The three structures
| Structure | Suits | Main drawback |
|---|---|---|
| Personal limited company | Higher rates, long-term contracting, retained profit | Full company compliance: CT1, B1, accounts, payroll |
| Umbrella company | Short contracts, first contract, trying it out | Fee, and every euro is taxed as PAYE income |
| Sole trader | Some professions and direct-to-client work | Unlimited liability; many agencies will not engage sole traders |
In practice, agencies in IT, pharma, engineering and financial services frequently require a limited company or an umbrella and will not contract with an individual. The market often settles this question before you do.
Personal limited company
You incorporate a company, it contracts with the agency or client, and it pays you. You are a director and usually the sole shareholder.
The company pays 12.5% corporation tax on its trading profit. You take money out as salary, as dividends, or as pension contributions, and that extraction is taxed separately.
- You control the timing of income, which matters across a year end or between contracts.
- Profit you do not need can stay in the company at 12.5% rather than being taxed immediately at up to 52%.
- Employer pension contributions from the company are the most efficient extraction route available to most contractors.
- You carry the compliance: corporation tax return, CRO annual return, financial statements, payroll, and probably VAT.
Salary or dividend?
Salary is deductible for the company and taxed on you under PAYE with USC and PRSI. Dividends are paid from after-tax profit, are not deductible, and are taxed on you at marginal rates with dividend withholding tax applied at source.
Because dividends are paid out of profit that has already borne corporation tax and are then taxed again without a deduction for the company, the usual position for an Irish contractor is that salary is the more efficient route for the money you need to live on, with pension contributions taking the surplus. This is close to the opposite of the standard UK contractor answer, and contractors moving between the two jurisdictions get it wrong regularly.
Do not import UK contractor tax advice into Ireland. Ireland has no dividend allowance, no lower dividend rates, and a different PRSI structure. The low-salary high-dividend model does not work here.
The director's loan trap
Taking money out of the company without processing it as salary or a dividend creates a director's loan. That carries a benefit-in-kind charge on the notional interest, a 20% income tax charge on the company under close company rules, and a disclosure in the financial statements. It is not a shortcut; it is the most expensive way to pay yourself.
Umbrella companies
An umbrella employs you. It invoices the agency, receives the payment, deducts its fee and your employment taxes, and pays you a net salary through PAYE.
There is almost no administration, no company to wind up when you stop, and no compliance risk sitting with you. The cost is that everything is taxed as employment income at your marginal rate, and you pay a fee for the privilege.
For a first contract, a three-month engagement, or a contractor who intends to return to permanent employment, an umbrella is usually the sensible answer. For someone contracting at a good rate for years, it leaves money on the table every month.
Employment status sits underneath all of it
Ireland does not have the UK's IR35 regime, but it does have employment status determination, and the Supreme Court's 2023 decision in the Karshan case reframed how it is assessed. Revenue has since published guidance built around a five-question framework.
The risk is not theoretical. If an arrangement is found to be employment in substance, the liability for the PAYE that should have been operated typically falls on the engaging business, and that makes clients cautious about how contracts are structured.
- Can you send a substitute, and is that right real rather than decorative?
- Who controls how, when and where the work is done?
- Do you carry financial risk — can a job cost you money?
- Do you provide your own equipment?
- Are you integrated into the client's organisation, or engaged for a defined piece of work?
VAT
Contracting is a supply of services, so the threshold is €42,500 of turnover in any continuous twelve-month period. Most contractors on a professional day rate pass it inside the first year and many are over it from the first contract.
Because your client is normally a VAT-registered business that reclaims the VAT you charge, registration is generally neutral for them and positive for you. Where the client is outside Ireland, place-of-supply rules apply and the invoice may be zero-rated under the reverse charge — which still requires you to be registered and filing.
What you can claim
The test for a company is that the expense is incurred wholly and exclusively for the purposes of the trade.
| Usually allowable | Usually not |
|---|---|
| Equipment, software and professional subscriptions | Ordinary commuting to a normal place of work |
| Professional indemnity and public liability insurance | Everyday clothing, including business suits |
| Accountancy and company secretarial fees | Client entertainment |
| Business travel and subsistence away from your normal base | The private proportion of any mixed-use cost |
| Employer pension contributions from the company | VAT on petrol and on most passenger cars |
| Training that maintains skills used in the trade | Training to acquire an entirely new profession |
What the first month should look like
- Decide the structure before you sign, because the contract may need to be with a company.
- Incorporate, or sign up to an umbrella, and allow time for the bank account.
- Register the company for corporation tax, for PAYE as an employer, and for VAT where applicable.
- Set up payroll and run yourself a salary from the start rather than taking ad hoc drawings.
- Open a second account and move the tax reserve into it as each invoice is paid.
- Note the Annual Return Date and the corporation tax dates in a calendar you actually look at.