Contractor vs PAYE Comparison Ireland 2026

The optimal strategy is to take a director salary up to the standard rate tax band €42,000 to maximise tax credits, and extract remaining profits as dividends.

For a single contractor, this means €42,000 in salary, incurring Employer PRSI at 11.05% but preserving your full tax credits.

Your Ltd company pays Corporation Tax at 12.5% on trading profits. When you extract dividends, a 25% Dividend Withholding Tax (DWT) is deducted.

The grossed-up dividend is added to your personal income and taxed at your marginal rate, with DWT acting as a credit. This means for most contractors, the effective dividend tax rate is approximately 21.9% at the company level.

Revenue uses Section 12 and Section 13 rules to determine whether a contractor is genuinely self-employed.

Key factors include: multiple clients, right of substitution, control over work, own equipment, financial risk, and integration into the client business. A score of 3/6 with a grey risk rating applies to your current assessment.

If Revenue reclassifies you as an employee, they can assess up to 4 years of back taxes, interest, and penalties.

Adding your spouse as a co-director can unlock additional tax credits and standard rate bands. Each director can draw a salary up to €42,000 (single) utilising their own personal and employee credits.

Currently, with spouse director disabled, you could potentially save up to €1,875 per year in additional tax credits.

At a day rate of €550/day for 230 days, your Ltd company structure yields approximately €64,614 in net benefit.

Compared to a PAYE salary of €45,000 which nets €37,027, contracting is +€27,587 per year.

If your annual invoice exceeds €75,000 for services (or €37,500 for goods), you must register for VAT. Currently your annual invoice is €126,500, which exceeds the threshold.

Once registered, you charge 23% VAT on invoices and can reclaim input VAT on business expenses. Your day rate should be quoted as VAT-exclusive — the 23% is added on top.

Common deductible expenses include: accountancy fees (€2500/yr), professional indemnity insurance (€1200/yr), home office costs, equipment, training, travel, and subsistence.

You're currently claiming €4,900 in annual expenses, representing 3.9% of gross revenue — within the typical 5-15% range for contractors.

Certain sectors can use the flat-rate VAT scheme, allowing you to keep the difference between the VAT you charge (23%) and a lower flat rate (typically 13.5%–14.5% for accountants/lawyers).

This means you effectively earn extra profit on the VAT margin. However, you cannot reclaim input VAT on expenses under this scheme. Consult your accountant to see if it applies to your sector.

If Revenue reviews your status under Section 12/13 and determines you are a "false self-employed" employee, they can assess up to 4 years of back PAYE/PRSI, plus interest at approximately 10% per annum, and penalties up to 100% of the underpaid tax.

Your current risk assessment is moderate — estimated back-tax liability of €18,975 over 4 years. Take corrective action if needed.

An umbrella company handles payroll, tax, and compliance for you — you're treated as an employee of the umbrella. This is simpler but typically less tax-efficient than a Ltd company because you pay full PAYE/PRSI/USC on the entire income.

Ltd companies offer Corporation Tax at 12.5%, expense deductions, and dividend extraction. The trade-off is higher admin complexity and accountancy costs (€2500/yr). Use the Umbrella vs Limited calculator for a detailed comparison.

As a contractor with a Ltd company, you can make employer pension contributions directly from the company — these are deductible against Corporation Tax (saving 12.5%) and are not subject to PAYE/PRSI/USC.

Your current pension funding is €0/yr. The maximum tax-relievable pension contribution is the lower of €115,000 (earnings cap) and your age-related percentage (15-40%). Use the Pension Tax Efficiency calculator to optimise.

A close company surcharge of 20% applies to undistributed investment income retained in your Ltd company. This typically affects contractors who build up significant retained profits and generate passive investment income (e.g. rental income, interest) within the company.

To avoid the surcharge, extract profits regularly as dividends or increase director salary. Your company currently retains €6,559 — if this generates investment income, the surcharge may apply.

If you work from home, your Ltd company can claim a home office expense — typically €2-€5 per day worked, or a portion of utility bills based on floor area used for business. Your current office days: 230 days.

Mortgage interest is not directly claimable through the company unless the property is owned by the company and used for business purposes — a complex arrangement requiring professional advice.

The optimal strategy: pay a director salary up to the standard rate band (€42,000 single / €51,000 married), then extract remaining profits as dividends. This maximises tax credits while keeping salary low enough to minimise Employer PRSI at 11.05%.

Your current structure: €42,000 salary + €59,030 dividends = €64,614 net personal spendable. The effective tax rate on your Ltd company structure is 48.9% (51% efficiency).

Transitioning from PAYE to contractor involves: 1) Register your Ltd company with CRO, 2) Register for Revenue payroll (ROS), 3) Set up a business bank account, 4) Register for VAT if turnover exceeds €75k, 5) Notify your current employer or find contract roles.

The financial delta: your PAYE role at €45,000 nets €37,027. To match this net as a contractor, you need approximately €52,896 gross invoice (assuming 70% efficiency).

If Revenue reclassifies you, the back-tax assessment covers 4 years of underpaid PAYE, Employer PRSI, and USC — roughly 25-35% of gross invoice per year, plus interest and penalties.

At your current rate of €126,500 gross invoice, the potential liability is approximately €126,500–177,100 over 4 years. Your current risk score of 3/6 (grey) determines how aggressively Revenue would pursue this.