IT contractor - How to maximise my wages?

[Moggy]

Hi,

I've just started out contracting and am set up as a limited company. I've been trying to decide the best way to pay myself and would appreciate some advice.

My plan is to pay myself a healthy salary and to build up a fund in the company account with the rest for when I am out of work in between contracts (which is inevitable at some stage). Is this wise considering I will be paying corporation tax? I know I am a limited company but in reality these are my hard earned wages I really have a problem with paying an extra tax. Is there a better way? Should I pay myself everything I earn and save up a fund as an employee instead?

I have heard of people stopping their salaries at the lower tax band (now €34K) and just paying for everything through the company. Is this really possible or is it just hot air? Don't you have to justify everything as neccessary for the company?

 

[gonk]

Hi Moggy,

I've contracted for a few years and have been through most of the issues you're concerned about.

My plan is to pay myself a healthy salary and to build up a fund in the company account with the rest for when I am out of work in between contracts (which is inevitable at some stage). Is this wise considering I will be paying corporation tax?

No, unless you need to retain profits in the company to reinvest in the business, which is not really likely for an IT contractor, you would end up paying tax twice. Once on the company's profits and again as income tax whenever you do take the money out. Take all the money out of the company in the year you earn it and save whatever you see fit in your personal account.

I know I am a limited company

The main reason for an IT contractor to set up a limited company is that some employers insist on it, as a way of keeping you at arm's length and so the Revenue won't deem you to be employed directly, making them liable for PAYE, PRSI, etc. It doesn't really give you any tax advantage.

I have heard of people stopping their salaries at the lower tax band (now €34K) and just paying for everything through the company. Is this really possible or is it just hot air? Don't you have to justify everything as neccessary for the company?

Yes, you do. Anything you put down as a company expense must be justifiable as a cost wholly and necessarily incurred in the running of the company. There are lots of things you can expense, like mobile phones, education and training, travel & subsistence, etc. Your accountant will advise you. But you certainly can't expense, say, your week's grocery bill or your package holiday to Ibiza.

There's some useful info here on Rescon's website:

http://www.rescon.ie/default.asp?page=23

 

[Moggy]

Thanks for the advice Gonk.