Guide To Contracting

1. How Harvey Nash Ireland will work for YOU

Harvey Nash supply contactors for specific project assignments including project management, development and support assignments to our contractors. We believe in keeping our contractors working continually, and will endeavour to find the best contracts for all our contractors, You will be given first refusal on relevant assignments.

Our consultants have an IT background and consequently a thorough understanding of the marketplace. They are professionally trained to provide the best possible advice and guidance.

Standard Procedures for Contractors when working through Harvey Nash. When providing contractor services to Harvey Nash, it is essential to provide us with the following information:

• Full Name and Address
• Company Name or Business Name
• Company Registration Number
• Irish VAT Registration Number
• Payment details: Bank account details (including IBAN and Swift Address)
• Contractors should be registered for VAT in Ireland if they are Irish Nationals.

At Harvey Nash we can provide all the advice and guidance you may need. Telephone Gavin Fox or Michelle Daly on (01) 6741400 and take the first step in an exciting and challenging new career.

2. Choosing Between Contract and Permanent Work

Before embarking on a contracting career it is essential to weigh up the pro's and con's of contracting, from a marketing and business perspective.

Advantages of Contracting

1. Money: Because contracts are short-term, most employers are prepared to pay a substantially higher rate than would be paid to permanent employees. The employer benefits through savings in sick pay, holiday pay etc.

2. Tax-Efficient: Contract work can be more tax efficient than salaried employment assuming organised tax planning through the contractor's business. Also, as tax is not deducted at source, contractors can earn interest on their income.

3. Self-Training: Contractors can choose their own form of training (tax-deductible), and hence can keep abreast of leading technology.

4. Flexibility: Contractors are free to change jobs on a regular basis, without giving formal notice.

5. Experience: Contractors are generally more marketable due to their exposure to a wide variety of systems and organisations, which broadens their knowledge base.

6. Social: Contractors regularly meet new people through different assignments.

7. Company Politics: Contractors are usually not involved.

8. Independence: A contractor is his or her own boss, and being self-employed can give great satisfaction.

9. Holidays: Not being fixed to set annual holidays. This means extended holidays may be taken in between contracts.

10. Travel: Experienced contractors can market themselves in most countries in the world.

Disadvantages of Contracting

1. Paperwork: Contractors must keep records of all transactions so they can prepare Income Tax and VAT returns.

2. Tax: The contractor is responsible for all tax payments, hence he/she must pay on time or face interest and penalties.

3. Training: There is usually no in-house training provided to contractors.

4. Involvement: A contractor is not usually involved in management decisions.

5. Adaptable: Contractors will work in continuously changing environments and must be very adaptable to this.

6. Insecurity: Contracts are for specific periods of time and tend to range from 3 months to 1 year only.

7. Social Welfare: Contractors do not receive pay-related social insurance payments such as sick pay or unemployment benefits.

8. Accountants: In most cases, an accountant will need to be appointed. This will be an additional cost.

9. Cash-flow: Contractors must be conscious of cash situation at all times, so they can pay tax when it falls due.

10. Holiday/sick pay: Contractors receive no holiday or sick-pay when absent from work, making it advisable to source a good Permanent Health Insurance Policy.

3. Setting Up As a Contractor

There are a number of decisions you must make when you decide to set up as a contractor:

1. What route do I take?

2. There are three main routes an individual may follow when he has decided to enter into a contract

(i) Harvey Nash (Agency) Employee

(ii) Umbrella Company (Composite Company)

(iii) Limited Company A.

(i) Harvey Nash (Agency) Employee

The individual becomes an employee of Harvey Nash and we place him on a contract at the premises of a third party. Generally very few of the advantages and disadvantages mentioned earlier apply to agency employees. Briefly the following points are relevant: (a) Earnings will be higher than those of direct employees, but will generally be approximately 15% lower than those of the self employed of limited company routes. This is because Harvey Nash will deduct employers' Pay Related Social Insurance (PRSI) from the earnings of the contractor. (b) Full tax and PRSI will be deducted form earnings at source. (c) None of the possible tax advantages of running one's own business will accrue to a Harvey Nash employee.

(ii) Umbrella Company (Composite Company)

The concept of the Umbrella Company (or Composite Company as it is sometimes known) has become popular recently. An Umbrella Company is a halfway point between the agency employee and Limited Company routes. The Umbrella Company is set up and run by a third party. The contractor becomes an employee of the Umbrella Company and all invoicing, VAT returns, tax, administration, bookeeping etc. are handled outside the control of the contractor. The contractor is paid a salary related to his earnings. The concept is directed primarily at contractors on foreign assignment and some contractors use it as a first step towards having their own company. Individuals who are on quite a low contracting rate and/or those who are going to contract for a short period of time, may find it cost effective to use an umbrella company.

(iii) Limited Company

Most contractors follow the route of forming a Limited Company on commencement of their career as a contractor.

A limited company must be set up and registered with the Companies Registration Office. It must have at least two Directors and shareholders and the cost of setting up the company is approximately €400.

A limited company must prepare annual accounts and have them audited. A summary of these audited accounts must be lodged with the Companies Registration Office. From a pension point of view the company can contribute - without restriction to a pension for a director - and can obtain a deduction from profits for this amount.

The director is not liable to account for any income tax on these payments made on his behalf. If a director has his own motor vehicle he can claim a mileage allowance for any business miles he travels on behalf of the company.

The mileage rate depends on the car and on the annual business miles travelled. The company can obtain a deduction from its profits for these payments and the director is not taxed on them. However, where mileage is claimed the director must pay his own car insurance, motor tax and petrol costs.

A company can have any year-end it chooses and no commencement or cessation provisions apply. As a company is a separate entity from its directors, no director can be held personally liable for the debts of the company, unless a personal guarantee is given in any case.

How to set up as a Limited Company: The most common ways of setting up a limited company are through a company registration agency or through an accountant or solicitor. The contractor may choose a company name and specify the objects of the company. The process takes about two weeks.

Alternatively, an "off-the-shelf" company can be purchased and tailored at extra cost.

The following forms need to be completed:

Form B10 - Appointment of Director and Secretary

Form B2 - Notification of Registered Office

Form A1 - Issue of Shares

Form TR2 - Application for registration for Corporation Tax, VAT and PAYE/PRSI.

Form 12A - Application for a certificate of tax-free allowances.

The following documents will be provided:

Certificate of Incorporation: A certificate setting out where and when the company was incorporated, and its registered number

Memorandum and Articles of Association: The constitution of the company setting out the reasons for which the company was formed and any restrictions on the conduct of its day-to-day business

Setting up a Bank Account It is recommended that the contractor open two bank accounts in the name of the company: A current account for the day-to-day transactions of the company. A deposit or high-interest account which should be used to save funds for payment of VAT and tax bills.

Advantages of setting up as a Limited Company

Limited Liability: A limited company provides an amount of security to a contractor in that in most cases any liabilities or losses are limited to the company. With recent legislation, if there is evidence of fraud, company directors may become liable for company actions.Tax Planning: Trading through a limited company can provide better tax planning opportunities for contractors e.g. restrictions of pension payments. Disadvantages of setting up as a Limited Company Costs: A limited company costs in the region of €400 to set up

Red Tape: Incorporation of a limited company involves an amount of legal documentation being prepared and kept up to date on an ongoing basis. The key criteria therefore for an individual to base the decision on whether to incorporate a limited company or not is ultimately whether the tax benefit of having a limited company outweighs the additional costs of incorporation and audit.Trading through the medium of a limited company does give more flexibility regarding personal tax and pension contributions. However, the extra costs involved i.e. preparing audited accounts, preparing corporation tax, VAT returns and personal tax returns and having to have accounts filed in the Companies Office must be taken into consideration before a decision on which form of trading is taken.

B. Value Added Tax (VAT)

Having decided to trade as a limited company the contractor must consider VAT. In many cases the contractor may not have the option as to whether or not to register for VAT as all contractors with sales in excess of €27,500 must register for VAT.

The implications of VAT registration are as follows: VAT must be charged on all invoices issued, at 21%. VAT on business expenses (other than entertainment and motor) can be reclaimed.

Payments of VAT liabilities are made to the Revenue Commissioners every two months. Proper books and records relating to VAT must be kept.

C. Sample Invoice

D. Other Issues

Income Tax

When operating through a limited company or all contractors must make annual Income Tax Returns. These returns refer to the contractors 'profits' for the year and taxes are calculated based on this. Most contractors use accountants to prepare these returns for them.

Mortgages and Pensions

Mortgages A lot of people are concerned as to whether Financial Institutions will give mortgages to contractors. They will once you can supply them with relevant information concerning your business.

Pensions

Pension planning is a minefield that many contractors must negotiate for themselves. It is important to look for good advice and a general insurance company that are familiar with contractors and have a strong track record. Some companies give a higher investment allocation, this is why good advice from an independent broker is so important.

Irish Citizens Returning to Ireland to take up a Contracting Position

Where Irish citizens who have been abroad return to Ireland to contract here, they may qualify for beneficial tax treatment if their contract is routed through an offshore umbrella type company.

Main Qualifying Conditions: You must have been a non-Irish tax resident of the previous three tax years. This condition is normally satisfied if you have been abroad, except for short visits home, for over 31 months.

You are taking up a contract position- although certain permanent employment positions can also qualify.

You intend to remain in Ireland for over six months in a tax year.

Advantages

Income earned under your contract is only taxed here to the extent it is brought into the State within your first three years of tax residence. Any income accumulated abroad may be brought in to Ireland tax-free after the third year.

Full Irish Social Security contributions are made and consequent entitlements are preserved.

Full tax allowances are available for offset against the portion of income brought into the State.

Any pre residence savings may be remitted tax-free.

No tax is applied at source and the first tax payment is not due until the tax year after your return. This is a guide only and specific advice should be taken from your accountants.

Contracting Overseas

More and more individuals are taking advantage of the number of contract positions available overseas. When undertaking an overseas contract, a number of special issues have to be considered, and the question of where exactly the contractor is going, and for how long becomes critical. Local tax knowledge must be obtained and correct procedures followed if unnecessary penalties are to be avoided.

4. The Next Step… Introduce yourself to Harvey Nash

Prepare a CV

Contact an Accountant

Set up a Company

Open a Company Bank Account

Register for VAT

This information is designed as a reference guide only for new and established contractors.