Employed or Self Employed
Are you actually self employed?
When considering an offer of work as a self employed contractor the first thing to know is whether you will actually be considered, for tax purposes, to be self employed.
The distinction between a self employed contractor and an employee is not straight forward and wording in a contract cannot determine if an individual is self employed or an employee. Recently, the Revenue Commissioners have been paying particular attention to the issue of contract work and they have indicated that this is an area they will continue to look at into 2011.
The Revenue Commissioners will consider on a case by case basis whether or not you are in fact a self employed contractor. The main rule they look at is whether or not you stand to profit from the business and whether or not you share the risk or rewards of the business. One particular area they looked at over the last few months was locums in the retail, pharmacy and medical industries. In a large section of cases they determined that the locums i.e. contractors were in actual fact employees and as a result the employer had to pay backdated employers PRSI.
Sole Trader V Company
Once you are satisfied that you will be considered as a self employed the next question is whether you are going to trade as a sole trader or through your own company. In some instances the company who is contracting you will insist that you invoice them through a company. This is the case with multinational companies who often prefer dealing with companies. If you do have a choice, a good rule of thumb is that trading through a company is more beneficial if you make more money than you need for day to day living. There are several factors you should consider when choosing how you want to trade. The following are the main advantages and disadvantages of each trading status;
| Company | Sole Trader |
| A company must be formally incorporated with a written constitution in the form of a Memorandum and Articles of Incorporation. After this they must also maintain and lodge accounts and returns. There are therefore initial and ongoing administration fees. | There are no formation costs. |
| Providing for your pension through a company can be more tax efficent because the company can contribute to Directors/employees pension | Pension contributions are restricted to a percentage of earnings depending on age |
|
Tax is payable monthly and so there are no nasty surprises. (Directors' remuneration paid via PAYE on the 19th of the following month) |
Sole traders and partnerships pay tax in one lump towards the end of the year. Many new sole traders are shocked when their first tax bill arrives. It is crucial that you plan all year round so that you can meet your tax liability (Tax for 2011 is payable; first payment on account on 31 October 2011, balance due on 31 October 2012) |
| Incorporation does not guarantee reliability or respectability but gives the impression of a soundly based organisation. Personally, there may be prestige attached to directorship. | The unincorporated business does not carry the same prestige. |
Taxes
It is important to understand what taxes you may be liable for as a self employed individual. If you are operating as a sole trader you should register for Income tax. If you are operating through a company you should register for Corporation tax.
The business (whether sole trade or not) may also be required to register for VAT. If the value of the services provided exceed or is likely to exceed €37,500 in a twelve month period then the business must register for VAT.
Again, many companies will only deal with VAT registered businesses and will insist on being supplied with a VAT invoice. A business can elect to register for VAT where the turnover is not expected to exceed the threshold. Get in touch on 1890987609 to discuss your VAT obligations.
Consequences of being a contractor
If a company hires a self employed contractor they are not required to pay employer's PRSI on payments, this carries certain consequences for you the contractor in that you will not be automatically entitled to a number of social welfare payments such as jobseekers benefit. The self employed individual is also not entitled to the normal employee benefits such as:
- Holiday pay
- Sick pay
- Redundancy notice and payment
It is important that all these issues are considered before deciding whether or not to become a self employed contractor
Laws and Regulations
When becoming self employed it is important to ensure the business complies with all the laws and regulations (e.g. health and safety regulations etc.). As well as the general laws and regulations certain industry specific regulations may apply (e.g. requirement to hold valid certificate etc.)
Insurance
Insurance is another important area that needs to be considered when setting up a business. Typical items which would be covered would be insurance against fire and storm damage, theft, employer's liability and products liability.
It is also important for self employed individuals to have adequate personal insurance to cover loss of earnings in the event of illness. Keyman insurance is a type of insurance which insures the profits of the business in the event of a key person being unable to work due to illness.
Call us now, to talk about your situation on 1890 98 76 09 or fill out our contact form and we will call you back.
.
