Should I use a limited company or an umbrella as an Irish contractor?

An umbrella suits short contracts, a first engagement, or anyone likely to return to permanent employment, because there is almost no administration. A personal limited company usually produces a better outcome at higher day rates or over a longer contracting career, particularly where profit can be retained or routed into a pension.

Is it better to take salary or dividends?

Usually salary, supplemented by employer pension contributions. Ireland has no dividend allowance and no reduced dividend rates, and dividends come from profit that has already borne corporation tax without a deduction for the company.

Does IR35 apply in Ireland?

No. Ireland has its own employment status rules, reshaped by the Supreme Court's 2023 Karshan decision and Revenue's five-question guidance since. The consequences of a wrong determination generally fall on the engaging business rather than on you.

Do contractors need to register for VAT in Ireland?

Once turnover passes €42,500 over any continuous twelve-month period, yes. Most professional contractors reach that within the first year, and many should register from the outset because their clients reclaim the VAT anyway.

Can I claim travel and subsistence?

Only for genuine business travel away from your normal place of work. Where you attend the same client site daily for the length of a contract, that site is generally your normal place of work and travel to it is commuting, which is not allowable.

What happens when a contract ends and I take a permanent role?

The company can be kept dormant if you expect to contract again, or struck off if you do not. There are tax consequences to extracting the remaining cash, and doing it in the right order and the right tax year matters. We plan that with you rather than after the fact.

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In short

Irish contractors generally operate through their own limited company or through an umbrella company. A personal company gives more control and a better tax outcome at higher day rates but carries full compliance obligations; an umbrella puts you on PAYE with almost no administration and a fee. We run the company route end to end, at a fixed monthly price.

Limited company or umbrella

	Personal limited company	Umbrella company
Suits	Higher rates, long-term contracting	Short contracts, a first contract, trying it out
Tax on retained profit	12.5% corporation tax	Not applicable — everything is PAYE
Administration	Full company compliance	Almost none
Pension efficiency	Employer contributions from the company	Limited
Cost	Accountancy fee	A percentage or fixed fee per invoice
Exit	Strike-off or liquidation	Stop using it

The two routes Irish contractors actually use

In practice many agencies in IT, pharma, engineering and financial services will not contract with an individual, so the market often settles this before you do.

If you intend to contract for a year or more at a professional day rate, the company almost always wins. For a three-month engagement before returning to permanent work, an umbrella usually does.

Paying yourself

Salary is deductible for the company and taxed on you under PAYE. Dividends come out of profit that has already borne corporation tax, are not deductible, and are then taxed again at your marginal rate with dividend withholding tax applied at source.

So for most Irish contractors the efficient shape is salary for what you need to live on, employer pension contributions for the surplus, and dividends used sparingly.

The director's loan trap

Taking cash out 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 the close company rules, and a disclosure in the financial statements. It is the most expensive way to pay yourself, not a shortcut.

Employment status sits underneath everything

Ireland has no IR35, but it does have employment status determination — reshaped by the Supreme Court's 2023 decision in the Karshan case, with Revenue guidance built around a five-question framework since.

Where an arrangement is found to be employment in substance, the liability for the PAYE that should have been operated generally falls on the engaging business. That is why clients have become careful about how contracts are structured, and why it affects you even though the exposure is theirs.

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 engaged for defined work, or integrated into the client's organisation?

VAT, and what you can claim

Contracting is a supply of services, so the threshold is €42,500 over any continuous twelve months. Most professional contractors pass it in year one, and because agency and corporate clients reclaim the VAT you charge, registration is generally neutral for them and positive for you.

What it costs

One fixed monthly fee covering company compliance, payroll, VAT, bookkeeping, year end and your personal Form 11. Formation is quoted separately where you need a company set up.

No hourly billing, and no charge for picking up the phone when a client sends you a contract you want a view on.

Sources

Contractor & Freelancer questions we get asked

Should I use a limited company or an umbrella as an Irish contractor?: An umbrella suits short contracts, a first engagement, or anyone likely to return to permanent employment, because there is almost no administration. A personal limited company usually produces a better outcome at higher day rates or over a longer contracting career, particularly where profit can be retained or routed into a pension.
Is it better to take salary or dividends?: Usually salary, supplemented by employer pension contributions. Ireland has no dividend allowance and no reduced dividend rates, and dividends come from profit that has already borne corporation tax without a deduction for the company.
Does IR35 apply in Ireland?: No. Ireland has its own employment status rules, reshaped by the Supreme Court's 2023 Karshan decision and Revenue's five-question guidance since. The consequences of a wrong determination generally fall on the engaging business rather than on you.
Do contractors need to register for VAT in Ireland?: Once turnover passes €42,500 over any continuous twelve-month period, yes. Most professional contractors reach that within the first year, and many should register from the outset because their clients reclaim the VAT anyway.
Can I claim travel and subsistence?: Only for genuine business travel away from your normal place of work. Where you attend the same client site daily for the length of a contract, that site is generally your normal place of work and travel to it is commuting, which is not allowable.
What happens when a contract ends and I take a permanent role?: The company can be kept dormant if you expect to contract again, or struck off if you do not. There are tax consequences to extracting the remaining cash, and doing it in the right order and the right tax year matters. We plan that with you rather than after the fact.

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