Guide to Contracting

Contracting is now common in nearly all business sectors and provides many benefits to the parties involved. The contracting Company gets access to specialist skills on an as needed basis while the Contractor generally gets greater financial reward and independence than the traditional employee structure.

There are three main ways of operating as a contractor namely Fixed Term Contract with an Agency, Umbrella Company & Own Limited Company. Its worth noting that there has been a lot of developments in this area in the UK with the implementation of IR 35 & MSC legislation. We would therefore recommend that you seek professional advice before deciding your preferred structure.

Fixed Term Workers
A fixed term employee is someone who is employed under a contract which contains a specific start and end date or who is employed to carry out a specific task or project or the continuity of whose contract is contingent on a particular event such as the availability of continued funding from an external source.
Under this scenario the individual concerned normally has a Fixed Term Contract with the agency who in turn has a contract with the client.

This type of employee will generally be taxed through the PAYE system with the related administration carried out by the contracting company. Both Employee & Employer PRSI will be paid as per full-time employee although in general there are not the same fringe benefits as an individual in a permanent role.
For this reason fixed term contracts normally pay a higher rate than permanent roles.

Umbrella Company
This is where you ' the contractor' essentially becomes an employee of the umbrella company run by a third party. You submit time-sheets to the umbrella who will in turn, invoice the end client (or agency) for the work done by you. You will then be paid as a PAYE employee less the umbrella fee.

This is often considered as half way between being an employee and running your own business and can be a good starting point for someone starting out in the contracting world. Individuals who are on quite a low contracting rate and/or those who are going to contract for a short period of time, may find it cost effective to use an umbrella company.

The advantages are that this approach avoids the administration, bookkeeping & taxation tasks of running ones own Company. Unfortunately the disadvantages are that there is much less independence, scope for claiming expenses & tax planning.

Limited Company
Forming a limited Company is a route taken by many contractors. The principal reason for this is that you have the independence of your own Company, greater scope for claiming expenses and tax planning. The contractor forms, or buys, a limited company. The limited company enters into a contract with the agency to provide specific services to a third party, and then the limited company employs the contractor to perform these services in fulfilment of its contract.

Examples of allowable expenses are as follows:

  • Accountancy Fees
  • Stationary & Postage
  • Wages & Salaries
  • Travel (business related & from normal place of work)
  • Advertising
  • Legal & Professional Fees
  • Subscriptions to Trade Associations
  • Pension Contributions
  • Capital Allowances (Depreciation on Equipment)
  • Interest & Bank charges
  • Training costs
  • Permanent Health Insurance
  • Repairs & Renewals
  • Manuals
  • Phone/Mobile
  • Blackberry

To avail of the above structure the Company must comply with the following legislation:

Companies Acts Requirements:

  • Company Formation
  • Directors Submissions
  • 6 Month Return
  • Setting up a bookkeeping system
  • Annual Statutory Financial Statements
  • Annual Directors Report
  • Annual Accountants Report
  • Submitting Annual returns to Companies Office

Finance Acts Requirements

  • Registration
  • Corporation Tax 
  • Vat
  • Employer
  • Vat Returns
  • P30 Returns
  • P35 returns
  • Corporation Tax

The good news is that we offer a complete package to enable you avail of all the benefits of working through a Limited Company without the pain. We are specialists in this area and can provide very competitive rates.

Call today to increase your knowledge and get a quote from O'Toole & Co the contractor specialists. 01 8013116

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