# PAYE employee v's contractor: Tax Implications & general "for and against" info



## lozza (19 Sep 2006)

Hi

can anyone tell me the tax benefits available and general pros and cons going from a PAYE worker to a contractor?


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## Horatio (20 Sep 2006)

*Re: Employee v's contract*

When you are on contract you are essentially self employed & as such much work out your tax dues, you pay a good accountant & he can write all sorts of expenses off against your tax bill, plus as a contractoer you are probably on an hourly rate as opposed to salary & you also are probably getting more/hour than your PAYE equivalent, on the downside you have no holiday entitlement, no entitle to profit sharing/productivityy bonus & are responsible for your own health care. All the above are generalisations, check your own contract for these details.


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## z107 (20 Sep 2006)

The advantage gap has really closed in recent years.

Pros of contracting;
- Higher rate of pay
- In some cases a variety of work, moving from company to company.
- Choosing your rate of pay. You won't be able to do too much else with the rest of money apart from purchase office equipment. (BIK sees to that)
- You're now 'working for yourself'.

Cons of contracting;
- Revenue hassle (and county sheriff sometimes)
- Have to pay an accountant to do your books
- Record keeping for the accountant
- No sick leave or statutory benefits
- You've now become the 'guru'.
- Need to set up a company and deal with all that
- You've now also become an unpaid tax collector for the state (VAT)
- Loss of PAYE tax credit


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## Billo (20 Sep 2006)

Agree with most of what umop3p sdn says. But having worked as a contractor for a year I did not

- Have to pay an accountant to do your books
or
- Need to set up a company and deal with all that

It was a pain in the ass all right, but I managed to fill out the appropriate forms myself for tax purposes(form11 and 12 I think)

I am not trying to become a normal PAYE worker. 

Rgds
Billo


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## Billo (20 Sep 2006)

"I am not trying to become a normal PAYE worker"

That should read

I am now trying to become a normal PAYE worker


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## podowd (20 Sep 2006)

The Revenue are clamping down on contractors acting as sole traders and introduced new anti-avoidance legislation in this year's Finance Act. As a result most agencies wont take on a contractor unless they are using a limited company - either their own personal limited company or an "umbrella company", i.e. a company where there are several contractors using the same company, and an accountant/management company usally deals with all the accounts, tax and company secretarial tasks. This adds to the cost of contracting, as the DIY route is not really an option, but if you get a good accountant who gives you good advice the costs should be justified by the tax savings made

Rgds
Paraic
www.prima.ie


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## Moggy (22 Feb 2007)

I am due to start my first contracting job.  I am taking the DIY route, I've setup my own company and will get a good accountant from a friend of mine.  My reason for it is I need to build my experience before I can realistically land a decent paid permanent job.  Money is good too, but it should be due to the high risk and hassles.  

I'm interested in finding out a bit more on the tax/PRSI side of things before I talk to the accountant.  I was hoping someone could answer the following:

1. I presume I must make both an employer and emploee contribution to PRSI?  Is this correct?

2. Do I pay the same income tax as a PAYE employee?

3. Do I have to pay corporation tax?

4. Is there any other tax I should be aware of?

5. Not a tax question, but is there any way to cut the middle man out. i.e the agency.  It makes me sick to think they are getting a cut of my dalily rate just for sending my CV to a company.  Rates would be a lot higher without them!


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## HighFlier (22 Feb 2007)

There is a definite revenue issue here and being a limited company in itself will *not* resolve it. We have been told that if the individual concerned behaves as an employee i.e. has only one client, works a normal work week and fits into the company structure then he is deemed to be an employee. ( As one advisor put it "If he walks like a duck and quacks like a duck then there is a good chance he is a duck")

The revenue are missing out on the employer prsi and have the bit between the teeth on this one.

The construction industry ie contractors and engineering design firms are first in line for the rough treatmentto be followed by the IT industry.

Bad news for the employee but potentially even worse for the employer who will face back claims for prsi, health contribution etc., interest, penaltys bla...bla....bla... and the usual threat of a comprehensive revenue audit to get your attention.

This one has been brewing for a few years but is about to blow.


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## masonchat (22 Feb 2007)

selfemplyed for 3 years blocklaying contractor and to be honest the hassle is significant, you really have to be very highly motivated , allthough i will say i have had a much better standard of living since becoming self employed anyway,  yes you pay prsi  of 8.5% of every penny you pay an employee plus the prsi that is deducted from their weekly wage, you pay the employees  paye and prsi on a 3 monthly basis , and you must pay the vat that you collect on a bi monthly basis,  you shouldnt have to pay income tax yourself for about 18 months then you pay the tax on ur first years trading so each yeah you are paying for the previous years trading, yes you will have prsi contributions to pay for yourself and yes you do get the usual tax credits at end of year take the employees wages inc prsi paye any any business recipts pension contributions and the like away from gross earnings and expect to pay 42% on the remainder


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## ClubMan (22 Feb 2007)

masonchat said:


> syes you pay prsi  of 8.5% of every penny you pay an employee plus the prsi that is deducted from their weekly wage


What _PRSI _class is that?


> and expect to pay 42% on the remainder


41%?


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## masonchat (22 Feb 2007)

wooo  hoooo  forgot it dropped 1% that will save me loads


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## masonchat (22 Feb 2007)

8.5% is the rate that the employer pays for each employee on gross wage, the class that is deducted from the employee each week is seperate and dependant on the wage its self  if an employee earns 400 euro  then you must deduct 2% of total plus 4% of gross minus prsi allowance which was 127 euro b4 last budget  so employer pays 8.5% of 400 plus  the prsi deducted from employee


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## Joe1234 (22 Feb 2007)

ClubMan said:


> What _PRSI _class is that?



Class Ao or Ax


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## ClubMan (22 Feb 2007)

Yikes! 8.5% is for employees on a mere €19K or less! Real minimum wage stuff...


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## masonchat (23 Feb 2007)

club man it is the employer who pays an additional 8.5% prsi of the employees wage , this amount is not deducted from the employees wage, it is just extra that the employer pays


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## Moggy (23 Feb 2007)

But me being both employee and employer its not good.  I still come out a lot better off than I would in a permanent position though.  

So do I need to declare a salary for myself?  Or can I just say that every penny earned by the company is my salary?


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## masonchat (23 Feb 2007)

not sure how that works but would imagine it would have to be added to the earnings from the business at the end of year, like i know when you become selfemployed and u come to pay the tax  on first years trading then if u were an employee for the fist six months of that tax year then that income is added to income from business


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## Moggy (23 Feb 2007)

OK thanks for advice.  Lots to discuss with the accountant!


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## ClubMan (23 Feb 2007)

masonchat said:


> club man it is the employer who pays an additional 8.5% prsi of the employees wage , this amount is not deducted from the employees wage, it is just extra that the employer pays


I know - but 8.5% seems to be the employer _PRSI _rate for an employee on a mere €19K or less. I just find it ironic that an employer might complain about the additional cost when they are paying the employee so little in the first place. Just a random observation.


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