THE FINANCIAL BENEFITS OF CONTRACTING IN 2021

 

For new and seasoned contractors alike it important to make sure you are fully availing of the tax benefits available to you. We spoke to Claire Fagan, Director of Client Services in Fenero to get her insights on some of the financial benefits of contracting in 2021.

 

The global experiences of 2020 have accelerated shifts in how companies and individuals are working with more and more people opting for project-based work over the traditional job. Contracting offers a fantastic array of personal and professional benefits – whether it’s more money, flexibility, or vast career opportunities. If you are considering Contracting in 2021, here are some of the financial benefits that Contracting has to offer.

 

  1. INCOME

The financial aspect of contracting is among the most beneficial reasons why so many professionals choose to contract.

If your skills are in demand, the income can be up to 20 – 30%, or even higher than that of an employee. What’s more, in 2021 Contractors will also benefit from the recently increased Earned Income Tax Credit of €1,650. This increase has put all contractors on the same level of tax credit entitlements to employees, after years receiving a reduced level of tax credits compared to employees, meaning their net take home pay is higher.

For more information on your potential earnings as a Contractor in 2021, Fenero’s free illustrative calculation can show how much you can earn as a professional contractor.

 

For a comprehensive guide on salaries, market trends and D&I insights in the IT Market please see our IT Search Salary Survey here

 

  1. SMALL BENEFIT EXEMPTION SCHEME

Here’s another great financial benefit of contracting in 2021! While it is not new to 2021, many first-time Contractors may be unaware of the Small Benefit Exemption Scheme.

Under this Small Benefits Exemption Scheme, contractors can receive a non-cash bonus of up to €500 in value on a completely tax-free basis each year.

 

  1. BUSINESS EXPENSES WHEN CONTRACTING REMOTELY IN 2021

If you are considering contracting in 2021 and intend to carry out your work remotely, full or part-time, there are several items of expenditure you may be entitled to claim tax relief upon which will help reduce the amount of tax you pay. Some of the most commonly claimed business expenses are;

 

  • Computer Equipment

Computer equipment that is eligible for tax relief includes most equipment that is required for you to effectively carry out the duties of your contract role. Common examples of computer and electronic equipment include desktop computers, laptops, tablets, monitors, printers, and scanners.

In addition, with the prevalence of remote working in 2021 there may be a range of other expenses that may be relevant to you such as webcams, headphones, lighting, additional monitors which may help make work more efficient when being carried out over video call.

There is no upper limit to the amounts you can claim for the necessary computer equipment you require, although it is important to note that all purchases should be reasonable and justifiable to Revenue in cost and quantity.

 

  • Office Furniture

As Covid-19 has resulted in many people working at home for a long period, many contractors have invested in setting up a small, dedicated workspace in their home. If you are considering contracting for the first time in 2021, it’s good to know that these costs can be offset as a business expense. Investing in a comfortable, ergonomically sound, and well-equipped home office can be offset as a business expense. Other items including desk lamps, shredders, and small shelving units, storage, filing cabinet, or a safe are also claimable, however, it is important to note again that all purchases should be reasonable in cost.

 

  • Telephone And Broadband

The requirement for telephone and internet connection is often standard when working from home or remotely.

As a contractor, the amount of your bills which you can claim for tax relief depends on the percentage of your business/work use compared to personal usage. As a general rule of thumb, the following percentages are typically accepted by Revenue as being reasonable:

  • Mobile telephone bills and phone handset – 50%
  • Home telephone bills – 50%
  • Home broadband bills – 50%

If any of the above are dedicated specifically for contract work use, with minimal private usage, up to 100% may be claimed as tax relief. If you also need to pay for your own Zoom or similar subscription services for business communications, the cost of these can also be claimed while Contracting.

 

  • Electricity And Heating Costs

If you are contracting in 2021 and working remotely from home on a continuous basis, you will most likely experience an increase in your home electricity and/or heating bills. However, the good news is that, as a Contractor, you can claim tax relief on these costs.

The amount which may be claimed should represent the additional cost arising due to you contracting from home. There are two methods of calculating what costs are:

  1. E-Worker Flat Rate Expenses

You can claim an amount of €3.20 for each day you are working from home. This flat rate allowance was created to provide tax relief on the cost of heating and electricity. The benefit of an E-Workers claim is that it’s very easy to calculate the relief due; simply multiply the number of days worked at home by €3.20.

  1. Claim a Portion of Bills

If you think €3.20 is too low compared to the actual costs you are incurring, there is an alternative method that can be used. This is achieved by submitting a claim based on the costs actually incurred on your utility bill. The amount claimed however should be restricted to the additional cost being incurred on your bill which you can reasonably estimate as being attributable to the additional time being spent at home due to work.

 

  • Training and development

If you are new to Contracting and undertaking online training and development, or other courses as part of your contract in 2021, you may be able to obtain tax relief on the costs.

A high percentage of the types of training and upskilling undertaken by contractors can be included in your expenses claims to your Umbrella or Limited Company. However, tax relief on certain training and development activities, education, and course fees can alternatively be obtained by claiming tax credits.

 

  1. PENSION AND FINANCIAL PLANNING

The financial benefits of contracting are not just limited to business expenses and increased earnings capacity.

Contracting can offer fantastic pension and wider financial planning opportunities. As a Contractor, you can take advantage over normal PAYE workers in that you can choose to make your pension contributions as Employer Contributions rather than as Employee Contributions. Contractors often avail of Executive Pension options through an Umbrella or Limited Company. The reason being you can get up to 52% tax relief on the contributions. There are a range of other financial planning options available to contractors, particularly those who choose to operate through their own Limited Company.

If pension and financial planning is an area that you wish to focus on in 2021, it may be beneficial to explore how contracting can help you work towards these goals.

If you want to know more about the financial benefits of contracting and the potential contract earnings in 2021 get in touch with Fenero on +353 1 687 7400 or email hello@fenero.ie.

Similarly if you have any questions on the IT Recruitment market get in touch with the IT Search team here!