When you become self-employed it means you are carrying on your own business rather than working for an employer and there are a number of things to take into consideration. Working for yourself can have a number of advantages and disadvantages. For example, it means you are in control of what you do, so you can organise your own hours. On the other hand, it can involve working very hard and you may no longer have a regular income.
When you start a business you can do so either as a sole trader, partnership or limited company. The type of structure you choose depends on the kind of business you are carrying on, with whom you will be doing business and your attitude to risk. Here we look at setting up as a sole trader. That is, when you set up a business on your own. Being a sole trader is relatively straightforward to set up, but if your business fails, all your assets could be used to pay your creditors.
The Start Your Own Business scheme provides tax relief to people who are unemployed for at least 12 months and getting a qualifying social welfare payment and who set up a qualifying business. It runs from 23 October 2013 to 31 December 2016 and provides a two-year exemption from income tax (up to a maximum of €40,000 per year) for people who have been unemployed for at least 12 months prior to starting their own business. You can read more information in this Revenue guidance on the Start Your Own Business Relief.
Much of the process of preparing for self-employment is about starting a business. This is the same information whether you are a sole trader or a partnership or company. The guide to self-employment, Toil and Trouble (pdf), is available on the Department of Social Protection website. The Irish National Organisation of the Unemployed have published a leaflet on starting your own business (pdf). Local Enterprise Offices and local development companies provide supports to local businesses that are starting up or developing - see 'Supports available' below. Businessregulation.ie is a portal to help you identify the main regulations which affect your business.
If you are a non-EEA national you can find information about starting a business in our document, Coming to set up a business or invest in Ireland.
You may carry on your business using your own name. If you wish to use a business name you must register your business name with the Companies Registration Office - see 'How to apply' below. You will then be issued with a Certificate of Business Name which you must display prominently at your place of business. There is an information leaflet on registering a business name (pdf).
You may need to have a business account with your bank. This allows you to keep your business income separate from your personal income. In general, you will need your Certificate of Business Name to open a business bank account.
The main legal obligation when becoming self-employed is that you must register as such with Revenue. In order to set up as a sole trader you must register as self-employed for income tax with Revenue - see 'How to apply' below.
As a self-employed individual you pay tax under the self-assessment system. You pay Preliminary Tax (an estimate of tax due) on or before 31 October each year and make a tax return not later than 31 October following the end of the tax year. You must keep proper records to allow you to fill out your annual tax return.
Since 1 January 2011 the Universal Social Charge has replaced the health and income levies. You pay this directly to Revenue when you make your annual tax return.
You must keep accounts which record:
You must keep supporting records of the above such as invoices, bank and building society statements and receipts.
You may claim certain business expenses against tax as well as your contributions to your personal pension. Further information on tax is available on selfemployedsupports.ie, from Revenue and in the Revenue booklet IT 10 A Guide to Self Assessment.
You must register for Value Added Tax (VAT) if your annual turnover exceeds or is likely to exceed the following annual limits: €75,000 in respect of the supply of goods or €37,500 in respect of the supply of services.
Subcontractors: If you are a self-employed subcontractor working in construction, forestry or meat processing there is detailed information about Relevant Contracts Tax on the Revenue website.
If you are self-employed you pay Class S PRSI contributions. This entitles you to a limited range of social insurance payments including, Widow's, Widower's or Surviving Civil Partner’s Contributory Pension, Guardian's Payment (Contributory), State Pension (Contributory), Maternity Benefit and Adoptive Benefit. In 2014 Class S PRSI contributions are paid at a rate of 4% on all income or €500 whichever is the greater. If you earn less than €5,000 from self-employment in a year you are exempt from paying Class S PRSI but you may pay €500 as a voluntary contributor.
You should register for Class S PRSI with Revenue - see 'How to apply' below. The Department of Social Protection has published a leaflet PRSI for the Self-Employed-SW74.
Family members and PRSI
If a self-employed sole trader either employs, or is helped in the running of the business by specified family member(s), this is known as family employment and these family members are not covered by the social insurance system.
Before 2014 spouses and civil partners of self-employed sole traders who worked in the business (as employees or in another capacity) were not liable for PRSI. From 2014 spouses and civil partners of self-employed sole traders who work in the business are liable for PRSI. The €5,000 income threshold applies to spouses or civil partners in the same way as other self-employed people, so if a spouse or civil partner earns less than this threshold they are not liable to pay PRSI.
If you are an employee of a limited company that is owned by your spouse or a family member, you are insurable at PRSI Class A (or Class J). If you are not an employee but participate in the running of the company or if you hold a directorship or shareholding position and have control over its operations, you may be treated as a self-employed contributor and liable to pay Class S PRSI (provided you earn more than €5,000).
Two or more family members who operate a business as a partnership and share the profits are insurable as self-employed contributors at Class S (if they earn over €5,000). Family members employed by a partnership pay Class A (or Class J).
Although you are not legally obliged to be insured when you are carrying on a business, it generally advisable to have insurance cover for various situations. In particular if the public have access to your premises you should have public liability insurance.
You may also want to look into other types of insurance such as health insurance. The Irish Insurance Federation provides a free insurance information service where you can obtain information and advice on all aspects of insurance.
If you are working from home you may need planning permission, for example, if you are using part of your home for business purposes or if you were to build a shed or an office in your garden. You should contact your local authority for advice about planning permission.
The Back to Work Enterprise Allowance (BTWEA) Scheme and the Short Term Enterprise Allowance (STEA) Scheme encourage those receiving certain social welfare payments in Ireland to become self-employed. If you take part in the Back to Work Enterprise Allowance scheme, you retain a percentage of your social welfare payment for up to 2 years. If you are getting Jobseeker's Benefit (JB), you may be eligible for the Short-Term Enterprise Allowance which is paid instead of your JB for up to 9 months. It will end when your entitlement to JB ends. You can read more in our document on self-employed and unemployment.
If you are starting a business, Local Enterprise Offices provide supports to local businesses that are starting up or in development. Their role is to stimulate economic activity at local level and to promote microenterprises (10 or fewer employees). You can find information about their training programmes and start your own business courses as well as mentoring and financial supports on localenterprise.ie.
New Frontiers is a development programme for potential entrepreneurs, funded and coordinated by Enterprise Ireland, which is delivered locally by Institutes of Technology.
If your business is having difficulties, you can apply to the Small Business Advice Programme for some free advice. The Department of Jobs, Enterprise and Innovation has published a short guide, Managing Out of the Crisis (pdf).
Microfinance Ireland provides loans to small businesses with no more than 10 employees, including sole traders and start-ups. The loans of between €2,000 and €25,000 are for commercially viable proposals that have been refused credit by the banks. Details of how to apply and forms are available on microfinanceireland.ie.
Under the Trading Online Voucher Scheme vouchers of up to €2,500 will be available to businesses who demonstrate that they have a credible plan to trading online. The scheme is being extended to all counties during 2014 and further details are available from your Local Enterprise Office.
JobsPlus is a new employer incentive which encourages and rewards employers who employ jobseekers on the Live Register. There are 2 levels of incentive: €7,500 for recruits unemployed for more than 12 but less than 24 months and €10,000 for recruits unemployed for more than 24 months. Eligible employers who recruit full-time employees on or after 1 July 2013 may apply for the incentive, which will operate on a pilot basis for a period of 6 months.
Chambers Ireland and the Irish Banking Federation (IBF) have developed a website, smallbusinessfinance.ie, for small businesses looking for information about financing or funding their business. The information is aimed at a range of businesses including start-ups, established businesses seeking to expand or innovate, businesses entering export markets and businesses with financial difficulties.
Many small businesses have difficulty getting credit. Your Business Your Bank (pdf) is a guide on getting funding for small and medium businesses. It includes information on how to prepare a bank credit application. The Central Bank published a revised Code of Conduct for Business Lending to Small and Medium Enterprises (pdf) which came into effect on 1 January 2012.
If you have a small or medium business and your application for credit is refused by one of the participating banks you may apply to the Credit Review Office to have your case reviewed. To be eligible for a review your application must have been in writing. There is a bank lending application form on the website of the Credit Review Office. The fee for the review ranges from €100 up to a maximum of €250.
The Credit Guarantee Scheme aims to encourage additional lending to small and medium businesses who are commercially viable but have difficulty in accessing credit. Under the Scheme eligible applicants will be assisted in obtaining a loan and in establishing a favourable credit history. You can find out more in the information booklet about the Scheme (pdf). There are also Customer Frequently Asked Questions (pdf) as well as details of eligibility criteria (pdf).
If you are having financial difficulties the Chartered Accountants Voluntary Advice service (CAVA) can give free advice and assistance on your business affairs. Contact your local Citizens Information Service or Money Advice and Budgeting Service (MABS) to see if they offer the service.
The Action Plan for Jobs 2014 has a major focus on entrepreneurship with a commitment to delivering a National Entrepreneurship Policy Statement. The Action Plan includes the following supports for self-employed people:
To register with Revenue as a self-employed sole trader you do this using Revenue’s online service. Certain people can only register on paper using the tax registration form TR1 (pdf) and you can find information about them here. This form can be also be used to register for VAT - see above. You will receive a “Notice of Registration” confirming that you are registered for income tax and, if applicable, for VAT.
When you register with Revenue you are automatically registered for Class S PRSI. For information on PRSI for the self-employed you can contact your Intreo centre or social welfare office or the Self-Employment Section of the Department of Social Protection.
To register your business name you apply to the Companies Registration Office (CRO) using Form RBN1 (pdf) or online using CORE (Companies Online Registration Environment).
For further information about the Back to Work Enterprise Allowance scheme contact the Employment Support Services of the Department of Social Protection.
Social Welfare Office
Tel:(01) 704 3000
Employment Support Services
Social Welfare Services Office
Tel:(071) 967 2616
Locall:1890 92 79 99
If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000 (Monday to Friday, 9am to 8pm) or you can visit your local Citizens Information Centre.