Take Home as a contractor

neil_hosey

Sorry if this has been done to death, but I cant find a recent thread on the actual take home of a contractor!!

Im wondering at 450 a day, if i setup a limited company, what the take home pay would be!

I seen a site, that said 4000 after tax, but it seemed a bit low?

thanks
Neil

BailMeOut

It depends on your tax deductions but estimate on maybe taking home 60% to 65% of this.

Run the number through an online tax calculator - eg http://taxcalc.ie/budget-2013/

ChRoMe

BailMeOut wrote: »

It depends on your tax deductions but estimate on maybe taking home 60% to 65% of this.

Run the number through an online tax calculator - eg http://taxcalc.ie/budget-2013/

True, however isint it the case that you can claim the tax back on a huge amount of purchases, the actual take home is a lot higher?

BailMeOut

ChRoMe wrote: »

True, however isint it the case that you can claim the tax back on a huge amount of purchases, the actual take home is a lot higher?

cannot imagine too many deductions as a software developer other than maybe purchasing software development tools and a computer.

I am in IT consulting and there are very few deductions I can claim other than my small home office.

KonFusion

BailMeOut wrote: »

cannot imagine too many deductions as a software developer other than maybe purchasing software development tools and a computer.

Talk to your accountant. You can also claim pretty much anything (apart from booze).

ChRoMe

BailMeOut wrote: »

cannot imagine too many deductions as a software developer other than maybe purchasing software development tools and a computer.

I am in IT consulting and there are very few deductions I can claim other than my small home office.

Phone, lunch, transport, there should be a huge amount? Its *anything* related to the rendering of your services.

neil_hosey

60 - 65% is a good number considering what i take home with a permanent job!

Ive also wondered can i put all my petrol, lunches etc related to the company against it.. getting 20% back of these?

BailMeOut

neil_hosey wrote: »

60 - 65% is a good number considering what i take home with a permanent job!

Ive also wondered can i put all my petrol, lunches etc related to the company against it.. getting 20% back of these?

if the expenses are true business expenses then yes. If not then no and I would not think that normal commuting costs and lunch would be deductible. If you have to do out of town trips to clients then you can probably write these off as long as the client is not reimbursing you for them.

Talk to an accountant about what receipts you should keep and deduct.

I am an contractor in IT and work from home and there are very few things I get to deduct.

ChRoMe

BailMeOut wrote: »

I would not think that normal commuting costs and lunch would be deductible. If you have to do out of town trips to clients then you can probably write these off as long as the client is not reimbursing you for them.

Agreed with talk to an accountant, but lunch and commute are *directly* related to providing your services, and all contractors I know claim them back (and more)

BailMeOut

ChRoMe wrote: »

Agreed with talk to an accountant, but lunch and commute are *directly* related to providing your services, and all contractors I know claim them back (and more)

no proper accountant will advise you that lunch or normal commuting is tax deductible when self employed.

percy212

Lunch and entertainment should be deductible to an extent, if they are 'business' related e.g. maybe you took a client out....

Draco

Your commute isn't an allowable expense under Revenue rules:
http://www.revenue.ie/en/tax/it/leaflets/it51.html

Journeys between an employee’s home and place of work (and vice versa) are not business journeys and any reimbursement of motoring expenses (including taxi fares) in respect of the cost of such journeys is taxable.

I'm not sure about lunch - they're not specify mentioned as an allowable expense (http://www.revenue.ie/en/business/running/allowable-expenses.html) but if you're expensing them it looks like they'd be taxable as a BIK (http://www.revenue.ie/en/tax/it/employee-expenses.html#section3).

The long and short of it is talk to an accountant.

ChRoMe

Draco wrote: »

Your commute isn't an allowable expense under Revenue rules:
http://www.revenue.ie/en/tax/it/leaflets/it51.html

Thats talking about employees though which is a different scenario.

BailMeOut

ChRoMe wrote: »

Thats talking about employees though which is a different scenario.

It will depend on the OPs situation.

If the OP normally works from home but has to visit clients at various places during the day then he maybe able to deduct these expenses.

If he/she is contracting with one company and working at that same company every day and is getting to and from there each day via car/bus/train then these expenses are not deductible.

ChRoMe

BailMeOut wrote: »

It will depend on the OPs situation.

If the OP normally works from home but has to visit clients at various places during the day then he maybe able to deduct these expenses.

If he/she is contracting with one company and working at that same company every day and is getting to and from there each day via car/bus/train then these expenses are not deductible.

As a contractor there is no difference, you are still not an "employee" (which is why they have to pay such large daily rates) which is what the link refers to. I think you might need a new accountant?

Draco

The key phrase is "place of work". Unless you regularly work from a home office you're going to have a hard time convincing revenue that your commute is a valid business expense.

Graham

ChRoMe wrote: »

As a contractor there is no difference, you are still not an "employee" (which is why they have to pay such large daily rates) which is what the link refers to. I think you might need a new accountant?

Employment status doesn't come into the travel/commute side of expenses, that's down to your normal place of work. If you are trying to claim travel between your home and the same office 5 days a week, it isn't going to take revenue long to conclude which is your normal place of work.

neil_hosey

the take home from that tax calculator is 4700 a month around. thats about 57% after tax..

assuming i cant put anything (lunch/petrol/rent) against VAT thats what I would be clearing. I thought it would have been more tbh.. unless I'm doing something wrong.

percy212

Get a decent accountant. You can expense most of your food/travel/partial rent for home office etc if its handled correctly. There is always a way.

BailMeOut

are you married, kids, mortgage, health insurance, home office, pension contribution, etc... Your accountant will tell you now how to maximize your tax deductions thereafter.

neil_hosey

Thanks alot.. i think ill go tomorrow at lunch to see if its worth it!

realgolfgeek

neil_hosey wrote: »

Thanks alot.. i think ill go tomorrow at lunch to see if its worth it!

If I have a permanent job which pays me around 70 to 80k say,
and I have paid holidays, VHI, pension etc ... I wouldn't bother with 450 a day.

srsly78

Permanent jobs are really boring and you don't get to take as much holidays as you like. Also you pay BiK on all those perks and have no control over them. How annoying to pay extra tax on stuff you don't even want!?

Contracting gives lots of variety and chances to travel. Lots of different workplaces, lots of more varied experiences - both social and technical. Conversely imagine being stuck in one place and only knowing one way to do things... No wonder all the work ends up being done by contractors

There are lots of sweet contracts abroad in places like Belgium and Germany, but you really don't want to pay tax there. 6 months contracts can be done without becoming resident.

jimmycrackcorm

realgolfgeek wrote: »

If I have a permanent job which pays me around 70 to 80k say,
and I have paid holidays, VHI, pension etc ... I wouldn't bother with 450 a day.

Where contracting really benefits is in a common scenario of a married couple with one contracting but taking as little earnings out of it as possible (i.e. the other person pays most of the bills). Then at the end of the year the contractor can take profits from the accumulated earnings of his company at the 12.5% corporation tax.

srsly78

jimmycrackcorm wrote: »

Where contracting really benefits is in a common scenario of a married couple with one contracting but taking as little earnings out of it as possible (i.e. the other person pays most of the bills). Then at the end of the year the contractor can take profits from the accumulated earnings of his company at the 12.5% corporation tax.

Nooooo. You would be paying tax twice then... Corp tax, then income tax. Even worse, as a service company your retained earnings (profit) get hit for about 50% tax (not the 12.5% normal corp tax). Most Irish contractors want to make ZERO profit, because this is what they pay corp tax on.

Married couples benefit because they have more tax credits, it only works out if one partner doesn't earn.

You might be referring to the UK, where things like dividends are treated completely differently.

BrokenArrows

KonFusion wrote: »

Talk to your accountant. You can also claim pretty much anything (apart from booze).

It improves my coding skills so its a work tool. haha.

slegs

Draco wrote: »

The key phrase is "place of work". Unless you regularly work from a home office you're going to have a hard time convincing revenue that your commute is a valid business expense.

There is no convincing involved. Most contractors have their home officially as place of work for their limited company. Travelling to and from the client site is a business expense as is lunch when you get there.

Contracts are short term by nature and clients and their site locations will vary by definition. These various sites should not be defined as your place of work for tax reasons if you are providing a short term service to the client. You are not their employee, you are providing an invoicable service same as an electrician, solicitor, etc

It is perfectly reasonable, legitimate and in fact the correct way to operate as a contractor.

ChRoMe

slegs wrote: »

There is no convincing involved. Most contractors have their home officially as place of work for their limited company. Travelling to and from the client site is a business expense as is lunch when you get there.

Contracts are short term by nature and clients and their site locations will vary by definition. These various sites should not be defined as your place of work for tax reasons if you are providing a short term service to the client. You are not their employee, you are providing an invoicable service same as an electrician, solicitor, etc

It is perfectly reasonable, legitimate and in fact the correct way to operate as a contractor.

++

DublinWriter

slegs wrote: »

There is no convincing involved. Most contractors have their home officially as place of work for their limited company. Travelling to and from the client site is a business expense as is lunch when you get there.

Revenue class a place of work as the location from which you 'normally' work, not 'officially' work.

Throwing a desk and chair into the box room and 'pretending' that you're working from home won't cut it.

Revenue have very recently clarified this and have outlined typical scenarios here

You can only pay yourself the same rates for travel and subsistance that Revenue pay their own staff. This is all dependant on engine size and total miles travelled per annum. You'll need to know all this stuff inside out.

DublinWriter

srsly78 wrote: »

Permanent jobs are really boring and you don't get to take as much holidays as you like....
Contracting gives lots of variety and chances to travel. Lots of different workplaces, lots of more varied experiences - both social and technical.

The one big downside to contracting is career progression.

As a contractor it's very easy to get stuck doing the same thing again and again - it's a rare client who will pay to skill you up.

Also, a lot of contract work tends to be the stuff that none of the permanent staff want, or can do.

Plus, there will always be a level of resentment with permanent staff you work with and you typically won't be invited to departmental meetings or asked to engage in any wider decision making programmes.

ChRoMe

DublinWriter wrote: »

Plus, there will always be a level of resentment with permanent staff you work with and you typically won't be invited to departmental meetings or asked to engage in any wider decision making programmes.

That is not resentment, that's exactly as it should be, you are a freelancer you have no place in those situations. Its odd that is how you perceive it.

srsly78

DublinWriter wrote: »

The one big downside to contracting is career progression.

As a contractor it's very easy to get stuck doing the same thing again and again - it's a rare client who will pay to skill you up.

Also, a lot of contract work tends to be the stuff that none of the permanent staff want, or can do.

Plus, there will always be a level of resentment with permanent staff you work with and you typically won't be invited to departmental meetings or asked to engage in any wider decision making programmes.

Contractors skill up by doing lots of varied work (clients effectively do pay for them to skill up), silly courses and certs are irrelevant compared to practical experience. Sure there is resentment from permanent staff, because contractors get paid more! Not having to attend bull**** meetings would be an added bonus, unfortunately I have found they always drag me along.

Don't feel too special if you are a "permanent" employee, you can still be made redundant on whim.

ChRoMe

srsly78 wrote: »

Don't feel too special if you are a "permanent" employee, you can still be made redundant on whim.

Indeed, the only difference is the notice period at the end of the day.

Evil Phil

DublinWriter wrote: »

Revenue class a place of work as the location from which you 'normally' work, not 'officially' work.

Throwing a desk and chair into the box room and 'pretending' that you're working from home won't cut it.

Revenue have very recently clarified this and have outlined typical scenarios here

You can only pay yourself the same rates for travel and subsistance that Revenue pay their own staff. This is all dependant on engine size and total miles travelled per annum. You'll need to know all this stuff inside out.

From that link, the revenue class the place of work as where an 'Employee' would normally work. You're not an employee if you're a contractor with you're own limited company, you're a consultant from another company providing services.

This does not apply in this situation - if you allow yourself the same daily allowance and travel/fuel allowance as the revenue provides it's own people there shouldn't be a problem. Again an accountant will help with this.

The point is a contractor is not an employee, but an external consultant. The company where the work performed is not an employer but a client, or a client's client if you're working through an agency.

srsly78

The point if you spend too long working for 1 customer suddenly the tax treatment can change. There were guys out there working for the same "client" for 5 years or more, doing the same commute every day. These guys (and their "customers" got handed massive back-dated penalties).

Noone knows what this magic cutoff time is tho! Only a bunch of court cases challenging the revenue will reveal this. Until then unofficial rule is "whatever you can get away with". Pushing your luck too much will get you audited and spanked.

Contractors are a funny bunch, I am reminded of a colleague that would mooch around Luas stations collecting discarded tickets - you can guess why!

Evil Phil

Have you any evidence supporting this claim? I worked in contracting for 8 years and I've never heard of that happening once. It's perfectly legal.

<edit/>
If you're submitting actual expenses that's okay. If you're submitting falsified expenses that's fraud which is illegal.

Frank Lee Midere

I'm pretty dubious about lunch being deductible. I know it isn't in the UK. You eat lunch anyway. Travel should be - to work out why imagine your home office was in Dublin and you commuted to Galway daily. Clearly that's an extra expense. Lunch however is an expense you would be paying anyway. Also in the UK if you go over 18 months you are treated - and i think retrospectively treated - as an employee. So you owe back taxes. In the US IT contractors are taxed in most cases as employees.


It also matters if you bring a computer to work in the UK.

srsly78

Phil you must be living under a rock so. There has been lots of discussion about this over the last few years, nowadays companies won't keep contractors on more than 2 years - otherwise suddenly the contractors can in theory claim redundancy benefits! Also the Revenue may come looking for employers prsi. There is sufficient uncertainty in the area to make companies pay attention closely.

I got my last gig because they laid off contractors that hit the 2 year limit.

Evil Phil

srsly78 wrote: »

There has been lots of discussion about this over the last few years ...

How exactly were you contracting? I paid the employers PRSI for myself as I was an employee of the my limited company. And if you're not going to be in a contract for longer than 2 years, a very long contract in the limited company/contractor scenario, then you won't be travelling for the 5 years from your previous post.

My point is this: it's perfectly permissible to charge business expenses when you're running a limited company, as long as you stay within the rules dictated by the Revenue.

It's not that you don't have a valid point, there is a line between standard business expenses and fiddling the books. From the nature of your posts I wonder if you contract through an agency who handles everything for you, or do you run a limited company?


Regarding lunch: A per diem used to be allowable depending on the location of the contract, that may have changed. Again an accountant will advise on that.

srsly78

You weren't a director so, there is no employers prsi with class S. This means you were using an umbrella, or someone else had the shares? The criteria for class S is to be a "proprietary director" which means over 15% shareholding I think. Also means you have to fill in a form 11 personal declaration every year too.

I operate a limited company as director, and an accountant advises me.

Evil Phil

I was the managing director, but I wasn't class S, it was a something similar which I can't remember. Perhaps things have changed in the last 3 years?

srsly78

Evil Phil wrote: »

I was the managing director, but I wasn't class S, it was a something similar which I can't remember. Perhaps things have changed in the last 3 years?

Was that one of those "managed company" offerings? They give you an "off the shelf" company and run it for you? Costs a fortune imo, much cheaper to run it yourself. The employers prsi contribution is 10.5% tax. That's pretty huge... It DOES let you claim jsb tho! This stuff hasn't changed in the recent past (apart from usc).

Back on topic:
From the radio today -> Joan Burton wants self-employed people to pay more prsi, so we can haz invalidity pensions... No thank you!

John_Mc

My accountant has been sending me information about Revenue focusing their attention on Contractors at the moment. If you look at the attached, you'll see that they are have changed their outlook on expenses which can be claimed.

I can't imagine this stance being accepted as it's completely unreasonable and it will definitely be challenged in court if need be.

The second attachment is the Irish Tax Institute submission to Revenue about same. You can't help but agree with them as they clearly illustrate the absurdity of the Revenue position with real world scenarios.

As for take home pay as a contractor, it's hard to work out as you can have your company pay for your mobile phone, broadband, PC hardware, legitimate mileage & sustenance etc.

I started as a contractor last October and am enjoying it and happy I left a "permanent" job where I was doing well to do it.

srsly78

I think what the Revenue have a problem with is guys that claim for all the home office stuff, but spend 99% of their time on-site with customer.

What % exactly of time, and over how long a period is "normal place of work" to be decided? This is not well-defined. Common sense would say where you spend most (>50%) of your time, but I can't find any rules specifically saying that.

neil_hosey

DublinWriter wrote: »

The one big downside to contracting is career progression.

As a contractor it's very easy to get stuck doing the same thing again and again - it's a rare client who will pay to skill you up.

Also, a lot of contract work tends to be the stuff that none of the permanent staff want, or can do.

Plus, there will always be a level of resentment with permanent staff you work with and you typically won't be invited to departmental meetings or asked to engage in any wider decision making programmes.

Im developing 6 years now, ive yet to meet one employee that will actually skill me up.. maybe im in the wrong companies!

The Corinthian

srsly78 wrote: »

Was that one of those "managed company" offerings? They give you an "off the shelf" company and run it for you? Costs a fortune imo, much cheaper to run it yourself.

Shop around; while there are specialized companies that offer these packages, there's a good few accountants that effectively do the same thing and charge a lot less.

I'd also recommend a 'managed service' though if you're just going to be contracting. There's a lot less hassle (especially if you decide to go back to full time employment and you have to close down your company) and if you get a good deal from a good accountant they can handle deductions for you.

Of deductions, you do need to be able to demonstrably be able to show that they're business rather than work related. My memory of how travel works is that you can claim on this when it involves a certain minimum distance, so it wouldn't apply for basic commuting. Lunch can be claimed, but you're going to have difficulty claiming that you're, for example, having lunch with a client every day. If you're working far from your home office, I think it can be claimed as subsistence, but you would have to check with an tax accountant on this.

Home office expenses, such as part of your rent, electricity, mobile bill and so on can also be claimed, although I believe they've tightened up on this a fair bit. Purchases (e.g. a new laptop) also can be claimed, as well as VAT, but you have to remember then it becomes an asset of your company, not yours - depreciation will eventually sort this out for you, but not immediately.

And as to permanent employee 'resentment'; what the fsck do you care? Contractors are there for the money, if you want to train up send yourself off on a course (valid business expense) and do you really want to be sucked into their petty politics?

Additionally in some larger companies, there are few if any permanent employees, so you don't really see than kind of attitude much. I did a few contracts out in a certain mobile operator based in Berkshire some time back and outside of the managers and secretaries, everyone seemed to be a contractor. Indeed, few of us even lived in the UK and we used to commute back home every weekend.

The employers prsi contribution is 10.5% tax. That's pretty huge... It DOES let you claim jsb tho!

That can be an important point to remember - many accountants/financial advisers will by default help you avoid this, so that your take home looks better, but then you run the risk that the work dries up in the future and you will only be eligible for means-tested JSA; which after a while on contracting rates, isn't going to go well for you.

jjkiernan

Have you tried a specialist contractors accountant. They set you up as a director of an umbrella company, and pay you through Paye system, they manage all your expenses, claims, income tax etc for you. Pretty cheap in my opinion for saving all the hassle. I use one over in swords, good value compared to other ones I've seen.

neil_hosey

theres one thing im worred about..

Using the ICON Accounting Tax Calculator for contractors, I see that the take home for a 450 a day contract, working 220 days, is only 48221.07 EUR.. working out at just over 4 grand a month! A retension rate of 48%!! :eek:

I definately dont want to do it, if i can earn near enough to that on a permy role! Is that correct?

PM or message welcome please, i cant get a straight answer on what the actual Take home pay is on a 450 a day contract!

Thanks
Neil

srsly78

Calculators are useless. There is no one single "arrangement" for contractors so it could mean anything. However, the worst case scenario tho = (earning over 100k) - self employed people end up paying more tax than normal employees.

Also you should assume 200 days, not 220 (need to leave more margin for downtime).

neil_hosey

srsly78 wrote: »

Calculators are useless. There is no one single "arrangement" for contractors so it could mean anything. However, the worst case scenario tho = (earning over 100k) - self employed people end up paying more tax than normal employees.

Also you should assume 200 days, not 220 (need to leave more margin for downtime).

I don't get it though, Im finding it so hard to just find a figure for a 450 a day contract, assuming 220 days as that takes into account 40 days holidays/public holidays/down time.. which I won't go over.

srsly78

There's aren't 260 working days in the year Assume 240 working days then subtract your 40! I didn't realise there were so many damn holidays etc until I became a contractor.

Expenses is the big thing you aren't taking into the account, and expenses are also the most controversial area. Many contractors will boast about their extreme tax efficiency when in fact what they are doing will not stand up to audit. It turns out as a contractor you want to personally earn as little as possible (less tax to pay), this can be done by spending on expenses/equipment/other employees.

Further confusing things is the fact that normal paye employees can also claim most of these expense, if their employer facilitates this. This thing is most employers will NOT facilitate this (they will do things to suit the company not the employee).



You really need to talk to an accountant or tax advisor about this. Initial consultancy is usually free. Just make sure you shop around tho!