Typically Contractors operate through a limited company structure. This protects you personally, in the event of something going wrong. As a sole trader, you are the business. So if you do something wrong and your client wants to take a case against you, then everything you own is at risk.
However, operating through a Personal Limited Company or an Umbrella Company gives you limited liability. The risk is attached to the company and the company can only pay what it owns – all your personal assets and money are protected. The only case where you lose that protection is if you have acted fraudulently.
Also known as a Private Limited Company, this is a separate legal entity (which gives you limited liability personally). Typically as a Professional Contractor you will be the 100% owner of a Private Limited company.
The company invoices the client you work for and the money is paid into the company bank account. The company owns this money. The company then uses this money to do things such as buy company vehicles, pay you a salary, make pension contributions on your behalf and reimburse you for business expenses you have incurred.
As a company director of a Private Limited Company, you have a responsibility to prepare and submit annual accounts to the Companies Registration Office, file tax returns and ensure the company remains solvent. Setting up a limited company only takes a couple of days, but the tax registrations from the Revenue Commissioners can often take about 6 weeks to get. You won’t be able to invoice your clients until you have a VAT number. You’ll also need to open a business bank account in the company name, so your clients can pay your company for the work you have done.
If you finish contracting and decide that you never want to work as a Contractor again, then you need to legally close down the Private Limited Company.
The term Umbrella Company describes a company which is already set-up and has a bank account and tax registrations. It can be used by up to 6 different contractors at any one time. You just use the company when you need it. The Umbrella Company is managed and administered in full by a third party (eg. Contracting PLUS) which means you have absolutely no paperwork to worry about.
Watch our short video to see how your Umbrella Company works.
There are two types of Umbrella Company; The Director Umbrella and the PAYE Umbrella. The operation of both is essentially the same, however the Director Umbrella Solution is more flexible and a much more popular option as you take home more money.
If you decide you no longer wish to be a Professional Contractor, you simply resign from the Umbrella Company, there is no associated charge for this.
I hope that I have explained how easy it is to get started as a Professional Contractor. Contracting PLUS are experts in this area and would be delighted to help you get established. There is lots more interesting information available on the Contractors Hub section of our website.
Finally there are a number of other factors you should consider before you embark on the journey and these are personal considerations. For example do you think you have the self-discipline to be your own boss? Do you like to work independently? You will no longer be an employee and protections that are offered to employees will no longer apply to you, is that something you are comfortable with? Is your skill set up to date and relevant enough to give you a stable income and repeat contracts? Is your industry open to Contracting in principal? If the answer to all these questions is yes then what are you waiting for? Life as a Professional Contractor is challenging but it is rewarding and many would say much more rewarding working for yourself than for somebody else.
If you’re interested in Contracting, and you’ve never contracted before, then call us and speak to one of our qualified Contracting Consultants and learn how easy it is to get started. We look after your tax, payroll, accounts and can give you all the advice you need to get set up compliantly and you won’t have to worry about any of the administration! It really is Simple!
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