There are advantages to working for yourself. More control of your time, your work and your location are some. But, on the flip side, you are responsible for everything. If you\u2019re thinking of striking out on your own, here are the things to get right.<\/p>\n
At the end of maternity leave in 2013, Emma McKernan, a chartered accountant and registered auditor, decided to makes changes to her working life<\/p>\n
\u201cI didn\u2019t want to go back to work in Dublin so I set up a firm here in Wicklow,\u201d says McKernan. Switching from being an employee to working for herself gave her more control when her children were young.<\/p>\n
\u201cI didn\u2019t go [at my business] hell for leather when the kids were younger because I was there with them doing everything. But now that my oldest is in sixth class and they don\u2019t need me as much, I am now pushing the firm,\u201d she says of her company McKernan & Co, an independent accountancy firm in Wicklow town.<\/p>\n
As a mentor with Wicklow Local Enterprise Office, she also advises others taking the same path.<\/p>\n
\u201cIf [a parent] has their business in place, it gives them a chance to tick along while they have their kids and be ready to push further as their kids get older,\u201d says McKernan. \u201cI\u2019m seeing it with more men now too. They are saying, the kids are older now so I can put more into it.\u201d<\/p>\n
If you are thinking of working for yourself, it\u2019s important to structure things properly. Your options include being a sole trader or setting up a limited company.<\/p>\n
\u201cIf someone is coming off maternity leave for example, or they are wanting to get back into working after a break, or they are not sure what they want yet, setting up as a sole trader is 110 per cent the best way to go,\u201d says McKernan.<\/p>\n
She advises sole traders in her work and describes them as \u201cpeople who are confident in what they do\u201d. They include IT consultants, film industry professionals, tradespeople, online retailers, alternative health practitioners and hairdressers.<\/p>\n
\u201cIf you start as a sole trader, it\u2019s cheap to set up and it\u2019s easy to get out of,\u201d says Mark Quinlan, a chartered accountant with Dunne Quinlan & Co in Kilcoole, Co Wicklow. \u201cIf you start off as a limited company, it\u2019s like bringing a child into the world \u2013 with the costs, the obligations, the compliance and the discipline required.\u201d<\/p>\n
You don\u2019t have to be a limited company to have a business name either, he says. \u201cIf you want to give yourself a separate identity other than your own name, you can register a business name for about \u20ac20 with the Companies Office.\u201d<\/p>\n
The first step to becoming a sole trader is to register for income tax with Revenue\u2019s Online Service (ROS), and then fill out a TR1 form. Income tax is paid once a year using a Form 11 tax return.<\/p>\n
If your turnover is going to be more than \u20ac40,000 a year for the provision of services, you must register for VAT too, says Quinlan.<\/p>\n
For those just starting out, the \u20ac40,000 threshold might be moot, but if it looks like your turnover will exceed that, register immediately, he says. \u201cDon\u2019t wait until you get to \u20ac40,000 and then register because you could technically be liable for VAT on sales you didn\u2019t even charge VAT on.\u201d<\/p>\n
Those buying expensive equipment or a commercial vehicle may decide to opt into registering for VAT anyway because they can claim VAT back on those purchases, says Quinlan.. Registering for VAT does however mean charging VAT to your customers. Depending on your competitors, this may make you uncompetitive.<\/p>\n
\u201cIf you\u2019re a dog walker and none of your competitors are registering for VAT, you shouldn\u2019t either if you haven\u2019t hit the threshold,\u201d says McKernan. \u201cYou will be putting your prices above everyone else because you will be charging VAT.\u201d<\/p>\n
Dealing with your own tax \u2013 being \u201cself-assessed\u201d \u2013 can seem onerous. You can use a professional to help file your Form 11 or make a stab at it yourself.<\/p>\n
If your accounting year corresponds with the calendar year, you must pay preliminary tax for 2024 by October 31st, 2024, based on an estimate of your liability for the full year. At the same time, you make a tax return for 2023 and pay any taxes outstanding for that year.<\/p>\n
\u201cSomeone said to me, finance is the biggest part of my business, but it\u2019s not my business, it\u2019s not what I do,\u201d says McKernan. \u201cYou become your own Finance department; you have to do your own taxes.\u201d<\/p>\n
You\u2019ll be filling in a blank form the first year but parts will be pre-populated for you to update thereafter, she says.<\/p>\n
If you file the paper tax return early, before August 31st, Revenue will complete the self-assessment section on your behalf.<\/p>\n
\u201cThey will check it over for you with no penalties,\u201d says McKernan. Revenue\u2019s helplines are helpful and they are patient with those trying to do the right thing.<\/p>\n
People who are self-assessed need to be disciplined, setting aside some income each month to pay their tax bill.<\/p>\n
\u201cIt\u2019s good discipline to have a separate business account to a personal account,\u201d says Quinlan. \u201cTransfer an amount out to your personal account every month as your budget to live, but leave the rest,\u201d he says.<\/p>\n
There\u2019s no magic number as to how much to set aside for tax. Everyone\u2019s circumstances can differ based on marital status, tax credits and a spouse\u2019s income.<\/p>\n
\u201cMaybe someone hitting \u20ac33,000 should be keeping aside roughly 50 per cent: for someone else, they could be earning \u20ac42,000 before they have to keep that aside,\u201d says McKernan.<\/p>\n
\u201cFor a single person, you are looking at earning \u20ac42,000 before you get into the 40 per cent bracket, but for a married couple, one spouse can earn \u20ac51,000 and another \u20ac33,000,\u201d she says.<\/p>\n
When you do hit the 40 per cent tax bracket, you\u2019ll need to keep aside 40 per cent of your earnings.<\/p>\n
Those earning less than \u20ac5,000 don\u2019t get charged PRSI. Once you go over that, you have to pay a minimum of \u20ac500. Over \u20ac12,500, it rises to 4 per cent of all your income, says McKernan.<\/p>\n
If your gross income is over \u20ac13,000 in a year, you must pay the Universal Social Charge (USC). The rate rises with your income. For example those earning from \u20ac25,760.01 to \u20ac70,044 will pay 4 per cent on that money.<\/p>\n
\u201cSo you are looking at 48 to 50 per cent of all of your income [in tax] once you get into the 40 per cent tax bracket, so it\u2019s tough,\u201d she says.<\/p>\n
Tax can be a big financial hit in the early years of trading, says Quinlan.<\/p>\n
If you started work now, you\u2019d only be working a few months before the year ends. \u201cYour preliminary tax is going to be based on a very small period. So then you get to October 2026 and you\u2019ve got a full year\u2019s accounts for 2025 to pay tax on, and if you\u2019ve only paid a small amount of preliminary tax, you have that balance to pay, plus the preliminary tax for 2026 which is now based on the full year of 2025.\u201d<\/p>\n
\u201cIf you haven\u2019t put money aside, you are in trouble.\u201d<\/p>\n
For married couples, it can make sense for a lower earning sole trader to give their tax credits to a higher earning spouse.<\/p>\n
\u201cMost people will say, I\u2019ll give my credits over to my husband because I\u2019m only starting, my income is going to be low,\u201d says McKernan. But as the sole trader earns more, the absence of tax credits can start to bite.<\/p>\n
\u201cIt\u2019s grand when you are earning little but as your income starts increasing, as you are hitting \u20ac30,000, \u20ac35,000, you are hitting the 40 per cent bracket already so it becomes less appealing and that comes as a bit of a sting for the sole traders I know,\u201d she says.<\/p>\n
You may decide to take back your tax credits.<\/p>\n
Sole traders must do without employer paid holidays, pension contributions, health insurance, maternity and paternity leave and training. If your computer claps out, there\u2019s no IT department to call either. But then there\u2019s the autonomy, the potential to earn more while being able to claim back some expenses.<\/p>\n
These include mobile phone, broadband, electricity, data storage fees, professional development, professional subscriptions, books, accountancy fees and motoring costs where they are for business purposes, says Quinlan. Be rigorous at keeping receipts for everything, he says.<\/p>\n
Sole traders whose income reaches a certain point may decide to form a limited company, says Quinlan.<\/p>\n
\u201cIf you are making enough money, a limited company is the best vehicle by far because your marginal tax rate in a limited company should be 12.5 per cent, as opposed to 52 per cent on income,\u201d he says.<\/p>\n
There are a few factors to consider when switching structure. \u201cI normally have a guideline in my head. If you are earning between \u20ac10,000 and \u20ac20,000 more than you need to live, a limited company is definitely of interest to you,\u201d says Quinlan.<\/p>\n
\u201cAs a pension vehicle, and as a way of storing up wealth, a limited company is fabulous, but you need to be making the money to do it,\u201d he says.<\/p>\n
\u201cIf you are getting taxed at 50 per cent, you have a lot less money left to invest in your business. Reinvesting in your business is more affordable in a limited company.\u201d<\/p>\n
Sometimes clients will prefer to do business with a limited company.<\/p>\n
Companies using sole traders, where the work those sole traders are doing and how they are directed to do it is similar to the role of an employee, have faced a crackdown in recent years.<\/p>\n
\u201cSome have quite happily ticked along as self-employed and it suited everybody but there is a growing awareness by Revenue and Social Welfare and an insistence that people who are, for all intents and purposes, employees should not be treated as self-employed,\u201d says Quinlan.<\/p>\n
Some companies are requiring the self-employed person to form a limited company or to become an employee.<\/p>\n
Being self-employed isn\u2019t for everyone. It will best suit those who are good at managing their time, pacing their workload and keeping records.<\/p>\n
\u201cThere are some people who are more suited to being employees,\u201d says Quinlan. \u201cSome people thrive on being self-employed, others muddle along and it\u2019s a struggle.\u201d Recognise your limitations, he says.<\/p>\n
Those worried about their health could be entitled to better benefits and security as an employee. \u201cIt can be a lot less stressful when you know where the next pay cheque is coming from,\u201d says Quinlan<\/p>\n
The rewards of self-employment however, can be greater, financially and in terms of lifestyle.<\/p>\n
\u201cThe upside is flexibility, especially if you\u2019ve got kids,\u201d says McKernan. \u201cIf my kids have something on at school, I can make sure I am there. If I want to do a pickup one day, I can work around that. If it\u2019s my son\u2019s birthday, I can take the day off.<\/p>\n
\u201cBut then I might have to work until 10pm to make up those hours because if I don\u2019t work, the money doesn\u2019t come in.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"