Who would want to be an IT contractor? Unrealistic deadlines. ever expanding project scopes, and operation users trying to get involved in design! I could go on and on. However, there are more fundamental questions that need to be answered when you become an IT contractor. For example, what structure should I use? The answer here could include: PAYE Umbrella, Director Umbrella, Trader or Personal Limited company.
However, many agencies and companies won’t accept a sole trader structure as a contractor option. In addition, Director Umbrellas are not seen as a compliant structure because they are the equivalent of managed service companies not allowed in the UK. That rules them out as a good structure for contractors. The best option is either a PAYE Umbrella or a personal Limited company.
A PAYE Umbrella is a good option if you contract for a short period (6 to 12 months) on a modest rate (up to €300). But If you are contracting for a longer period at a higher rate, a personal limited company is the way to go since you will retain a higher net amount. Still another consideration is pensions. If you use the PAYE Umbrella option you should employ a PRSA. With a PRISA, depending on your age and contribution, you can significantly reduce your tax bill.
If you have a personal limited company you should setup an executive pension. You will then be able to reduce your tax bill by almost half. You can also invest in property or deal directly in shares yourself.
Finally, make sure you think about healthcare when you consider contracting. If you have a permanent position this is probably taken care of. However, if you decide to go into contracting, you need to factor in your own coverage. Be sure to contact all the main providers and always ask for a discount rate. They may say no, but it is still worth the effort if you get a cheaper policy.