Contracting or permanent?

EamonnDunne · 14-01-2015 6:52pm

daigo75 wrote: »

Yes, that's the way I always worked as a contractor.

English is a terribly imprecise and ambiguous language! Typically you would be referred to as a consultant, not a contractor. However technically neither term is more semantically correct, these are just the words that have been used de facto.

There are plenty of reasons why someone would choose to become a FTE contractor. You can be extremely tax efficient. You get a broader range of experience which will generally improve your skills faster. You have a lot of flexibility (3 month notice periods anyone?) etc etc.

daigo75 · 14-01-2015 6:55pm

EamonnDunne wrote: »

English is a terribly imprecise and ambiguous language! Typically you would be referred to as a consultant, not a contractor. However technically neither term is more semantically correct, these are just the words that have been used de facto.

And English is also not my first language, so I'm not surprised that the concept is unclear to me.

Following your clarification, at least it's now clear to me that I will never be a contractor (with the English meaning of it).

EamonnDunne wrote: »

There are plenty of reasons why someone would choose to become a FTE contractor. You can be extremely tax efficient. You get a broader range of experience which will generally improve your skills faster. You have a lot of flexibility (3 month notice periods anyone?) etc etc.

Personal opinion: tax efficiency, I'm not so sure (I spent the past couple of months looking into it, the advantages didn't look so great). Broader range of experience: already got it, I worked in multiple IT roles in over a dozen of different industries. Notice periods: I never got a notice period longer than a month (negotiation is important). FTE contractor still looks like a poor choice to me.

srsly78 · 14-01-2015 7:09pm

The tax efficiency thing is nonsense. Don't mind all the tall stories you hear, what many contractors try to get away with is illegal and they may get caught and penalised. If working from home then maybe a lot of expenses are allowable, but not for the usual full-time on site stuff.

EamonnDunne · 14-01-2015 7:16pm

srsly78 wrote: »

The tax efficiency thing is nonsense. Don't mind all the tall stories you hear, what many contractors try to get away with is illegal and they may get caught and penalised. If working from home then maybe a lot of expenses are allowable, but not for the usual full-time on site stuff.

Depends on your individual situation, I know someone who sat down with their accountant and the revenue. Went through everything in a very thorough audit and revenue didn't have any issue. Keep in mind this is all relative to PRSI, the amount of time you spend in the country is also a contributing factor.

srsly78 · 14-01-2015 7:17pm

Yes working abroad is where you can get away with stuff. However in that case it's not the Irish taxman that will be after you :P

daigo75 · 14-01-2015 7:19pm

srsly78 wrote: »

The tax efficiency thing is nonsense. Don't mind all the tall stories you hear, what many contractors try to get away with is illegal and they may get caught and penalised. If working from home then maybe a lot of expenses are allowable, but not for the usual full-time on site stuff.

I cannot say much about taxation, because it's not my field and my knowledge of it is insufficient. I only know that, following on my own calculations, which were based on the regulations I read from the official Revenue documentation, I could not see any significant advantage that could compensate for the disadvantages.

I know of some FTE contractors who put everything in the expense list, including the coffee they get every morning and, to me, it looks like a "no no". Still, they insist that their accountant gave them a green light for that and that everything is fine, so I didn't bother arguing about it.

I will simply keep doing what I do until I become a "consultant" (now I finally know how to call myself).

srsly78 · 14-01-2015 7:21pm

Coffee in your own office is allowable sure. But not if your main place of work is someone elses office. In that case they would probably give you free coffee anyway. Actually I think Irish law says that employers must provide "hot beverages" to stuff

However contractors are not staff so it all gets terribly confusing!

I gots a lovely de longhi bean to cup machine! And you can even order beans from amazon.co.uk vat free \o/

Gone West · 14-01-2015 7:27pm

daigo75 wrote: »

I can't really understand why anyone would do that

How about twice the take home pay as a perm employee?

The Corinthian · 15-01-2015 11:59am

EamonnDunne wrote: »

A consultant, is someone who is, generally, brought in ad hoc to consult. They don't behave as a FTE and hence will have several clients on the go at once.

I've worked both as a consultant and a contractor and your definition got me thinking as to what is the actual difference.

One difference is that a consultant tends to 'consult', that is advise on the direction of a project more than a developer who is essentially a resource brought in to implement a spec that has already been drawn up. As such the former appears to be more customer facing and thus 'polished'.

Very different mentality being a consultant to a contractor though.

daigo75 wrote: »

It's a contract of service, with the responsibilities of a permanent employee with the risks of a self-employed person, I can't really understand why anyone would do that, instead of choosing a permanent employment. However, I do understand why a company would hire someone like that, it saves them money and risks.

The gap between the two has narrowed in terms of job security. There are many contractors out there who have been in the same role for years, longer than they were in many permanent roles. As to job security in a permanent position, being a permie doesn't really offer a lot more legal security for most, especially in IT where most people move jobs long before things like redundancy pay are even an issue.

srsly78 wrote: »

The tax efficiency thing is nonsense. Don't mind all the tall stories you hear, what many contractors try to get away with is illegal and they may get caught and penalised. If working from home then maybe a lot of expenses are allowable, but not for the usual full-time on site stuff.

I don't know what the story is in Ireland now, but it certainly was significantly more tax efficient to contract/consult about seven or eight years ago.

As for illegal, I suspect there weren't that many cases of that. Most were likely someone pushing the boundaries on deduction, but out-and-out tax evasion or fraud would have been rare and difficult to effect unless you were operating over international borders.

moycullen14 · 15-01-2015 12:37pm

daigo75 wrote: »

If I may butt in, I have to say that the rates paid in Ireland are far from being "big bucks". I work with contractors all over the world and I noticed a trend in many countries: contractors earn far more (i.e. twice, or three times) the gross annual salary of an employee with equivalent experience.

If we take a contractor in Ireland, using the (Irish-only, unknown elsewhere) "daily rate" of 400 Euro a day, we get a gross income of approximately 94000 Euro a year (400 x 5 days a week x 47 weeks). This is without benefits. As a developer with 20 years' experience, I could easily get a salary close to that figure, as a permanent employee.

To make a comparison, in the past two weeks I talked to contractors from Sweden, Denmark and Canada. They have between 3 and 8 years' experience, and they work as PHP web developers (not the highest paying job). Their rates:
- Sweden: 120 Euro per hour (5 years' experience)
- Denmark: 150 Euro per hour (3 years' experience)
- Canada: 170 Euro per hour (8 years' experience)

Yes, that's per hour. I started investigating why such disparity, and I could not find a definitive answer. Some people told me that it might be because taxes are higher, but it doesn't add up. For example, I know for sure that Denmark has a taxation policy that caps the fiscal pressure to a maximum of 50.5% of anyone's income (in Ireland it can reach 52%). The cost of life is also not so much higher in places like Copenhagen, and for sure not three times the cost of living in Dublin.

On top of that:
- There is no "daily rate". This is a concept that seems to exist only in Ireland (never heard of it in the continent). Especially, there are no customers who try to push for "a day is a day" (where working 8, 10 or 12 hours results in the same daily rate). Contractors charge by the hour, or a fixed amount per project.
- Contractors are not mono-customer. They don't work 9 to 5 for a single customer for months or years. This is another concept that I saw only in Ireland.
- Contractors don't work on customer's site. The rare times they do, they charge extra for travel expenses.

In my opinion, with those rates and parameters, being a contractor is worth the risks. With the "traditional" Irish system of what I consider disguised employment, not so much.

I think the hourly rate to daily rate thing changed in Ireland and the UK about 10-15 years ago. When I started it was all hourly rate and then it changed to daily. Certainly I haven't seen an hourly rate contract in Ireland in years.

If you're a contractor and you are working well in excess of 40 hrs a week without any compensation then you want your head examined. The contract is money for work. No work, no money and No money, no work.

A lot of places use contractors as 'disguised' employees. Certainly it's cheaper for them - especially in places that allocate 'budgets' to employees.
I have worked in places where people have contracted for years. Not sure what the motivation for that was. As far as I'm concerned once you've been in a place for 2 years you might as well be permanent.

As far as your rates are concerned, I don't agree. No way is a 3-5 year PHP developer earning 150 euro per hour anywhere in Europe. A company might be charging him out at that rate but that's entirely different. Just because Accenture or IBM charge you out at 1500/day doesn't mean that you can earn that.

One difference I would see between the UK and Ireland is that contractors and permies seem more 'grateful' and beholden to their employers here. Maybe that's because there are more opportunities in the UK - especially in the south. In US MNCs, It leads to some appalling pandering to the US, especially by the management.

moycullen14 · 15-01-2015 12:42pm

The Corinthian wrote: »

I've worked both as a consultant and a contractor and your definition got me thinking as to what is the actual difference.

One difference is that a consultant tends to 'consult', that is advise on the direction of a project more than a developer who is essentially a resource brought in to implement a spec that has already been drawn up. As such the former appears to be more customer facing and thus 'polished'.

Very different mentality being a consultant to a contractor though.

The gap between the two has narrowed in terms of job security. There are many contractors out there who have been in the same role for years, longer than they were in many permanent roles. As to job security in a permanent position, being a permie doesn't really offer a lot more legal security for most, especially in IT where most people move jobs long before things like redundancy pay are even an issue.

I don't know what the story is in Ireland now, but it certainly was significantly more tax efficient to contract/consult about seven or eight years ago.

Certainly the tax thing is true. The revenue have started to crack down on contractors.

http://taxinstitute.ie/TaxPolicyandPractice/RevenuePracticeandRepresentations/RevenueContractorsProject.aspx

If you were to follow their guidelines then there is very little tax benefit to contracting.

Because of self-declaration, there is nothing stopping you 'claiming' all manner of expenses. The fun and games start when you get audited. Back taxes, interest and penalties are no joke. Just talking to some contractors I am amazed at the number still claiming mileage expenses when clearly they shouldn't.

yop · 15-01-2015 12:44pm

srsly78 wrote: »

Coffee in your own office is allowable sure. But not if your main place of work is someone elses office. In that case they would probably give you free coffee anyway. Actually I think Irish law says that employers must provide "hot beverages" to stuff However contractors are not staff so it all gets terribly confusing!

I gots a lovely de longhi bean to cup machine! And you can even order beans from amazon.co.uk vat free \o/

Oh ya, just got something for my company to buy!

Just be very careful with expenses lads, as said if you have one customer and you travel to their site and claim expenses then you will get penalized IF you get caught. Up to you to risk it, and thats the words of my own accountant.
I used to and I stopped, then I got more than one customer on the go and I could claim certain expenses.

IT Contractors were majorly under the spotlight with National Contractors project. But that is allegedly ended now.

Just be careful with what you claim.

Having more than 1 client is a better option.

The Corinthian · 15-01-2015 2:24pm

moycullen14 wrote: »

Certainly the tax thing is true. The revenue have started to crack down on contractors.

Crap rates, unfriendly tax law... I'm surprised the last contractor in Ireland hasn't switched off the light on the way out of the country.

yop wrote: »

Just be very careful with expenses lads, as said if you have one customer and you travel to their site and claim expenses then you will get penalized IF you get caught.

Interesting. So if you have one or two other 'clients' on the books, you can start claiming expenses?

John_Mc · 15-01-2015 2:26pm

The Corinthian wrote: »

Crap rates, unfriendly tax law... I'm surprised the last contractor in Ireland hasn't switched off the light on the way out of the country.

Interesting. So if you have one or two other 'clients' on the books, you can start claiming expenses?

By having two or more clients its harder for Revenue to determine your normal place of work. If you only have one then it's obvious and there's no mileage or other expenses because you can only claim expenses outside of your normal place of work.

yop · 15-01-2015 3:22pm

John_Mc wrote: »

By having two or more clients its harder for Revenue to determine your normal place of work. If you only have one then it's obvious and there's no mileage or other expenses because you can only claim expenses outside of your normal place of work.

Yip, that is what I got on that also. You place of work then is your home office for example, and you have to go to client A for 2 days, client B for 1 day and then work from the office for the other 2 days. You can claim subsistence on 3 of them days.

The Corinthian · 15-01-2015 3:36pm

It sounds to me like all this talk of expenses being cracked down on is largely the bellyaching of people who are not arsed to put in a little effort to (legitimately) avoid tax.

John_Mc · 15-01-2015 3:42pm

The Corinthian wrote: »

It sounds to me like all this talk of expenses being cracked down on is largely the bellyaching of people who are not arsed to put in a little effort to (legitimately) avoid tax.

No not at all from what I've been told and read. Some people were taking the absolute pi$$ by not paying themselves a salary and taking everything out through expenses. That's absolutely wrong and they should be caught and punished.

The Revenue project focused on everyone though, and there have been instances where people were previously audited and found to be compliant, and then audited again by the Contractor Project which had different interpretations, and found to be non-compliant. To Revenue that means it was deliberate avoidance of tax so penalties and interest.

Have a read of the Irish Tax Institute's submission to Revenue. The example cases they provide show how bad it is.

Gone West · 15-01-2015 3:43pm

The Corinthian wrote: »

It sounds to me like all this talk of expenses being cracked down on is largely the bellyaching of people who are not arsed to put in a little effort to (legitimately) avoid tax.

Of course. They are all doing dodgy low-end crap involving pretending they are field service engineers and do 100k miles in their car a year when in reality they work in a cube on 200/day as a dev or systems guy.

You will rarely hear people talk about how they license their company's resources to their Irish office, or overseas pension deductions, or foreign investment in their Dubai, Lux or Lichtenstein office. Fact is, most people aren't earning the 120k+ required to make the real tax game worthwhile.

The Corinthian · 15-01-2015 4:13pm

John_Mc wrote: »

No not at all from what I've been told and read. Some people were taking the absolute pi$$ by not paying themselves a salary and taking everything out through expenses. That's absolutely wrong and they should be caught and punished.

As we keep on being told how we should not begrudge people remaining on the Dole indefinitely here on Boards, so I've built up a bit of a cynical view on this.

Which reminds me, I actually have to belatedly sort out my tax returns, which thankfully are much less draconian in my neck of the woods.

Fuzzy wrote: »

Of course. They are all doing dodgy low-end crap involving pretending they are field service engineers and do 100k miles in their car a year when in reality they work in a cube on 200/day as a dev or systems guy.

Do people actually contract for 200 Euro per day? (apart from Itzy)

You will rarely hear people talk about how they license their company's resources to their Irish office, or overseas pension deductions, or foreign investment in their Dubai, Lux or Lichtenstein office. Fact is, most people aren't earning the 120k+ required to make the real tax game worthwhile.

I suggest you do a little more research. The point I highlighted a few posts back hardly requires any international shenanigans to save one money. Just some creativity. And effort.

moycullen14 · 15-01-2015 4:44pm

John_Mc wrote: »

By having two or more clients its harder for Revenue to determine your normal place of work. If you only have one then it's obvious and there's no mileage or other expenses because you can only claim expenses outside of your normal place of work.

It all hinges on the definition of 'normal place of work'. Having multiple clients doesn't mean that your normal place of work is your home. It could be Site A for 6 months, Site B for 6 months.

The annoying thing is that if the same rules were applied to, say, Accenture employees then their per-diem allowances would be taxable.

If your company sends you to Holland for 6 months then that's your place of work so your subsistence allowance becomes taxable. It's all about interpretation and with the revenue, you're guilty if they say you are.

The best advice about a revenue audit is avoid it. And the best way to do that is not take the p**s with expenses. Also, a reputable accountant helps.

The Corinthian · 15-01-2015 4:55pm

moycullen14 wrote: »

It all hinges on the definition of 'normal place of work'. Having multiple clients doesn't mean that your normal place of work is your home. It could be Site A for 6 months, Site B for 6 months.

Actually it's really all about the definition of a legitimate business expense. If you can show you bring in your own clients, then networking expenses, such as lunches, can become legitimate. Importantly, no one will believe that every lunch you have was a 'business' lunch, so not tearing the arse out of it is also important. But ultimately you will make a saving.

The annoying thing is that if the same rules were applied to, say, Accenture employees then their per-diem allowances would be taxable.

Depends on how far away from their place of work they are.

I did a gig in the UK back in 2005 that necessitated flying out on a Sunday, staying in a hotel, then flying back on the Friday. Naturally I ate out every day. It would be very difficult for the Revenue to deny you something that is clearly the cost of doing business in those circumstances.

yop · 15-01-2015 5:26pm

The Corinthian wrote: »

Actually it's really all about the definition of a legitimate business expense. If you can show you bring in your own clients, then networking expenses, such as lunches, can become legitimate. Importantly, no one will believe that every lunch you have was a 'business' lunch, so not tearing the arse out of it is also important. But ultimately you will make a saving.

Depends on how far away from their place of work they are.

I did a gig in the UK back in 2005 that necessitated flying out on a Sunday, staying in a hotel, then flying back on the Friday. Naturally I ate out every day. It would be very difficult for the Revenue to deny you something that is clearly the cost of doing business in those circumstances.

I have a feeling that if Revenue audited you they would nail you for that. Part of me thinks its just an exercise to nail easy targets and get those contractors into PAYE. My own opinion of course.

moycullen14 · 15-01-2015 5:33pm

yop wrote: »

I have a feeling that if Revenue audited you they would nail you for that. Part of me thinks its just an exercise to nail easy targets and get those contractors into PAYE. My own opinion of course.

I would agree. When the revenue went down the same road in the UK with IR35, their target was 'disguised employment'. The thing with that was the employer/client was liable for unpaid tax/NI, etc. Cleints weren't long getting their house in order. It's telling that the Irish approach is to target the little guy. No better than bullying, really. Also, God forbid that anyone would hassle the MNCs

The Corinthian · 15-01-2015 5:36pm

yop wrote: »

I have a feeling that if Revenue audited you they would nail you for that. Part of me thinks its just an exercise to nail easy targets and get those contractors into PAYE. My own opinion of course.

I would tend to agree with you (now, not ten years ago). The impression I have is that the Revenue has been going after all the smaller fish because it would be too expensive to go after the bigger ones.

Personally, in this day and age of globalization, I treat residency in the same way as multi-nationals do; if they want to create a hostile environment for those who create wealth, I'll take my business elsewhere.

yop · 15-01-2015 6:31pm

moycullen14 wrote: »

I would agree. When the revenue went down the same road in the UK with IR35, their target was 'disguised employment'. The thing with that was the employer/client was liable for unpaid tax/NI, etc. Cleints weren't long getting their house in order. It's telling that the Irish approach is to target the little guy. No better than bullying, really. Also, God forbid that anyone would hassle the MNCs

You have that in one. When you consider that a TD can claim their expenses from their office in Castlebar to the Dail to do their job, yet I can't claim mine to 1 client.... go figure!

Farawayhouse · 17-01-2015 4:13pm

Hey,

I have been contracting for over 12 years in Dublin and there is no way I would do perm.

I use an Umbrella Company that takes care of everything in relation to taxes for me.

They sign the contract, I do the work, I send in my expenses and timesheet each month and get paid with a payslip and I have nothing else to worry about.

Perhaps you could look into that?

srsly78 · 17-01-2015 4:18pm

Using an umbrella for 12 years is a spectacular waste of money.

The Corinthian · 17-01-2015 4:53pm

srsly78 wrote: »

Using an umbrella for 12 years is a spectacular waste of money.

That's a bit like saying that taking holidays is a spectacular waste of money.

srsly78 · 17-01-2015 6:32pm

Not at all. Umbrella companies are way more expensive than running your own limited company and paying an accountant. The only advantage of an umbrella company is you can easily just stop contracting, there is no hassle with shutting down a company. For this reason it makes no sense to use one for an extended period of time.

Elessar · 17-01-2015 6:35pm

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

Contracting or permanent?

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