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How you structure yourself as a contractor can have a huge effect on the tax you pay, the regulations you have to comply with and most importantly, the amount of money you take home after tax.
CXC Global's team of tax and financial experts can assist in selecting the structure that will work best for you.
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Structure Considerations
When deciding which structure is right for you, there are number of issues to take into consideration. These include:
- Start-up costs
- Personal responsibility for debts
- Ongoing compliance costs
- Risks of non-compliance
- The amount of accounting and administration required
- Tax advantages and benefits
- Any general disadvantages
Click on the links below to see the advantages and disadvantages of these common structure options, and how CXC Global can help.
Pay As You Earn (PAYE)
PAYE (or Pay As You Earn) means you become an employee of a recruitment agency or client. Income tax is deducted from your pay by them, before you receive it.
Advantages
- Minimal administration
- Low cost, with no start-up, exit or on-going expenses
- Pension paid as required by the Malaysian Government
Disadvantages
- Unlikely to be tax efficient, with tax often paid at the highest rates
- No fringe benefits
- Tax benefits only annually
- Cost of tax return and financial advice at your own expense
- Undermines the advantages of contracting
Summary:
Whilst reducing paperwork and structure costs, this is unlikely to deliver the best outcome in terms of money in your pocket. This option is only beneficial if you have little or no costs that you can use to offset against your tax - such as a vehicle running costs, computer equipment, home office and mobile phone.
How CXC Global can help
- Basic PAYE payroll management
- Full insurance cove for Professional Indemnity Insurance
- Tax advice to determine if PAYE is right for you
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Sole Trader or Partnership
These options are often the simplest and the first steps towards being 'self-employed'. You receive 100% of your income then are responsible for calculating and paying all statutory requirements. This option is not popular with employers and recruitment agencies, as they are potentially exposed to liabilities.
Advantages
- Potential for more flexible tax situation than PAYE
- Paid gross
- Easy to set up and wind up
- Simple to run, with minimal record and book-keeping
- Owner retains authority and control
- Do not have to contribute to Pension Funds
Disadvantages
- Many agencies and employers will not engage with a sole trader
- Unlimited liability -a sole trader is personally liable for any debts that the business incurs
- Can be difficult to raise finance
- Insurances difficult to obtain and costly
- Significant administration costs.
- Cost of an accountant
- No fringe benefits
- Tax expenses
- Risk of an audit by the Inland Revenue Board
Summary:
Although potentially more flexible than the PAYE option, this flexibility will come at a dollar cost, as well as your time to run.
How CXC Global can help
- By working through CXC's structure there is no need to become a sole trader as we can provide most of the benefits without the cost or administration
- CXC Global will cover Professional Indemnity Insurance
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Limited Company
Provides the opportunity to build and retain profits, as well as expanding the business. A company exists as a formal and legal entity in its own right. It is separate from its shareholder(s) or owner(s).
Advantages
- Access to the company tax rate
- Ownership can be transferred, allowing for succession planning
- Ability to retain profits to expand the company
- More tax benefits
- Limited liability
Disadvantages
- Tax rate is a flat rate, so the benefits depend on your earnings level, and overall financial situation.
- If you work for only one end client at a time, the IRB can rule that you are an employee and demand that your company pay them the tax owing on the total amount billed. To safeguard themselves, most contractors prefer to work through a management company.
- High start-up and wind-up costs
- High ongoing administration costs
- Can only claim a very limited expense level (same as PAYE)
- Costs are incurred even when not trading
- Time-consuming statutory reporting obligations
- Considerations such as provisional tax
- Fringe benefits often hard to administer
- Liable for personal tax of contractor
- Insurance difficult to obtain and costly
- Director liability
Summary:
Working as a Limited Company allows you access to funds through the exchange of share ownership or loan from a financial institution and all shareholders are legally protected by law. However, administrating your day-to-day expenses, income and tax liabilities can significantly add to your work burden.
How CXC Global can help
- Provide outsourced payroll service
- Tax advice and expertise in accounting, tax and payroll
- Fee includes Professional Indemnity Insurance
- Other services, such as financial planning
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PAYE with Salary Packaging
You join as a member of CXC Global. We invoice your agency or end client on your behalf, pay you directly, and manage all your tax, insurance and statutory requirements. We also structure your salary in a way that ensures more money in your pocket.
Advantages
- Managed cashflow
- No start-up costs
- Salary Packaging benefits such as vehicle expenses, computer, mobile, meal allowance, books and magazines
- Your administration time and costs significantly reduced
- Statutory requirements taken care of
- Free access to tax, accounting and financial planning experts
- No additional audit or accounting fees
- Nominated account management personnel
- No director liability
Disadvantages
- Management fee. However this is tax deductible
Summary:
Working through CXC Global's PAYE with Salary Packaging structure offers all the advantages of a Limited Company structure without the onerous administration or responsibilities.
How CXC Global can help
- Significantly reduce your administration and tax burden
- Tax effective structure that puts more money in your pocket
- High level of personal service
- Free financial advice
- Online reporting of timesheets, payslips and contracts
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