workers if the business goes belly up.

I hope this helps sorry its late so the grammar etc aint the best.