How Professional Contractors can save 5k in tax in 2020
We recently caught up with Jimmy Sheehan, Commercial Director with Contracting PLUS, our preferred supplier in Ireland for Umbrella Companies and Personal Companies for Contractors.
We asked him about Contractors working on a project or portfolio basis and was there anything specific they could do to make their money go further.
“Every good contractor knows the value of a proactive accountant and at Contracting PLUS every Contractor has a Dedicated Account Manager who works with them to determine what expenses can be legitimately claimed. However there’s no harm in going over some of the ‘old reliables’ – a little forward planning can often mean substantial tax savings.
1.Claim your Medical expenses
The average family spends over €2,500 in medical expenses every year, but less than 50% of people claim tax relief on the cost of their medical expenses. €20% of €2500 is €500.
If you have health insurance, this often only repays a portion of the cost. Tax relief is still available on the balance.
2.Buy a gift voucher for €500
The ‘Small Benefits Scheme allows you purchase a €500 voucher through your limited company. That means you now have €500 to spend. To have €500 cash in your pocket, you’d need to earn more than €1000. Another €500 saved in tax.
3.Pay for your health insurance through your limited company
Health Insurance is a benefit provided by many employers and those who avail of it will know there’s always a BIK (Benefit in Kind) line on your payslip. It’s the same principle with your own limited company. When the company pays the premium for you, the BIK is applied to your pay. The tax saving for an annual premium of €1500 is a little over €540.
4.Start (or increase) your pension contributions
If you’re paying into a pension you might think this a silly point to make, but half of self-employed people don’t have a pension.Pension funding is extremely attractive for contractors as you can process the pension payments through your company and get tax relief up to 51%. If we assume an average IT contractor day rate of €450, the annual earnings could be in the region of €108,000. We’d always recommend putting 8% of earnings into a pension. Although paying €8640 on a monthly basis your take-home pay would only drop by around €350.
In this example that would be a tax saving of up to €4400.
So there we have it. If you’re able to implement all the above then that’s a saving of €5,940. Not a bad start to the New Year!
If you’re interested in Contracting, and don’t know where to start with Limited company structure and insurances and tax, then call Jimmy in Contracting PLUS on (01) 611 0707 or emailjimmy.sheehan@contractingPLUS.com