Q: I have been working on a fixed-term contract with a multinational company. However, my contract is up in December, and it’s unlikely to be renewed or replaced with a permanent offer. The reason for this, I’m told, is a company-wide hiring freeze that is expected to change in the middle of next year.
Between now and then, I have been asked if I would like to continue on as a self employed contractor for a number of months. Before I agree to this, I have a few questions about how it will work. Because I will only be working for one company, would the Revenue have a difficulty with my sole trader status? Also, the company is VAT-exempt, but my income will be over the VAT exemption threshold. Will I still need to charge VAT? I would expect also that I will be using my car for business75% of the time. Will it be possible to claim car-related expenses as deductable because of this?
A: You’re right to be thinking extremely carefully, as making this change in your career is a significant decision. You may be aware, for example, that it will affect your social welfare entitlement if things don’t pan out as you expect. That alone would be enough to put some people off going ahead with this temporary arrangement.
However, if you decide to continue working with this firm, there are a few things you should know. Revenue do have an issue with self-employed ‘contractors’ working exclusively with one company. If Revenue deem you to effectively be an employee, they have the right to assess the company, you or both for any taxes that they deem should have been paid. Therefore, even if you only have one other small client as a sole trader, it’s worth keeping that up.
As for VAT, you will have to charge it. Deductions for use of the car are on a receipted basis for petrol and other expenses. You should keep a detailed diary tracking your business mileage versus your total mileage to get an idea of how much you can deduct. A rough estimate, unfortunately, won’t cut it. If your vehicle will be primarily used for business purposes, your insurance company will have to be informed.
Even though you are thinking of this as a temporary arrangement, it’s important not to assume that you will be made a permanent employee after a few months, so set yourself up in a professional manner. Engage the services of an accountant, keep track of your business expenses and invoicing, and set aside money for your future tax liability.
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