PAYE to LTD company contractor - Taking reduced salary to max pension contibs

T

turing

Registered User
Messages
13
Hi all,

Does one fall foul of The Revenue in any way by changing from a PAYE employee to a LTD company contractor (contracted to the SAME former employer), and deliberately reducing your salary so that you can put more funds from your LTD company into your pension.

For example if earning 90k per annum PAYE but then subsequently only paying yourself 40k per annum as a contractor but putting the remaining LTD company funds into pension to reduce Income Tax, PRSI, USC.


I know there is the 'Salary Sacrifice' scenario where a PAYE employee deliberately arranges with their employer to reduce their salary from the (say) 90K to 40k per annum and that this would be considered a Benefit In Kind for the PAYE employee. But what about the 'PAYE to LTD company contractor with former employer' scenario? Is this alllowed?


Turing
 
You and your employer need to be very careful here. I've seen cases where Revenue have determined that the former employee is not a bona fide self employed contractor, and the employer having to pay employers PRSI backdated with penalties.
 
I don't think that salary sacrifice is what you'd need to be worried about here as you're beginning a brand new employment with a brand new employer. I'd be far more concerned that Revenue might consider you to be still an employee of the client company, as @RedOnion warns.
 
Thanks @RedOnion and @LDFerguson for replies.

So just to flesh my actual situation. I am a PAYE employee for an agency where I have been working long term (for over 5 years) on one of their client sites (US multinational).

There are a mix of PAYE and contractors working for the agency who in turn send us to work at the client site.

What are my options (if any) here re. how to go about changing to a LTD company contractor? If I resigned as a PAYE employee for my current agency and then started as a LTD company contractor that is contracted to a DIFFERENT agency, would there be potentially the same worry with Revenue deciding I'm a PAYE employee at the new agency?

Just to mention also that this US multinational is awash with agency workers (again some who are PAYE but more likely on average they would be contractors to the agencies). Are all these contractors taking a risk that Revenue could turn around and say they are in effect a PAYE employee?
 
What exactly do you mean by "LTD company contractor"?
You want to set up your own limited company for your work as a contractor?
(If so, are you sure that you need to do this rather than operating as a sole trader?)
Or you want to act as a contractor TO a limited company?

To be honest, you may need independent professional advice on the tax and business issues here.
 
Quite possibly, yes.

Determining the employment status of an individual

This page describes how you can determine the employment status of an individual
www.revenue.ie
 

What I mean is that I would setup my own LTD company for my work as a contractor.

My preference for the LTD company structure (rather than sole trader) is based on the potential to fund my pension directly from the LTD company.
 
turing said:
So just to flesh my actual situation. I am a PAYE employee for an agency where I have been working long term (for over 5 years) on one of their client sites (US multinational).
Click to expand...
Since you're employed by an agency, if its one of the more reputable ones, ask them about your options. They have hundreds of employees, and subcontract to hundreds of limited companies, some of which for all they know might only have a single employee.
 
You must log in or register to reply here.
Menu
Log in
Register