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.
It was announced in Budget 2021 that the Earned Income Tax Credit for the self-employed will increase from €1,500 to €1,650. This measure will also be applied for the 2020 tax year.
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. You can read about the organisations, websites and publications that can help you in our document, Sources of information on starting a 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.
Registration of business name
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 using Form RBN1 (pdf) or online using CORE (Companies Online Registration Environment). 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.
Tax and PRSI
To set up as a sole trader you must register for income tax 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. You will receive a “Notice of Registration” confirming that you are registered for income tax and, if applicable, for VAT.
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. You pay the Universal Social Charge directly to Revenue when you make your annual tax return.
Earned Income tax credit: In 2020, as a self-employed trader you can claim an Earned Income tax credit of €1,500. However, if you also qualify for the PAYE tax credit, the combined value of these 2 tax credits cannot exceed €1,650.
You must keep accounts which record:
- All purchases and sales of goods and services and
- All amounts received and all amounts paid out
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 in our document, Tax for self-employed people and on the Revenue website.
Under the Start Up Refunds for Entrepreneurs (SURE) scheme you may be entitled to a refund of PAYE income tax that you paid over the 6 years before the year in which you invest in starting a business.
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. 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.
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 local Intreo Centre or Social Welfare Branch Office or the Self-Employment Section of the Department of Social Protection – see 'Where to apply' below.
The Department of Social Protection has published a leaflet PRSI for the Self-Employed.
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.
Certain spouses and civil partners of self-employed sole traders can pay PRSI. These include people who work in their self-employed spouse or civil partner’s business doing similar or ancillary (supporting) tasks but who are not business partners or employees. 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 is 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 to become self-employed. For further information about the Back to Work Enterprise Allowance scheme contact the Employment Support Services of the Department of Social Protection – see ‘Where to apply’ below. You can read more in our document on self-employed and unemployment.
The Start Your Own Business Relief provided relief from income tax to people who were unemployed for at least 12 months and who set up a qualifying business. It ran from 23 October 2013 to 31 December 2018.
Local Enterprise Offices provide supports to local businesses that are starting up or in development. You can find information about their training programmes and start your own business courses as well as mentoring and financial supports on localenterprise.ie.
Enterprise Officers in Local Development Companies can offer advice and information on starting your own business – see ‘Where to apply’ below.
New Frontiers is a development programme for potential entrepreneurs, funded and coordinated by Enterprise Ireland, which is delivered locally by Institutes of Technology.
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. Under the Microenterprise Loan Fund Scheme 2015, there is no longer a requirement to have been refused credit by the banks. Details of how to apply and forms are available on microfinanceireland.ie.
Regulations on lending, to provide increased protections for SMEs and guarantors, have been in effect since 1 July 2016.
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. Further details are available from your Local Enterprise Office.
You can read more about funding and accessing credit in our document, Sources of information on starting a business.
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 an 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. There are also Customer Frequently Asked Questions as well as details of eligibility criteria. Since 3 March 2017, changes to the Credit Guarantee Scheme extend the definition of loan agreements to include certain non-credit products such as overdrafts. The scope of the scheme also extends to cover other financial product providers for example lessors.
If you are having financial difficulties the Chartered Accountants Voluntary Advice service - CAVA (pdf) 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.