Should i stay PAYE or set up Limited Company??

ciaran1985

I am currently a PAYE worker and my company has given all the employees the choice to set up a limited company with the help of a corperate services company who came and explained what would be involved.basically they set it up for you,look after all the administration, invoicing, payroll, tax etc. and at the end of it all they say your salary can increase somewhere close to 30%, that is taking into account my present company is offering me a 12% rise if i switch.for this service they charge 4% of what you earn. Not really sure what to do and was wondering if anybody has done something similar to this and how it worked out for them,or if anybody knows what is the most important things to consider if i do decide to change or if it will be worth my while at all as im not really sure of all the in's and out's of it?? thanks

Dabko

Ciaran,

How’s it going?

By the sounds of what you are describing, your bosses want to set its employees up as subcontractors. This will benefit them greatly as they will save a packet in tax contributions for it employees.

The down side….
1) As a limited company, you will now need to submit your own annual tax return. You are now liable for all taxation payments directly. This can be a pain in the ass if you are used to having all your tax deducted from your wages, not having ever to think about it.

2) As a self employed person, unless you opt to pay PRSI contributions, you will not be able to claim for things like disability, unemployment and pension.

3) Self employed people loose out also on the PRSI tax credit per year too which is worth something like 1600 per year.

4) Not sure if this applies here, but if a company turns over more that 30,000 per annum, you are entitled to register for vat. This means vat returns either 2 monthly, 4 monthly or annually.

5) You will need your own independent tax/money advice….an accountant.
6) As a limited company, you must file an annual set of accounts with the companies’ registration office. Have a look at the cro website… http://www.cro.ie


The up side…..
1) Because you are now vat registered you can claim vat back on expenses such as phone bills, diesel (not petrol) and any other expenses that are work related.

2) In order to keep you tax bill down at the end of the year, there are numerous things you can claim as expenses. Ask your accountant!

3) As long as you are making good money, you will have a greater control over your own personal finances.



I’ am an employer my self with 2 full time staff. I have thought about setting them up as subcontractors before, therefore saving my company a nice few quid. I didn’t because to land the responsibility of self taxation on some one is not very nice. Its taken me 3 years to figure all the above stuff out!

I know you say the “corporate services company” will be taking care of all the admin and stuff, but, if it all goes tits up, you are responsible for all matters concerned.

Look further into it. Don’t just jump at it because they tell you wonderful things about 30% wage increases. Call the tax office or an accountant (don’t meet them, just call and explain your situation, fish for info, then they cant bill you!!!).

Let us know how it goes.

p

One thing to bear in mind is how things like holidays, sick pay and pensions are also taken into account.

As a subcontractor you loose a lot of rights with regard to those things, which could be an issue. You might need to make sure that you're increase in earnings will be worth it. Check out things like self-employment insurance and other things like that in order to ascetain what you'll have to pay to cover the benefits you're losing.


Also, I reckon you could probably setup as a sole trader rather than a full ltd company if you wanted. That's considerably less paperwork and might be an easier route.

information

p wrote: »

Also, I reckon you could probably setup as a sole trader rather than a full ltd company if you wanted. That's considerably less paperwork and might be an easier route.

That will not work as you would still be seen as an employee of the company.

Ask them for a breakdown of the 30% increase in take home pay.
How stable is the company you work for, this could be a way of getting rid of staff to save on redundancy costs.
See if you can get a 3-5 year contract.

+ 12% rise
+ reduced prsi
+ able to reduce tax liability

- 4% admin company
- 4% loss of holiday pay
- X% loss of paye tax credit
- loss of paid sickdays
- lots of paper work (cannot rely on admin company really)
- Zero job security

mik_da_man

Ok I have moved from PAYE to Self-Employed recently.
I don't think a 14% rise is enough for the peace of mind of a permanent job

Well you have a 12% rise if you stay Vs 26% (30 - 4) rise if you go self-employed.
So it will be in theory a 14% rise if you move to Ltd....
As mentioned you will loose Sick days, PRSI Benefit, PRSI Tax credit and so on
..
But you will be able to claim a certain number of expenses.

Another factor to consider is that it may be difficult to get a loan/credit when you start as self employed. You need to supply 3 years company accounts - which of course you cannot do...

Also if your current company ends your contract is there good opportunities in your current area of work?

Will you set up a company yourself and get the corporate services company to do your accounts - or do you become a director of an umbrella company?
Also does the 4% charge cover EVERYTHING? or do you need an accountant to do some work also?

I debated the corporate services company route myself but decided against it cause i reckoned I'd save money doing it myself, and I learned lots so far too

All in all the Ltd Co route is good, but I personally would not make the move for the increase you are getting - the peace of mind is a big factor.

Best of luck with whatever you decide.

Mik