Setting up as a contractor

zooleire

Hi All,

Im looking for some advise, ive recently started a job as a contrator in the IT industry, i need to set myself up as a company,

does anyone have any advice on doing this, ie going the sole trader route v's a limited company, and what are the tax implications, i read something about only paying 12.5% tax if i go as a limited company v's 42% as a sole trader this seems a bit of a jump tax wise, is this true??

ive seen a few companies offer services for setting up such things but they charge circa 400 euro which is a bit pricey, so i kinda want to set this up myself thus saving some money


thanks

Merrion

ive seen a few companies offer services for setting up such things but they charge circa 400 euro which is a bit pricey, so i kinda want to set this up myself thus saving some money


That's what - 2 days income at most? (0.83% of your year's turnover...)

My best advice is to get an accountant that has good experience dealing with IT contractors and get them to handle all the setting up stuff....you will save yourself so much grief.

madramor

1:
actual cost of setting up a company

CRO fee €100
Solicitor Stamp €10
Memo & Articles €5
Misc €5

so about €120 + the time to read up on how to do it, based
on your knowledge I would say a solid days work.

the cheapest rate I have seen is €252+VAT i forget where that
was.

2:
Company Profits taxed at 12.5%, thats the companies money in order
to get the money out of the compnay you would then have to pay tax
on it at the normal rate.

Did you start a job not knowing how much tax you where going to
pay or what to do about paying tax?

homeOwner

zooleire wrote:

Im looking for some advise, ive recently started a job as a contrator in the IT industry, i need to set myself up as a company,....

i read something about only paying 12.5% tax if i go as a limited company v's 42% as a sole trader this seems a bit of a jump tax wise, is this true??

If the company you are working for is requesting that you set yourself up as a company, then you have no choice between going the soletrader route or a ltd company. Unless you are working for someone you know who doesnt mind, all the agencies will insist on you becoming a LTD company.

The way the majority of small time IT contractors operate is that their company does not make a profit. All the income is taken as salary and you pay tax on it just like everyone else. The difference is you are responsible for paying the tax yourself. You file monthly P30s with revenue. The advantage of sole trader over company is that you can get away with expensing alot of things such as travel, food, even suits for work, etc... whereas with a LTD company there are very strict rules and regulations as to what you can expense and what you cant. Some people expense very questionable stuff to reduce their tax bill but if audited could be in trouble.

zooleire wrote:

ive seen a few companies offer services for setting up such things but they charge circa 400 euro which is a bit pricey, so i kinda want to set this up myself thus saving some money

As a previous poster said, you can do it yourself for a little over 120euro, if you can find someone to give you a copy of their memoradum and articles so you know what to put into yours. If you dont know anyone, you will have to go to one of the firms that do it and pay alot more.

My advice having been through this for many years, is to pay someone to set you up and do your accounts for the first couple of years. Keep a very close watch on what they are doing, learn from them and then when you get the hang of it, get rid of them and start doing it yourself unless you are happy to keep paying a couple of grand for them to fill in forms for you.

The Corinthian

Merrion wrote:

That's what - 2 days income at most?

If it is two days income, then it's probably time to call it a day and get a real job, TBH.

vector

The Corinthian wrote:

If it is two days income, then it's probably time to call it a day and get a real job, TBH.

EUR 200 per day... thats 52,000 a year, nothing wrong with that

Ag marbh

vector wrote:

EUR 200 per day... thats 52,000 a year, nothing wrong with that

Im glad someone said that. Who the hell complains about getting 52k a year?

The Corinthian

vector wrote:

EUR 200 per day... thats 52,000 a year, nothing wrong with that

No it’s not.

To begin with you’re not working 52 weeks per year. There are nine public holidays (10 if you include Good Friday which, contrary to popular, belief is not one of them, but many companies will shut down for anyway) per year. Add to this your minimum standard 20 days’ holidays that come to anyone who is an employee. So you’re only working 46 weeks per year.

Add to this the following overheads:

• Lost earnings through illness.
• Company overheads - accountants, mobile calls, office address, insurance, etc.
• Personal Overheads - PRSI, pension, and all those things a company will normally contribute to you.
• Lost earnings through unbillable hours (no one’s paying you to chase up your debtors, for example).

All of which assumes that you’re permanently in contracts and business never slacks for even a day. Add all that up and you’ll be making a lot, lot less than 52k a year, with no job security as a bonus.

Ag marbh wrote:

Who the hell complains about getting 52k a year?

I would.

SouperComputer

working as a sole trader\contractor myself this year. Based on a salary of €400 per week with no growth for the business its costs on average €120 per day to run the company. This is based on simply 52 weeks a year, 5 working days a week.

Thats the average of all costs\expenses: insurance, loans, light, rent, motoring etc etc. Thats 31K PA for the business to pay me a pretty crap wage and break even! This also is not taking into account the fact that being self employed I will be working anything from 60-90 hours per week. IMO this is what you should be prepared to do for the first year until you start employing staff to take some of the load.

Don't underestimate the costs!

Personally I would go the sole trader route for the 1st year. You will have enough work to do without the added expense in both time and money of going LTD.

LTD has advantages as to what you can write off as expenses, such as entertainment etc. But limited liability is not what its cracked up to be, actually it means feck all!

You need insurance for the area of business you are in more than limited liability

Merrion

Real contractors work bank holidays and get double time for them too ;-) ... and they certainly don't take sikkies.

fullirish

I tried to setup up myself as a company but it was not worth the hassle - had documents returned to me by the Companies Office as they were not completed correctly !

In the end I went with a crowd called Company Setup ( www.companysetup.ie ) - I think they were Euro 252 and had it done in three days. Was looked after by a very helpful person - cant remember her name but would recommend them as very efficient and the best price out there.

I think madramor refers to them above also.


Cheers

homeOwner

SouperComputer wrote:

Personally I would go the sole trader route for the 1st year. You will have enough work to do without the added expense in both time and money of going LTD.

As an IT contractor he has no choice but to go the LTD company route.

The Corinthian

homeOwner wrote:

As an IT contractor he has no choice but to go the LTD company route.

Only if going through an agency. If you source your own contracts it's not as important.

SouperComputer

As an IT contractor he has no choice but to go the LTD company route.

why do you say that?

Does this mean that a partnership also cannot operate as a contractor?

PRman

If you are looking to set up a limited company the best route is through a formation agent - It's too much hassle to do it yourself, plus it takes 3-4 weeks compared to 3-5 days if you use an agent (they can file electronically) I have set up several companies recently, and I found a company called 'Company Bureau' www.companyformations.ie who were excellent. They also advised me after the company was set up, which is also a big help. Good luck : )

fullirish

When I was looking to form my company I checked that crowd for price - they were Euro 380 - almost 100 Euro more than the crowd I used in the end - companysetup.ie - there is no need to pay the extra Euro 100 - the product is the same and the customer service I got was excellent - save yourself the extra 100 Euro and treat yourself to a night out !

homeOwner

SouperComputer wrote:

why do you say that?

Does this mean that a partnership also cannot operate as a contractor?

The reason agencies want you to set up as a limited company is so you have limited liability ie you are not personally responsible if the project goes belly up or it you say are fired for incompetence. I dont know the ins and outs of a partnership but if you have limited liability with that then that is an alternative.

However, i dont know of anyone who has ever had to deal with being fired or being held responsible for a project over running or being scrapped, so in reality i dont know why they wont let you work as a sole trader, but thats they way they operate. Has anyone out there heard of a contractor having to go to court over a project, or being sued for a project not being completed?

PRman

You would say that that fullirish seeing that you work for them!!! (just viewed your previous posts) I would suggest that you go with a established company that knows what they're doing. You get what you pay for!!! www.companyformations.ie and CFI www.formations.ie are known as being the best in the business.

fullirish

Last time I checked didn't work for them !!! Happy in my IT life thanks - don't like any of those financial type jobs - just passing on my good experiences - but you are right - people should shop around

Carb

It would be easier if the OP had explained why he has to set up a a Ltd Co. I don't work in the IT industry, so feel free to correct me. I don't understand this requirement that agencies have for IT contractors to set up as Ltd Companies. Firstly, Ltd liability has been eroded so much now, that it provides a lot less protection to directors than it used to. Secondly, is your own protection not your own responsibility, and thirdly, can a sole trader not have some form of professional indemnity insurance like other professions.

The reason a lot of people set up there own companies is due to revenue requirements. It a sole trader does all/nearly all their work for one company, this raises a lot of questions as to whether they are actually employees. Setting up a company simplifies this as obviously a company can not be an employee.

My advice would be if you can avoid setting up a company, do so, as the red tape is forever increasing, and so are the subsequent costs. A Ltd company is only useful if you are making money, and you won't know this until you have worked a year or two on your own


PS. To correct an earlier post, you can't claim suits as a business expense (legally), and as for travel, food etc, there are regulations here also. In a nutshell, the expenses must be incurred solely for the purpose of the trade.

The Corinthian

Being a limited liability company seems to be a requirement for many agencies that source contracts. Why (very much fro the reasons you gave) is beyond me. As such the OP's reasoning may well be simply based upon that requirement and nothing more.

homeOwner

Carb wrote:

It would be easier if the OP had explained why he has to set up a a Ltd Co. I don't work in the IT industry, so feel free to correct me. I don't understand this requirement that agencies have for IT contractors to set up as Ltd Companies. Firstly, Ltd liability has been eroded so much now, that it provides a lot less protection to directors than it used to. Secondly, is your own protection not your own responsibility, and thirdly, can a sole trader not have some form of professional indemnity insurance like other professions.

The reason a lot of people set up there own companies is due to revenue requirements. It a sole trader does all/nearly all their work for one company, this raises a lot of questions as to whether they are actually employees. Setting up a company simplifies this as obviously a company can not be an employee.

While I sort of agree with you I am going to be pedantic here.;)

The reason IT contractors set up as LTD companies is because the agencies force them to. Most of us would chose to go the sole trader route if we were allowed to.

The reason the agencies force us to, as far as has been explained to me by some agencies, is because of this limited protection. But in reality it is more likely to be what you said - so that there are no grey areas as to who the contractor works for as has happened with some sole traders (revenue are now treating long term contractors as employees entitled to holidays, sick pay etc...). Or maybe it is a combination of both.

PRman

I believe the reason to be the fact that they don't have to contribute PRSI if they employ a limited company.

The Corinthian

PRman wrote:

I believe the reason to be the fact that they don't have to contribute PRSI if they employ a limited company.

Is that not also the case with a sole trader?

madramor

The Corinthian wrote:

Is that not also the case with a sole trader?

When you do contract work through an agency.

You work for the agency not the company who you do the work for.

In order to ensure that you are not viewed as an employee of
the agency, you must set up as a Limited compnay.
(this is for the benefit of the agency not you)

If you are a sole trader and only work for one company
ie(the agency) you are not viewed as a sole trader but as an
employee of that company

The Corinthian

Certainly that may be the popular perception, but legally (more to the point, in the eyes of the Revenue Commissioners) does it make any difference or is this simply an unnecessary layer of bureaucracy?

Carb

Thats probably a different issue. Any sole trader is open to the possibility of a revenue audit, and at that point it would be obvious if you were recieving all your income from one company. It is something they would enforce as they would be losing out on possible employers PRSI. There are other requirements though such as who carries the risk, do you provide your own equipment, have you similar entiltlements to an employee etc. There have been a number of large court cases, Roadstone lorry driviers becoming contractors springs to mind. Revenue lost this one as the lorry drivers were taking the financial risk, were providing their own lorries, had no entitlement to sick pay/holidays etc, but were still doing nearly all their work for one company (although this wasn't a restriction forced on them by roadstone)