Dr. Brian Keegan:

For starters, we have a distinction in tax - I do not want to get technical in any way - between a contract of services and a contract for services. If one is an employee, one is engaged by an employer to provide under a contract for services. An employee also has all kinds of entitlements under the employment and labour laws and protections that exist within the State's ambit. If one is providing a contract of services, for example, if one is trying to operate through a company, then one no longer has those kinds of protection. That is one aspect of it.

I will use a simple example to show how it works in practice. Let us say that I was to incorporate my business and that, instead of invoicing as Brian Keegan, I invoiced as Brian Keegan Limited. It would simply be a matter for me of putting the work through the company. The company would keep its own books and records. Invoices would be issued from Brian Keegan Limited and that money would belong to Brian Keegan Limited. As the Deputy rightly pointed out, I would be paid a salary by the company. In so far as the profits of the company were not extinguished from the salary, those profits would be liable to tax at 12.5%. The wrinkle, which links with the previous questions on close company rules, is that, if I leave the money that was taxed at 12.5% in the company, it becomes liable to a surcharge of 20% after 18 months. For me to avoid that, I would have to pay out the money I had left in the company by way of a dividend, in which case it would be immediately taxable under the income tax rules. These are all of the wrinkles.

As I said in private session, when I am asked by individuals from time to time whether it is worth their while to incorporate, I always tell them not to do it for tax purposes. If there is a commercial reason for doing it, for example, if they need the protection of limited liability, then by all means they should do it, but they should not do it for tax reasons because there is no tax advantage.