# Starting out on IT Contracting...advice?



## errigal (4 Sep 2005)

Hi

Having worked as a regular PAYE employee in my career to date, I'm now
taking the jump into the world of IT contracting.

I've done some homework and decided to go down the Ltd company route. I was wondering if anyone has any recommendation in terms of a company to use to do all the spadework in terms of 
a) setting up the company
b) providing good advice
c) doing tax returns, etc.

I've visited a few websites, but a personal recommendation is always helpful.
Obviously reputable firm, reasonable cost, etc. What sort of cost should I be looking at for this service (ballpark range?)

TIA


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## darag (4 Sep 2005)

First of all don't view contracting as an end in itself.  Generally the money is better but it is easy to end up in a technological rut as companies generally hire contractors because they have experience in a particular area.  Rates fluctuate much more widely than salaries.  I know people who've had to accept a 40% cut in their daily rate during a dip in the market.

If your agency will let you, don't bother with a limited company and operate as a sole trader.  A few years ago, it might have made sense for some of the extra tax concessions but there is no good reason I can see for setting up a company to do IT contract work.  The extra costs and obligations are simply a burden.

Learn as much as you can about how the tax system works instead of paying an accountant to do every trivial accounting task.

Set up some simple system using Excel or even just a plain text file journal to do simple bookkeeping.  Otherwise, it'll seem daunting when you need to file your returns.


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## Square Mile (5 Sep 2005)

Hello

As an ex IT contractor, I would suggest that you decide which form of business structure (sole trader, company, partnetship etc) you intend to use before seeking further advice, as the advice is quite different.  This may be decided for you by the agency or company you will work with - most require limited companies to cover themselves (tax, PRSI liabilities etc).  This will add greatly to the bureaucracy in running your company, and will add to your accountants fees.  You may not however need your accounts audited (depends on turnover).

Being limited gives you a certan degree of insurance in case you make a mess of a system and are being sued.  You personally are a separate entity to the company, and your liability is limited to your shareholding in the company.  If you borrow through the company, you will probably need to give personal guarantees on loans.

If you are allowed to work as a sole trader, I would definitely recommend some form of professional Indemnity insurance (e.g. from Hiscox).  It will give you the peace of mind that you would not have had working in any structure other than a limited company.


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## errigal (5 Sep 2005)

As per my original post, I have done my homework on this and decided to go down the route of Ltd company. I'm now interested in knowing if anyone can recommend a firm that can provide the services outlined based on personal experience.

TIA


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## darag (5 Sep 2005)

> If you are allowed to work as a sole trader, I would definitely recommend some form of professional Indemnity insurance (e.g. from Hiscox). It will give you the peace of mind that you would not have had working in any structure other than a limited company.


Why?  It's up there with spending money on novelty Paddy Power bets that the world is going to end.  I've never ever heard of a company even considering suing an IT contractor for negligence.  Unless you do something criminal, it's simply not going to happen.  Even then, the company would call in the guards, not try to bring a civil case against the contractor.  Secondly most IT contracting agencies have insurance anyway even though it's never happened.   These are the sort of billion to one type products that insurance companies love selling as it's money for nothing.

Let's face it, being an IT contractor is effectively a form of temporary employement and your relationship with the company is along the lines of employer/employee rather than a business contract between two equal entitities.



> I've done some homework and decided to go down the Ltd company route.


Out of interest, could you tell us the details of this homework and what the benefits swung your decision towards a limited company?  I've been an IT contractor for years and lots of my friends are contractors and anytime we've discussed this issue, the conclusion has been that unless the agency insists on it, there is no benefit to having a limited company.


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## Kerak (5 Sep 2005)

I supply Health and Safety Advice as a hired in advisor/consultant, and I have found PI to be the one item that has made my service more attractive to clients ( if all other things are equal).

And as far as I can see  we charge daily rates and take on 3-6 month or longer contacts  very like IT contracting.

as for becoming a Ltd Company, why? needless red tape and expense.

Sole trader, self assessment, and a good bookkeeper/accountant, the only way to go, until you are turning over 500k or more.


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## Imperator (5 Sep 2005)

Errigal

What part of the country are you based in?

Imperator


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## Square Mile (6 Sep 2005)

Hello

Regarding PI insurance.

Quote: "Why? It's up there with spending money on novelty Paddy Power bets that the world is going to end"

No it's not.  Far from it.  It's very prudent to cover yourself in case someone tries to sue you.  

Quote: "I've never ever heard of a company even considering suing an IT contractor for negligence".

So what.  I certainly have, several times.  I even worked for a company which sued an Oracle developer for screwing up a client leads database, on the insistence of the sales manager.  He was probably having a bad month sales wise and needed a scapegoat.

Quote:"Unless you do something criminal, it's simply not going to happen"

Sounds like wishful thinking.  As a contractor, you are an outsider and an easy scapegoat.

Quote: "Secondly most IT contracting agencies have insurance anyway even though it's never happened"

You should see agencies run for the hills in the event of a dispute between one of "their" contractors, and one of their client.  Whose side do you think they will be on, the one who pays them money or the ones who cost them money.

Quote : "your relationship with the company is along the lines of employer/employee rather than a business contract between two equal entitities"

Yeah right, until something happens.

For peace of mind, become a limited company or just pay the cost of PI insurance.  It's well worth it.


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## ubiquitous (6 Sep 2005)

> For peace of mind, become a limited company or just pay the cost of PI insurance. It's well worth it



Do bear in mind that the 'limited liability' cover of directors of limited companies is not worth the paper it is written on. Company Law now provides that directors are to be held personally liable for company liabilities where the liabilites arose due to the 'negligence' of the directors. In this context 'negligence' is capable of being defined extremely widely.


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## darag (6 Sep 2005)

Square Mile, like I said I've been an IT contractor for years, I have many friends who are IT contractors and I've worked for many companies and I've just NEVER heard of a company persuing an IT contractor for damages for negligent work in Ireland.  That doesn't prove that it has never happened but it makes me sceptical.  The IT contractor scene in Dublin is actually quite small and I'd be surprised if an award against an individual IT contractor for negligence didn't make a big splash.

I don't find the "buying peace of mind" justification for an insurance product convincing; if it were I'd be buying insurance against being hit by lightening and meteors or against tsunami damage to my home.  I need to be convinced that the outcome I'm insuring against is at least possible and that it would cause serious hardship if it did occur.

In the interest of satisfying my scepticism could you provide a reference to any one of the court cases you mention or give details on the outcomes?  I.e. did the companies win significant damages against the contractors?  It just makes no sense; the chances of success (on the part of the company) are miniscule, the amount recoverable from the contractor is likely to be relatively small and the cost and effort of bringing such a case would be significant.


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## Capaill (6 Sep 2005)

Darag

One advantage that PI gives you, apart from "piece of mind" is the ability to tender for a lot of public sector work.  A lot of tenders require that you have PI in place in order to be considered eligible for selection.

C


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## Square Mile (6 Sep 2005)

Darag

You are right, it is unlikely that a client would sue a contractor.  That is what insurance is for - to protect against unlikely events.  Why risk losing all you have worked for, for the sake of the PI premium.  It is worth the hassle to sue a contractor.  The gains can be very high. Anyone with a house in this country is practically a millionaire. 

I think that it is alright to enclose the following press release as full references are made to the source.


Copyright 2003 VNU  
Accountancy Age


October 2, 2003​
*SECTION:* Pg.10

*LENGTH:* 363 words

*HEADLINE:* TECHNOLOGY; INSURANCE CLAIMS ON THE UP.

*BYLINE:* Rachel Fielding.

*BODY:*
More professionalism is sought as the number of IT indemnity claims swell to 40% in the last four years.

*IT contractors* in the UK are significantly more likely to be sued by clients, with *professional indemnity* claims surging more than 40% in the past four years.

Smaller consultants are increasingly at risk with the size and frequency of claims rising substantially, according to a new study conducted by specialist indemnity insurer Hiscox. 

In May alone, the insurer handled claims with a combined value of almost GBP 5m.

Claims included accidentally wiping a client's data, supplying software that infringed someone else's intellectual property rights, failing to integrate a new system and delivering a system that did not meet the client's brief.

Underwriter Sam Franks said the situation would only get worse as UK plc gets increasingly litigious and as companies' reliance on IT systems increase.

'Companies are far less willing to let mistakes go. It's a general movement in the way business is being conducted. There is a risk that companies will sue first and try to sort out problems later,' Franks added.

According to Hiscox, of the 50,000 or so *IT contractors* in the UK, approximately two thirds have *professional indemnity* insurance.

Aidan Lawes, chief executive of the IT Service Management Forum, said the survey highlighted the need for greater professionalism across the IT sector and called for the British Computer Society to take the lead.

'We are making progress, but it's still painfully slow and we will have to address it even more aggressively in the future otherwise the horror stories of IT failures won't go away, and IT litigation will go up. And that's not in anyone's benefit.'

David Roberts, chief executive of Corporate IT Forum, said: 'The more pressure there is to complete a project for a lower price, the more likely it is that errors will creep in.

'IT as a profession is still very immature. We'd like to see the development of some sort of yardstick that can be put against people within IT to say they meet a certain standard. The image of IT as a quality profession does not exist,' Roberts added.

*LOAD-DATE:* October 1, 2003


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## Imperator (6 Sep 2005)

Regarding PI insurance, if you're not applying for any government work then it's not an obligation.   If you're going to be working for companies, it's perfectly feasible to tell them that while you will supply the PL insurance, that they as the overall manager are responsible for PI.  I work for a firm in the engineering sector, and they have a blanket PI policy that covers all their deliverables, regardless of whether the work has been completed by a staff employee or contractor.


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