Thinking of becoming an IT Contractor?
May 8th 2015
Contracting appeals to different people for different reasons, but it can also be quite daunting at the beginning. We have put together a brief guide that will help you on your journey to becoming a professional IT contractor.
Why do people choose to work as an IT contractor?
Contracting appeals to different people for different reasons. You may find yourself unemployed and contracting can offer you a way to return to work. You may feel that contracting would offer you benefits above the traditional permanent full-time role, such as a better work / life balance, better pay and more flexible working conditions, and greater exposure to different technologies.
What are the practical implications of working as an IT contractor?
As a contractor you will be in charge of your own financial affairs. In a practical sense, this means that you are responsible for invoicing, making revenue returns, paying your own salary, and your own pension and PRSI contributions. You are responsible for ensuring that you remain compliant with all of the rules and regulations that govern employment. IT Force can put you in touch with expert professional who can manage these affairs for you.
What set-up options are available to IT contractors?
Sole Trader
This is often seen as the simplest and cheapest way to set up as a contractor, but it is not recommended for a number of reasons. While you do not have to comply with the usual PAYE tax system and fees for professional accountancy services are generally less than with other options, you may struggle to get work as many firms will not engage with a contractor who is not operating through a private limited company.
Private Limited Company
Setting up your own private limited company provides a long term solution for contractors, but it does incur significant overheads. It is also costly to wind down a company, so you should only go down this route when you are confident that contracting is a long term option for you.
To set up a private limited company, you will need to register your company with the Company Registration Office (CRO) and with the Revenue Commissioners. There is no cost to register with the Revenue Commissioners, but there is a cost of approximately €300 for the CRO.
Once you have set up a private limited company, you will be able to keep your personal assets separate from your business interests (this is not the case with a sole trader). However, you are required by law to submit your audited accounts to the CRO on an annual basis. It is important to note that these accounts can be accessed by anyone.
Umbrella Company
Most first time contractors opt to initially use an umbrella company. Under this model, you become an employee of the umbrella company and you are paid a salary based on your earnings. The umbrella company will handle much of the administration work associated with being a contractor such as tax, VAT returns and invoicing.
If you are a first time contractor and you want to ‘dip your toe in the water’ to see if contracting is for you, this is more cost effective than setting up a private limited company. This can always be done at a later stage, once you decide that contracting is for you.
Paperwork and Managing your Accounts
When it comes to paperwork and managing your accounts, there are a number of options available to you. You can process your own paperwork and manage your accounts during the year, while only using the services of an accountant when filing tax returns.
There are several simple to use and budget friendly accountancy packages that are designed to aid contractors in managing their own paperwork. However, this will take time and if you decide that this time is better spent with your family, on your hobbies or chasing the next contract, then you will need to engage the services of a professional accountant.
There are several accountancy firms that specialise in providing a range of accountancy services to contractors. The level of services that you engage them for will be reflected in the costs that they will charge. For a limited company the costs will be greater due to extra legal requirements that must be met, such as an adherence to the Companies Act.
Brendan O’Sullivan is an experienced Technical Recruitment Executive with IT Force. If you would like further information on becoming an IT Contractor, please contact him via email or connect with Brendan on LinkedIn.