Me, myself and I – the business of contracting in Ireland

The IT and project management contracting market is buoyant. It is estimated that there are currently up to 1,000 IT vacancies alone in Ireland and many of these positions are contract-based.

Contracting appeals to many people for many different reasons and there has been an explosion in the number of IT and project management professionals, in particular choosing to follow the contracting career path.

For some, it’s a practical solution to an immediate problem – they may have been made redundant and are looking to contracting as a stop-gap until that next permanent opportunity comes along.

For others, they may have made a conscious decision to move from permanency to contracting with the objective of benefiting from the greater working flexibility, better work/life balance, enhanced industry experience and knowledge transfer that only contracting can provide.

When faced with your first contracting role, chances are your recruitment consultant (if you’ve conducted the process via an agency) or contracting company will ask if you are set up to contract. So what exactly does this mean?

As a contractor, you are essentially your own boss and for tax purposes you need to take ownership for your financial affairs, i.e. do your own invoicing, make your own returns and payments to Revenue, pay your own monthly salary as well as health insurance, pension and critical illness contributions.

While you can conduct your tax affairs as a sole trader or a limited company, it is generally accepted that setting up as a limited company is the most tax-efficient way, unless of course, you are only planning to contract for a short period of time in which case, sole trader status may be recommended to you. A word of caution though; many organisations, including Clarion Resourcing will not contract with sole traders.

To get around this and to ‘dip your toe in the water’ you could use an umbrella company where you become an employee of that company and they manage all administration and payments on your behalf. Although growing in popularity, this approach only makes sense up to a certain financial limit so review your employment earnings from time to time to make sure that you’re not losing out.

Here are some of our tips on long-term contracting in Ireland.

 

  • Set up a limited liability company
    This limits your liabilities or debts to the trading entity that is the company and protects your personal assets. This can be done through the Company Registration Office at a cost of approx. €300 or your accountant can do it for you. You also need to set up with Revenue but there is no charge for this. In setting up your own company you need to decide on several items, namely:Company Name, Company Activity, Registered Office, Company Directors, Company Secretary, Authorised and Issued Share Capital, Shareholders.Check out the Registration Steps page of the CRO which provides lots of useful information on how to register your company.Make sure that you are committed to going down the route of long-term contracting. Winding up a limited company is an expensive business and there are certain statutory requirements which must be fulfilled when doing so. Please talk to us if you want further information or visit the CRO.
  • Decide on how to manage your finances
    There are several options here. You can hire an accountant (there are many agencies that specialise in accountancy services for individual contractors), use your own software applications to manage invoicing and payroll or engage a hybrid model by using a combination of both. When deciding which option to pursue, look at the cost of your own time (i.e. your hourly rate) and see if it is more cost-effective to hand it off to a third party who can do it faster and cheaper for you or take it on yourself.If you decide to take care of this yourself, you are now responsible for your own revenue returns. This typically involves invoicing, payment of supplier invoices (telephone, internet, other outgoings), four-monthly VAT returns, quarterly P30 returns, annual P35 returns as well as annual corporate tax and CRO returns. If numbers set your head in a spin, don’t despair. There are many user-friendly, cost-effective software packages out there (some of them cloud-based) that can help you in this regard.Basic packages from SAGE for example such as TAS Firstbooks are great for freelancers. With a user-friendly interface and good manuals which cover accountancy principles as well as the technology, it’s a good option if you are even vaguely familiar with the basics of good accountancy practice.Applications such as SAGE Quickpay will allow you to calculate your monthly salary at the press of a button (taking into account tax free allowances and taxation bands) and will generate quarterly or annual reporting for Revenue to boot. This will also automatically update with changes in the annual Budget so you never have to worry about doing this manually.Using these applications may help you to reduce your annual accountancy bill. By doing as much of the work as you can, you may only have to get your accountant to do the annual filing and return.
  • Don’t miss your filing deadlines
    Don’t forget that you have to set aside some time each month to manage your accounts. Even if you are providing this information to your accountant for processing purposes, make sure that you’re disciplined in your approach. Allow an hour or two each month for paperwork. Ensuring that all your returns are filed and paid on time will reduce the likelihood of a tax audit so it’s in your best interests to keep on top of that paper pile and keep the Revenue away from the door.

 

  • The hidden costs
    Don’t forget that as a contractor you are directly responsible for many of the benefits that an employer may have previously taken care of. For example, health insurance costs and pension contributions are critical in terms of protecting you and your family and planning for the future. While you may be generating a healthy revenue stream now, you can’t ignore these costs.In addition to this, you also have to engage in continuous professional development (CPD), ensuring that you future-proof your skills, stay relevant to leading employers and extend the longevity of your chosen profession. As a contractor, you will have to meet the significant costs of training, further education and certification from your own resources. Take a look at some helpful hints and tips on CPD from the team at Clarion Resourcing.
  • Protect your reputation – be professional
    Finally, it’s worth making the point that you are now in charge of your own career pathway and professional reputation. When you take on a fixed-term contract, see it out until the end. If the going gets tough, don’t take the path of least resistance even though you can, as your own boss. Talk to your recruitment consultant about the difficulties you are experiencing and take soundings from them on how to proceed. Going through an agency to find a contracting role means that you are not alone and your consultant can be a really helpful source of guidance and advice when you run into such challenges.Notwithstanding any difficulties, try to find a way to complete the assignment you have been given and do it in the most professional and competent way that you can.Contractors who abandon assignments mid-term very quickly compromise their reputation. Word travels fast in a small community that they are unreliable and unpredictable. You are trading on your business reputation and you must ensure that you protect it as the most important asset you have, at all costs.

Our recruitment consultants are happy to answer any of your questions on the topic of contracting. Just call us on (01) 802 5182 and ask to speak to one of the team.

On April 30th, 2013, posted in: Blog by
No Responses to “Me, myself and I – the business of contracting in Ireland”
Leave a Reply