Working as a Contractor
Advantages and Disadvantages of Contracting
Advantages
1.
More Money:
Contractors tend to be higher paid than permanent staff, due to the fact the work is generally on a short-term basis. Companies have the flexibility of using contractors only when needed, therefore they save money on things such as holiday pay, sick pay, PRSI etc.
2.
Tax-Efficient:
There are many tax advantages of contracting, as you will normally be operating as a Limited Company.
3.
Flexibility:
As a Contractor, you will have the option to move Companies and location as often as you want. The work will initially be for a 3-month or 6-month period, when the contract comes to the end, the choice is then yours, whether to extend or move on. Contractors are used all over the world, therefore you have the opportunity to travel, but have continuous work at the same time.
4.
New Skills:
Because of the nature of contract work it is probable that you will be working in different environments and industries, which means you are likely to pick up new skills during your time as a contractor.
5.
Training Options:
Contractors can chose what training they want privately and it is tax-deductible. This will enable you to change direction easily if you feel you want to move into a different area of IT.
6.
Networking:
A contractor will move companies on a regular basis, so you are continuously meeting new people.
7.
Company Politics:
Contractors generally don't get involved with company politics, as they are not a permanent employee and may only be there for a short period.
8.
Disadvantages
1.
Insecurity:
Contract work is for a specified period only and can vary. There may be gaps in between contracts, but then this can also be an advantage.
2.
Extra Costs:
Contractors are responsible for their own tax affairs, and running their own 'company', therefore an Accountant will need to be paid for to do this properly.
3.
No
4.
Adaptable:
Contractors will need to be very adaptable, as you will be changing environments continuously.
5.
Welfare Benefits:
Contractors do not receive pay-related social insurance payments such as sick pay or unemployment benefit.
6.
Administration:
All receipts etc. must be kept for Income Tax and VAT returns.
7.
Work Variation:
Contractors are used for specific projects, therefore there is the possibility of being limited to a certain job role or skillset, if you don't train in new skills.
8. Decision making: Permanent staff will normally make the management decisions.
Setting up as a Contractor
When operating as a Contractor, you have several options on how to set-up:-
Option 1 - Limited Company - This is the most common way of operating. There are Accountancy firms that specifically deal with Contract work. They will arrange everything from Incorporation of Company, Business Bank Accounts, VAT Reguistration etc. There is a one of fee for setting up a Limited Company (£250-£375) and you pay them a monthly Administration fee (£95-£120 per month) to manage your accounts.
Option 2 - Umbrella Company - This is another option, but would generally only be used for a one-off/short term contract, where you were maybe using contracting as a stop gap, until you start another full time job, or where the rate you are being paid is less than £150 per day. The reason for this is the Administration costs incurred when you operate as an Umbrella Company. An Umbrella Company is basically one where it is already operating and managed by the Accountancy firm. You become an employee of this company and therefore will pay PRSI, as well as the admin fee (around 19% of rate).
Option 3 - Eden Employee - Where Eden Recruitment will employ you and pay your daily rate as normal, minus PRSI and administration fee. Choosing this method would mean you would not enjoy the full benefits of being a Limited Company.
Option 4 - Off Shore Company - There is also another option of forming an Off-shore Limited Company. This would be for circumstances where you did not need to use or have full access to all your earnings. There are large tax benefits from operating this way. Again you would use an Accountancy firm. (Costs are around 8% of rate).
Reproduced with kind permission from
Eden Recruitment
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