Contracting or permanent?

Kinet1c · 17-01-2015 6:39pm

Elessar wrote: »

Can someone explain the differences between using an umbrella company, or going it alone as a sole trader/ltd company?

Umbrella company is simply a shell company, you're a director and they charge the agency you're contracting through. There is a fixed fee or % taken out of your monthly billing in return for paying all the correct taxes and paying you your wage, submitting annual returns etc. So effectively, you just work and get paid.

The other way is for you (or an accountant) to setup a limited company, you (or your accountant) submit your annual returns and pay taxes.

If it were me, I'd opt for the first as I'd prefer to get on with I enjoy doing and that's working with tech as opposed to get getting involved with boring (imo) paper work.

srsly78 · 17-01-2015 6:41pm

Except it doesn't work like that. Umbrella still makes you do loads of paperwork - it all works out the same. Accountant does the same job. In my experience the umbrella was even more hassle because I had to mail them receipts every month (SNAILMAIL).

Many contractors (myself included) would have used an umbrella for their first gig, but quickly realised what a ripoff it was. Of course there are lots of umbrellas to choose from and they all charge different rates etc, so shop around. Similarly with accountants.

Accountant: e500-e1000/year for company and personal affairs.
Umbrella: e100-200+/month or 5%+ of income per year.

Farawayhouse · 17-01-2015 8:24pm

Thanks for explaining further srsly78 but for me I email my expenses via their online portal, it cost me 100 per month.

I claim the same expences as I do if I owned a Company and I get pension.

I get paid just as much as I should get paid if I was doing myself via my Company.

My accountant prior to joining an Umbrella Company cost me 1,500 per year, this saves me 600 euro per year and hours and hours of paperwork let alone worrying if I did it right, did I miss a payment, meeting with my accountant - I did the Company route for a few years and it was just hassle and when I heard of Umbrella companies it was a breath of fresh air, having said that I do miss the personal loans I used to give myself but this pays off in the long run as I am still paying off for that one!

Each to their own, but speaking from experience deffo not perm!

Farawayhouse · 17-01-2015 8:34pm

Oh well I cannot seem to edit my post, I save 300 euro per year - not 600 but you can see why I can not run a Company

The Corinthian · 17-01-2015 8:41pm

srsly78 wrote: »

Not at all. Umbrella companies are way more expensive than running your own limited company and paying an accountant.

Maybe; not the point I was making. You can do the vast bulk of the red tape yourself, without having to resort to an umbrella company. Theoretically you can learn how do your own accounts too and not employ an accountant.

But what is your time worth? If taking over the work of an umbrella company yourself will take a day out of every month, costs €200, but your daily rate is €400, then either you're working one weekend day extra or losing a pre-tax income of €200 every month.

Which returns me to what I said; what you suggested is like saying that taking holidays is a spectacular waste of money. It is, but should we refuse to do so then?

srsly78 · 18-01-2015 12:09am

My point was that umbrellas took up more of my time than the ltd setup does. Kinetic says his experience is the opposite, I believe him. Not all umbrella operate the same setup and service, and not all accountants charge the same.

However I do believe that with some shopping around - the ltd setup is more efficient in both money and time.

tommyboy2222 · 18-01-2015 1:03am

Any chance we could get an IT contracting sticky ?

It's great getting advice and knowledge from people with experience.

Stheno · 18-01-2015 1:08am

srsly78 wrote: »

My point was that umbrellas took up more of my time than the ltd setup does. Kinetic says his experience is the opposite, I believe him. Not all umbrella operate the same setup and service, and not all accountants charge the same.

However I do believe that with some shopping around - the ltd setup is more efficient in both money and time.

I find the same as kinetic, now that said I've a mix of contract/perm jobs in my background, but have always used umbrellas.

About once every two months, I spend a couple of hours submitting my expenses (at most) then once a month I send them two timesheets as I work for two clients and that's it. Its an online portal they have so no hassle, just scan any paper receipts, and/or upload online bills like phone bills. Plus I find it advantageous to have advice available on tap if I have a specific expense that I've a query about, I'd one just recently and one quick mail and I got back exact details of what was required for it to be classed as a claimable expense.

Like Corinthian says were I to do it myself it would be more expensive in terms of using my time

srsly78 · 18-01-2015 2:09am

Timesheets are something everyone has to do for customer, not relevant to discussion. I don't have to submit any expenses each month, no scanning or emailing involved. So how is this more hassle? Yes at year end I give the accountant stuff - but I try to keep paperless office anyway so it's pretty easy. There really is no difference, just in price. Umbrellas are just overpriced accountancy services. I don't understand why you would not shop around for the best deal in this regard.

Many people need an accountant for other purposes, like if they are a landlord or have any other kind of selfemployed income. This requires yet another annual return, accountants will usually just give a package deal for all this stuff together.

How do you guys even know about running a limited company? Did the umbrella tell you it was a lot of hassle maybe? Did they recommend that you stay with them?

John_Mc · 18-01-2015 1:50pm

I have a private limited company myself and use an accountant rather than umbrella. It's fairly easy and straightforward and is the same process every month. Once you stay on top of things and record what you're doing it's not bad at all.

Takes me about 2 hours a month and I know exactly what's going on with my company

The Corinthian · 18-01-2015 2:09pm

tommyboy2222 wrote: »

Any chance we could get an IT contracting sticky ?

Honestly, I think it's worth a sub-forum to itself.

srsly78 wrote: »

How do you guys even know about running a limited company?

Sure, including employing people and I've also done the whole voluntary liquidation thing which I found was a minor nightmare (not like the Wild West days of 20 years ago when you could just walk away and they'd just de-register you after 18 months).

TBH, this discussion is an argument over chump change. I don't care if an accountant or umbrella costs me €1,000, if they can save me more than that amount in taxes and the costs being quoted here are really hardly worth bothering about. Even where it comes to the difference the two, you're talking in many cases no more than €200 or so p.a., when you take into account that unless you want to do your own accounts, you're going to be paying for one or the other.

Nonetheless, you did raise one advantage of an umbrella which is the ability to walk away easily. Doing so from your own company, from experience, is a beurocratic and sometimes expensive exercise, takes a while and while this is not an issue if you decide to remain contracting indefinitely, not all choose to do so for various reasons.

One such reason is the economic cycle; contract roles - at least those worth taking - dry up in many areas during recessions and are often the first cut also. Switching to permanent during the lean times can help avoid this.

The second reason is more strategic. Permanent roles tend to be better for the CV. Permies tend to get the projects with the shiny new, cutting edge, toys, for example. And permies get titles; like it or not 'R&D Manager' or 'COO' will catch the eye of those going over your CV in the future when applying for future roles.

So like many others who have or do contract, I will dip back into a permanent role every few years and naturally being tied to a limited company is an issue in such a scenario.

So are we done arguing over €200 p.a.?

srsly78 · 18-01-2015 2:14pm

It's not about chump change, it's about 10.75% employers prsi. Problem is everyone will argue about the definition of umbrella, it's not clearly defined.

Setup A: normal employee of "umbrella company". Not self-employed - must pay extra employers prsi.
Setup B: company - you are proprietary director and self-employed. You pay for accountancy services.

The thing is many of the "umbrella" providers offer both these services. But when people say they use an umbrella they do not say which of the above scenarios apply. In scenario B the umbrella is just an expensive accountant. Most of the contractors I know that say they use an umbrella are using setup A.

So the more you earn the more important it is. Of course Corinthian will now say everyone should use a Liechtenstein holding company -.- Also Corinthian your knowledge is out of date, there have been many changes since the 90s. Small companies being audit exempt by default is the main one.

Gone West · 18-01-2015 3:01pm

srsly78 wrote: »

So the more you earn the more important it is. Of course Corinthian will now say everyone should use a Liechtenstein holding company -.- Also Corinthian your knowledge is out of date, there have been many changes since the 90s. Small companies being audit exempt by default is the main one.

Absolutely agree. It can be done, but you need more than just the company, you will need two companies and a specific legal structure in place. You need a very good accountant or tax adviser to clear the structure.
I am certain that a moderator will remove my comment if I go into any more detail.

Synode · 18-01-2015 8:51pm

I'm an accountant (also studying computer science) and I didn't realise a lot of contractors use an umrella company structure. Out of interest, what's the advantage of it? Is it to try and evade tax? Because if it's an elaborate structure to evade tax, then it's without doubt not allowed. And you run the obvious risks of being caught and having to pay interest and penalties.

Edit: Just to add, it's not illegal to use the structure. We have a number of clients who do. But they only use it to avoid having to publish their figures. There's no tax evasion

srsly78 · 18-01-2015 9:32pm

Is there an actual definition of the term umbrella company? As mentioned it can refer to loads of different stuff. Using an offshore unlimited company to own an Irish limited company is not really applicable here, this is what bin companies and others do as you mention (to hide their margins from competitors).

Most contractors just use the umbrella to avoid hassle of running their own company - it's just accountancy services really. Even then there is usually another middleman involved, the recruitment agency - to insulate the end client.

Synode · 18-01-2015 10:30pm

Ah ok. So an 'umbrella company' in this situation is as follows:-

The company who is contracting staff pays a fee to the umbrella company (possibly owned, controlled and run by a third party) for the contracting of staff. The umbrella company then pays a salary to the contractor, who in effect is an employee of the umbrella company.

This throws up some questions though. Does the third party incorporate a new company for each contractor? Do they prepare accounts and tax returns each year which the contractor signs etc.? If so, then as you say, it's really just accounting services they are providing and the contractor is a proprietary director of the company.

If they don't incorporate a company for each contractor, then it appears the contractor is a normal employee (of the umbrella company). So then what's the situation re: holiday entitlements, notice periods etc?

srsly78 · 18-01-2015 10:57pm

The recruitment agency usually fills the role you describe, they engage the contractors for the client. The umbrellas talked about in this thread are yet another middleman. Would be easier to be a sole trader but many clients will not engage these.

It's either:
A: normal employee (with the employee paying for ALL extras like holidays and employers prsi)
B: prop director

Stheno · 18-01-2015 11:23pm

srsly78 wrote: »

The recruitment agency usually fills the role you describe, they engage the contractors for the client. The umbrellas talked about in this thread are yet another middleman. Would be easier to be a sole trader but many clients will not engage these.

It's either:
A: normal employee (with the employee paying for ALL extras like holidays and employers prsi)
B: prop director

In my case I have always gone the prop director route, can't see any advantage apart from peso benefits to normal employee
That said I do move between perm and contract roles so using the likes of umbrelllas suits me

Senna · 19-01-2015 1:05am

OK this might be a stupid question, but how do contractor get work, I know you could be recommended or have connections etc, but other than that, are contract jobs advertised, are the advertised differently?
I'm only beginning studying and my last industry had no contractor involvement, so unsure how it works.

Stheno · 19-01-2015 1:21am

Senna wrote: »

OK this might be a stupid question, but how do contractor get work, I know you could be recommended or have connections etc, but other than that, are contract jobs advertised, are the advertised differently?
I'm only beginning studying and my last industry had no contractor involvement, so unsure how it works.

For me it's a combination of job adverts, and knowing people

In recent years it's been through people I know looking for people.

Are you studying IT? It's very rare to start as a contractor coming out of college, you need a few years experience ime

Senna · 19-01-2015 1:42am

Stheno wrote: »

For me it's a combination of job adverts, and knowing people

In recent years it's been through people I know looking for people.

Are you studying IT? It's very rare to start as a contractor coming out of college, you need a few years experience ime

Definitely, I'm only half way through my first year, so although I'm reading this thread with interest, it's a long long way away. I also live in Donegal, so hardly conducive to contracting, there's only a limited amount of dev work in the area and those companies would be my target.

I met a guy living in the a***hole of nowhere who was working as a contractor for an American company along with guys from Welford and Belarus on the one project, he had a nice setup, little office with a window looking over the Atlantic, have to say, it looked like a bit of a dream.

Stheno · 19-01-2015 1:46am

Senna wrote: »

Definitely, I'm only half way through my first year, so although I'm reading this thread with interest, it's a long long way away. I also live in Donegal, so hardly conducive to contracting, there's only a limited amount of dev work in the area and those companies would be my target.

I met a guy living in the a***hole of nowhere who was working as a contractor for an American company along with guys from Welford and Belarus on the one project, he had a nice setup, little office with a window looking over the Atlantic, have to say, it looked like a bit of a dream.

Offhand I can think of three companies I have worked with on a consultancy basis in Donegal, perm pay was foul and they had to pay to bring in expertise.

Generally contractors have a few years experience so they can prove their worth, along with ime an ability to get to grips with things extraordinarily quickly so they demonstrate returns quicker than permies.

Without either you won't get anywhere as a contractor.

That said more and more companies are getting flexible on location in my current role I'm based in Dublin but 50% of my colleagues permanently work from home and travel when needed, an all are permanent, but again, all are very experienced.

Senna · 19-01-2015 2:06am

Stheno wrote: »

Offhand I can think of three companies I have worked with on a consultancy basis in Donegal, perm pay was foul and they had to pay to bring in expertise.

Generally contractors have a few years experience so they can prove their worth, along with ime an ability to get to grips with things extraordinarily quickly so they demonstrate returns quicker than permies.

Without either you won't get anywhere as a contractor.

That said more and more companies are getting flexible on location in my current role I'm based in Dublin but 50% of my colleagues permanently work from home and travel when needed, an all are permanent, but again, all are very experienced.

That's great to know, but again I'm really at the beginning here and this thread is just feeding my curiosity more than anything else.
Also bet I can name all 3 companies:)

bluestrattos · 20-01-2015 11:30am

hey, I would like to get the collective wisdom of all the fine users that have been replying to this thread.

What's your experience with taking holidays, while contracting?
I have some friends that work as contractors but they work for big companies, and usually they're treated more or less like employees (perms).
So you just ask your manager, talk with the agency and up you go (yes no pay, but that's not my point).

But how about in smaller companies?

srsly78 · 20-01-2015 11:44am

Well yeah, that's how it works. Just ask your manager. Many contractors I know don't take holidays at all, they just work as much as possible - this is to compensate for possible downtime between jobs.

moycullen14 · 20-01-2015 1:08pm

bluestrattos wrote: »

hey, I would like to get the collective wisdom of all the fine users that have been replying to this thread.

What's your experience with taking holidays, while contracting?
I have some friends that work as contractors but they work for big companies, and usually they're treated more or less like employees (perms).
So you just ask your manager, talk with the agency and up you go (yes no pay, but that's not my point).

But how about in smaller companies?

Big or small shouldn't matter. Just follow whatever are the norms for the client company.

dazberry · 22-01-2015 9:58pm

One of the reasons I prefer contracting is because of the holiday situation. The last perm role gave me 21 days, whereby by wife gets 25 (+ days owing), which causes no end of hassle. I've never had an issue with matching her holidays while contracting.

Of course if you're all about the daily rate fair enough - but I like my work life balance

D.

Contracting or permanent?

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