# umbrella company /sole trader / Ltd company for IT consultant?



## banjo (7 Aug 2007)

I see it has come up before but there is a lot of conflicting advice and it did not all pertain to IT.
I have a possible 12 month contract with an IT services company.
All my work for the next 12 months would be done for them.
I may go back to PAYE after this.
I would appreciate any advice as to whether to go for an umbrella company such as CXC or PRIMA or the sole trader or Ltd company route.

Also are the tax rates and bands for sole traders the same as for PAYE individuals ?

Thanks for any advice.


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## legend (8 Aug 2007)

my advice would be go with cxc for 12 months and see how you get on, thats how i started but went limited once my rate went up.

it's effortless with them and you get payslips etc etc. they chrge 5 % of the invoice fee to a mx of 300 per month, a bit pricey but well worth it if it's your first venture into contracting.

one thing make sure that you stipulate to the employer that you need to be paid after a certian number of days from invoice usually 14 as cxc won't pay you until they receive the funds form the employer !!!!

they will also cover your insurances while on a clients site.


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## banjo (8 Aug 2007)

thanks legend .
i am going to call a few umbrella companies today , ill post their charges here later.


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## command (8 Aug 2007)

if its only going to be a year then go as a sole trader, if you set up alimited company you will have the hastle of clsiong the company or annual returns to file with the CRO. 

As a contractor the reality is whether you are a limited company or not is acidemic and this "you have to be a limited company" lark is an attempt by the agencies and some of the service providers to avoid the employer tag. 

I look after over 100 contractors and have discussed the matter with revenue and allow our clients to retain their sole trader status. 

CXC do a good job and are successful all over the word but I don't agree with their charging. A percentage charge is just inappropriate for the work that is carried out. It takes as much effort to generate an invoice for €500 as it does €5,000. Why should one cost 10 times what the other does? On top of that by not paying you until they get paid they have no financing costs to justify charging a percentage. 

Sorry if my post is a bit ranty but at the end of the day in my opinion you should pay a flat fee for the services of a managed services company. Maybe this is where I am going wrong with mine???


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## legend (8 Aug 2007)

command,

agree 100 % with you about the cxc charges.. flat rate is the way to go...

but on the sole trader status.. i'm working wiht multi nationals and sole traders are being dis-couraged because of the lack of transperency with regard to thier tax status that is why they like people to go limited..

more and more i am seeing contracts asking for an accountants letter or revenue statement saying that your tax complaint and have your affairs in order.... that is why revenue like cxc etc , as they do everything by the book.... umbrella compnies are now being outlawed by revenue in the uk who are now requiring contractors to go limited....


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## Moggy (8 Aug 2007)

command said:


> As a contractor the reality is whether you are a limited company or not is acidemic and this "you have to be a limited company" lark is an attempt by the agencies and some of the service providers to avoid the employer tag.



Agencies will refuse to work with sole traders.  They will only do business with companies, whether that be your own company or an umbrella company.  This may be bully tactics I'm not sure but this is the reason I setup as a ltd company rather than a sole trader.  And besides, do you really want to be employed by an agency?  Avoid them completely if at all possible!


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## banjo (8 Aug 2007)

as it happens , the company I will work for do not want to pay me as a sole trader so the choice is now umbrella or my own company.


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## z109 (8 Aug 2007)

I agree with Command (currently a sole trader, was forced to be a ltd. company in England) - if the IT services company has no problem with you being a sole trader, then do that.

Get an accountant and agree fees in advance for the year's (or two years) accounts. 
Make sure you get an accountant who understands working with sole traders. 
The accountant should also be able to give you advice on the expenses you can claim and things like pension contributions (not IFA advice as to which pension, just how much you can put aside to minimise your tax).

Damn - crossed with banjo.


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## command (8 Aug 2007)

I have had the limited company argument with many of the multinationals. The big problem that they have all overlooked is that if a guy does some contracting on and off and operates through a company the multinationals don't actually check that the company has not been struck off thus rendering the contract pretty useless. It produces a bit of painic amoung the multinationals but is ignored. All they are worried about is avoiding the employer/employee relationship with the contractors. 

transparency is not a valid argument. 

They are under the impression that if they are contracted with a limited company then they can't possibly be the employer. This will be an irrelevance if Revenue apply the normal "employee test"

We have got around it by invoicing on behalf of the client. In itself it is not correct as we don't charge a mark up so are invoicing for a service that we have not carried out. (this is whole other argument)

It provides the multinational with an invoice from a company so they are happy. We retain the vat element at the request of our client and pay it directly to the collector general on their behalf and as we prepare the income tax returns for our clients we ensure their taxes are in order. If they decide not ot use us as their tax advisor we insist on getting a tax clearance certificate from them. 

The multinational is happy as they are getting an invoice from a company, the contractor is happy as he doesn't have the hastle of a limited company or vat payments to worry about and revenue are receiving the appropriate taxes from all concerned. We charge the same fee as an accountant directly to the client and nothing to the employer.   

The department of social welfare are at a loss as they do not get an employers contribution anywhere, but then again they save on the other side becasue they don't have to fork out the usual benefits to the self employed contractor if he gets sick, is out of work or retires. 

It also gets around the agency issue for a lot of contractors. 

I am not even sure it is legal to insist on a contractor operating through a limited company.


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## banjo (11 Aug 2007)

a few prices for those intersted : umbrella companies : upto 5% of your pay! or capped at 300/mth.
i spoke to an accountant who would do a years accountn work on a ltd company for max 1400 , but add on 400 to set up ltd company.
so for money only , ltd company on your own makes sense, but will involve some effort.


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## machalla (20 Aug 2007)

One interesting thing that CXC claim is that their fees are tax deductible.

I am in the situations of being a sole trader working in the it sector at the moment but the company I am currently contracting to will not allow me to contract with them beyond 3 months (which was no problem originally as the contract was for 2 months).  Otherwise they require me to have a ltd company.  They will not issue more than a 1 month contract at the time though so I am not willing to set up a ltd company for a 1 month contract.

I am thinking of using CXC if the contract is continued past 3 months due to the claim that their fees are tax deductible.  Has anyone found a catch with doing this?  I would assume accountancy fees are equally tax deductible though and from a cash flow point of view may well be cheaper than CXC's 5% fee?

There is also this company which may be marginally cheaper than CXC and has also been suggested to me.

http://www.prima.ie/


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## Merrion (20 Aug 2007)

Here is another one that I have used to do once off accounts. Not too sure how they fare with regards to using umbrella/ ltd companies.


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## ubiquitous (20 Aug 2007)

command said:


> The big problem that they have all overlooked is that if a guy does some contracting on and off and operates through a company the multinationals don't actually check that the company has not been struck off



Why don't they use the CRO company search facility? [broken link removed]
Its very straightforward.



command said:


> ...thus rendering the contract pretty useless.


I'm not sure if this is correct. I took advice on this question some years ago in relation to a client company and was informed at the time that a struck-off company can trade and (through the directors) can be held accountable for contracts entered into. 



command said:


> We have got around it by invoicing on behalf of the client. In itself it is not correct as we don't charge a mark up so are invoicing for a service that we have not carried out. (this is whole other argument)
> 
> It provides the multinational with an invoice from a company so they are happy. We retain the vat element at the request of our client and pay it directly to the collector general on their behalf and as we prepare the income tax returns for our clients we ensure their taxes are in order. If they decide not ot use us as their tax advisor we insist on getting a tax clearance certificate from them.


Presumably you know what you're doing here, but as an practising accountant myself who acts for quite a number of IT contractor clients, I would have grave reservations about how effectively you could protect yourself against any claim by the Revenue or DSCFA that you were de-facto employer of these people and that you were obliged on that basis to operate PAYE/PRSI on their earnings paid through you. I certainly would not involve my own firm in any such arrangement even if there was the slightest doubt that any such claim could arise. Based on the information you have provided, I would fear that such a doubt exists, and I would be concerned that such any tax benefit arising under such an arrangement could be easily invalidated if the Revenue opt at any stage to invoke general anti-avoidance legislation against it.

I can't help thinking that if such an arrangement was legally safe and feasible, every accountancy firm in the country would be providing a service along these lines. For what its worth, if I were you, I certainly wouldn't be advertising the existence of any such practice along these lines, on a web forum such as this.



command said:


> I am not even sure it is legal to insist on a contractor operating through a limited company.


Why? Surely in a free country, traders are free to specify trading terms and conditions to suppliers and potential suppliers?


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## command (20 Aug 2007)

The whole irony of the contracting industry, particularly in the IT sector is that the large multinationals are the employer.  

The are providing the contractors with the tools to complete the job, they are instructing them on how, where and when to carry out that job and the contractors are invariably doing the very same job as the person sitting next to them, only the person next to them is an employee. 

It suits the multinationals becuase they can reduce headcount, lay people off etc. without having to announce job losses or redundancies. Further if you want the intels of this world to set up in ireland and not chindia then the project becomes a lot cheaper if they do not have to pay employers PRSI and can escape other obligations such as holiday pay, sick pay, pension entitlements etc. by using contractors.

Its mutually beneficial for everyone. Scope etc. can safely pursue the construction industry because the M50 has to be widended and the work can't be outsourced or doen cheaper somewhere else. However the intels or wyeths do not have to be in ireland. 

Complicate things by telling one of the multnationals in west dublin that they will have to start paying 10.75% to the government not to mention and further increase of between 12% and 18% in respect of holiday pay and our attractiveness diminishes quite considerably. 

I think the attidue therefore is to leave well enough alone for the moment in respect of a lot of practises around the contracting industry.


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## ubiquitous (20 Aug 2007)

I agree pretty much with your analysis. However I would worry that while the major multinationals may well be fireproofed at least to some extent against aggressive Revenue action, there is no real reason why this would extend to small third-party intermediaries or agencies. For example if Joe Bloggs Agency Ltd hires sole traders to work for any of the big names and is later chased by the Revenue for big paye/prsi demands, the likes of Bill Gates or Michael Dell are unlikely to experience sleepless night even if Joe and his company are thrown to the wolves.


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## command (21 Aug 2007)

I agree but there is a element of deep pockets in this. Joe Bloggs has nothing for them. All of my clients are squeeky clean form an income tax and vat point of view. Again it is social welfare that are loosing out and if they decide the want their 10.75% then Bill Gates is the only man likely to pay them.

There is no point in social welfare coming after me for employers prsi for a bunch of IT contractors. It would end up costing them money as me and my staff would be on the dole in no time. 

A few of the agencies that I deal with have been audited and the elephant in the sitting room ignored and some of them have been told that they are not the employer.

On the basis that a contractor retains the services of a manager services provider to do his invoicing and look after his taxes in return for an annual fee do you think that this represents an employer employee relationship. Is it not unusual for an employee to pay his employer for the pleasure of working. 

The agency have more of an employer employee relationship as they recruit the individual.


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