# soletrader & dayjob employment, OK? tax implications?



## simplename (14 Oct 2006)

New member here, been reading loads of posts here, very interesting indeed - even by saturday night standards. 

Anyhow I'm currently in full time employment and want to stay in it for perhaps another year and a have - in my current day job. However I would also like to start as a sole trader in the evenings/weekend type of thing, which I can do considering its mainly web based work I would specialise in and would involve small amounts of money and transactions, perhaps not more than 5,6,7 transactions a year totalling maybe around 10-15k. Then come a years and a half time I plan to go fully LTD and leave the current day job. 

My question I guess then is this allowed and how does it work in terms of tax?, can I stay in the PAYE system and then do a separate but related self-assesment for any sold trader business generated profits (not much - but in principl?) and can everything then be combined up to see what I owe or am due back? 

Also what is the tax rate for sole-trader self employed person, I've seen 47% mentioned, but I don't understand why that would be in place. Does it not just work the same way as PAYE - ie pay 20% on a certain amount and the 42% on the balance. 

Help on these issues is much appreciated. I will respond.


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## BrenG (15 Oct 2006)

Note that you have'nt had a response on this so just a quick one from a non tax practioner. essentially you are a PAYE payer on your main income and a sole trader on your supplementary income. With your other income you can offset relevant expenses before any tax liability. Tax rates are no different than PAYE. If your income is in excess of the rate limit the balance will be subject to 42% max. My advice is also ring the revenue. They are very helpful.


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## simplename (15 Oct 2006)

Thanks Bren. Yes I will ring the revenue and get in touch with an accountant if things get a little busier. So will I have to make as self assessment based on my sole trader earnings or could my employer be instructed to take X amount more tax per week based on my projection of earning 15k extra. Then at end of year I can get difference back if I do not actually end up making 15k? 

What about PAYE credits, do I get to keep these if I am somewhat self-employed.


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## NeedingHelp (20 Oct 2006)

Ringing the revenue may sound likek a good idea but anytime I do it I am left pressing loads of buttons and kept on hold for an eternity and then transferred to someone else when I finally get to talk to someone else and left on hold again!  It has happened a number of times and as I am a PAYE worker and have to ring during those working hours, I often have to hangup before I get through to anyone!  Phew!


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## sarahaca (20 Oct 2006)

Hi Simplename,

New member also – trying to renovate an old house and have gotten so much help in an area I am clueless about thought I should give something back in an area I do understand!

I’ll try and be as clear as I can here;

Firstly your income as an employee (PAYE) is treated separately to that you earn as a self employed individual. Your employer is responsible for deducting and paying all tax on your PAYE income. You are responsible for paying all tax on your self employed income – your employer will not be able to do this for you.

Now regarding the rate of tax you have to pay -  everyone in this country is entitled to the same standard tax rate bands and credits. These are applied based on your total income i.e PAYE plus self employed. 

The standard rate band at the moment is 20% on the first €32k and 42% on the balance. However in addition to this you pay PRSI and a health levy. Health levy is 2% for everyone. PRSI rates differ, for the self employed it is 3%. I think this is where you got your 47% figure so in a sense this is correct. Assuming you earn in excess of €32k in your PAYE job then any excess that you earn as a self employed will be taxed at 47%.

This is a fair amount of your €15k so you need to assess if you can reduce this. You will have used all your available tax credits on your PAYE income i.e personal credit and PAYE credit and any other you may be entitled to (differs for everyone). To answer your quest. you are entitled to keep your PAYE credit once you have PAYE income there to cover it which in your case you do.

What Breng suggested is correct. Your self employed income can be reduced for expenses incurred wholly in carrying out your trade/profession. Revenue does not give a direct definition of what these are. I don’t know the source of your income but I’ll give you an example, say you set up as a self employed hairdresser and earn your €15k a year. You would be entitled to deduct the cost of shampoo, hairdryers, element of transport, phone etc. Say €5k. You are  then taxed on remaining €10k only. Its important that you get this right to reduce your tax, you must incur some expenses in earning this €15k.....

To wrap this up what I advise you to do is to forget about your PAYE income in this context as your employer takes care of the tax on that. It affects only the tax rate you are liable for any extra income earned .... if you follow me. 
Go on to the revenues website and look at their booklet for the self employed. The language can be confusing but hopefully my summary above will help. As for calling them I’m not sure of the benefit, Any phonecalls I have had with them have driven me mad and I know my stuff! 

Finally you should register with the revenue as self employed they will then send you out letters and constant remainders of your tax deadlines. In summary assuming your earn your first bit of non PAYE income in 2006 then you will have to file your tax return and payment to the revenue by 31 Oct 2007. Its gets tricker for subsequent years. (The rule is you must pay prelim tax - 100% of prior year liab or 90% of current year -  by 31 October of same year and then you must pay balance and file return by 31 October the following year.) 
What this means for you is this. No tax at 31 October 2006 based on a nil liability for 2005 (i.e 100% of prior year liab). Pay balance of tax (i.e all of the tax as you have paid no prelim) and file return for 2006 at 31 Oct 2007. When 31 Oct 2007 comes around you will have to pay prelim for 2007 at 31 Oct 2007, this will be based on 100% of 2006 liability. Effectively means you pay 'double' at 31 Oct 2007 as you have avoided paying any tax in 2006 on 2006 income. This then straightens itself out in 2008 where in Oct 2008 you pay balance for 2007 and prelim for 2008. (one years tax). I know this may seem very confusing, it always is to first timers! Keep re reading it and the revenues documentation till it makes sense. (Note its safest to pay 100% of prior year liab rather than estimate 90% of current year liab – remember you are paying this in Oct and the year doesn’t end till Dec – problem is if you estimate wrong there is interest due on the balance – it is common practice to cover yourself and pay 100% of prior year unless your income is final in Oct or is due to be substantially less than the prior year)

To finish off – the revenue forms are very long and a lot of the information requested will not apply to you. They are not difficult when you are familiar with them and certainly do not need an accountant however I think you would find it tough on your own. Suggest finding someone who has some level of experience with them and can also advise on the type of expense deductions you would be entitled to. Most accountants would  too expensive for your needs.

Best of luck with the business!


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## sarahaca (20 Oct 2006)

Simple name 

sorry had a blonde moment there - you did say it was a web based business - expenses you could claim are an element of your home electricity bill (assuming you operate from home), you could write comp equipment off over 5 years (20% capital allowances), any journals, books, stationary, postage purchased for business? Think long and hard its potentially worth a fair bit of cash.

Also haven't checked other threads but this is a personal tax question really and you may find useful info in there rather than this business section.


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## simplename (20 Oct 2006)

hey sarahaca, excellent 1st post I must say quite helpful indeed. Thanks very much.its much appreciated.

Yeah internet business so things like phone, broadband too maybe?,

So its just your actual profit that is taxable? 

Say I outsource a service and am charged 500 euro but my customer 700 euro, how could (and can?) I write 500 of a expenses? I'm required to buy something to selll something so could I say something like -cost of services in my books. And then I would be taxable on the 200 eur?

What about if I had staff (which I don't) I can presumabely write their pay off as expenses, stupid question? So my pay is my gross profit - expenses after tax.

Is there a definitive list of things that can be deducted from your income as expenses somewhere?

Thanks again for all the help.


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## sarahaca (20 Oct 2006)

Hi again.
Yes broadband, phone - definitely – you would prob. have to look at your total bill and deduct a % for personal use. Offset the rest.

Outsourcing or purchase of a product that you sell on to a third party is absolutely deductible.

When you say staff I assume you mean if you pay someone to do some work/assist you in your work. i.e they are not your employees, you would be paying them a cheque here and there for work done on a ‘consultancy’ basis. This is also fully deductible.

So yes, you pay tax on your income after expenses. Tax law and the revenue form refers to your income as Case D Schedule 2 (Income from a profession). They refer to your expenses as ‘allowable expenses’. You show both on the form and pay tax on the net amount.

I have inserted an extract from revenue site re allowable expenses below.

Just a final point but one you definitely need to consider. I understand you are only starting out however you need to give some thought as to whether if would be more beneficial to incorporate this business at some stage. That opens a whole different can of worms. I just wanted to be sure you are clear on the difference and that all I have said applies to you as a sole trader only. If this business does take off you need to get some prof advice on this. From what you have said it is a straight forward concept and any small accountancy practice can advise. It will seem like information overload at first but you will get your head round it. The best advice you will ever get in running your own business is to make sure you understand the numbers behind it, don’t leave it up to an accountant. Question everything. 
It is best to do this right especially as it may be your sole source of income in the future.
If you continue as a sole trader and want to try this alone, invoice all your sales, just a simple word invoice. Keep receipts for everything and make people who do work for you invoice you. You need to be able to back up your tax return in case then revenue come knocking!!

Best of luck again

(Following extract from revenue website – look under businesses and then income tax. Note that actual tax law has one line in relation to this it pretty much says you can claim anything incurred in running the business, so there is no definitive list out there. Beware that you would have to produce evidence in the event of a revenue audit.)
What expenses can I claim for? 
You can claim for any business expenses which you have incurred in order to earn your profits. These expenses are normally referred to as revenue expenditure. 

Revenue expenditure is your day to day running costs and covers such items as:

Purchase of goods for resale 
Wages, rent, rates, repairs, lighting and heating etc. 
Running costs of vehicles or machinery used in the business 
Accountancy fees 
Interest paid on any monies borrowed to finance business expenses/items 
Lease payments on vehicles or machinery used in the business 
If you are registered for VAT the expenses you claim should be exclusive of VAT.
What expenses can’t I claim for? 
The general rule is that you cannot claim for any private expenses i.e.

Any expense, not wholly and exclusively paid for the purposes of the trade or profession 
Any private or domestic expenditure e.g. your own wages, food, clothing (except protective clothing), income tax etc. )


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## simplename (20 Oct 2006)

so grateful for your very detailed answrs thank you. I think I do understand the differences between sole trade business and a company, well at least I know or am learning what I need to know about sole trade. Lots of differences with ccompanies are of course not relevant to me (yet) and thus I do not need to be aware of them really. 

So is there ways to 'work' the expenses system? what about settng up fake contractor work or things like that. I mean self employed people are percieved to be able to rip off the government with massive expenses and the like, tiis is unwarrented of course but where does it come from? I for example would only be able to recive digital invoices from ppl I outsource too, is this accepable to government or will they ring up the person I outsourced to and confirm the amount?


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## ubiquitous (20 Oct 2006)

simplename said:


> So is there ways to 'work' the expenses system? what about settng up fake contractor work or things like that.



If you want to evade tax, you will not get much assistance in this regard here.


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## simplename (20 Oct 2006)

I was waiting for that. Not talking about evading tax, but taking the absolute maximum that I am entitled too or am borderline entitled too in terms of expenses


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## sarahaca (20 Oct 2006)

I didn't mean to imply you didn't know the diff. Just that when you mentioned poss having staff I just wanted to clarify. U don't have to worry about it yet but should always bear it in mind. There are advantages to incorporating and imagine they would apply to you if you entered into the business full time.

I'm shocked! I'm sure I don't know what you mean by 'work' the expenses system!!!  What you need to do is make sure you that you claim the absolute max expenses you can. What u refer to as ripping off could be interpreted as using a good tax advisor! As I said there is no definitive list and the revenue do not look for proof of expenses with your tax return. You will only be required to produce proof if you are selected for a revenue audit. 

Ligitimate business expenses - you will have proof - not a problem. Fake 
expenses - no proof - this is a problem  -  my dog ate them won't really cut it. (yes they can check on contractors and often do to make sure the contractor is declaring the income you are paying them!). Then you have the 'grey area' expenses - how much of your phone bill is business based ... say 30% or 95%. Could you argue 95% if the revenue audited you?? Could they argue otherwise?? I hope you get my drift here...

You could say the chances of audit are slim, you are after all small fry to them, however its still there and penalties and interest can be substantial and are back dated.
They are no fools and they know that you are not going to carry on a business long term when you are not earning any money!

The more successful 'ripping off' you refer to is more likely to revolve around the self employed who don't put their transactions through 'the books' full stop. Cash in hand - No sale - No tax. On that note I will finish and feel obligated as a professional to condemn such practice!!

Try and think of someone you know who is self employed. They can be a huge help till u get the hang of it. If you do go seriously into it, get some prof advice, a small practice should offer this at reasonable (tax deductible) cost - it will be cost effective in the long run.

Thats me off for the weekend. Will drop in on u Monday in case u have any quests.


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## ubiquitous (20 Oct 2006)

What else were we to deduce when you mentioned "what about settng up fake contractor work"?


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## sarahaca (20 Oct 2006)

ubiquitous u are absolutely right to interject and I would never offer advice to anyone on how to evade tax. Simplename strikes me as an entrepreneur setting out alone and trying to understand how things work in the real world as well as how they work by the letter of the law. We all know there can be a world of difference. Even the revenue will admit they enforce some rules on a concession basis rather than by the letter of the law. Perhaps left as a case of bad wording....


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## simplename (20 Oct 2006)

Well hold on their folks, there is a big difference between me asking what goes on and then saying something that I condone that sort of thing.


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## roadrunner (24 Oct 2006)

what do accountants typically charge for say a small sole trader or even a farmers accounts?


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## ButtermilkJa (24 Oct 2006)

roadrunner said:
			
		

> what do accountants typically charge for say a small sole trader or even a farmers accounts?


I'm in the same situation as the OP above. I'm employed 9-5 paying PAYE and also run a business (as sole trader) evening and weekends.

I've just had my accounts done and I believe the charge will be around €750 (ex-vat of course!). I'm sure this can be reduced to €300/€400 by getting a friend who is an accountant to do it as a nixor but I went the professional route as I have intentions of getting much bigger and wanted the good guys on board from the start.

(Not for a minute saying qualified accountants who do nixors are not the 'good guys'... but they may not have the experience to find clever (legal) ways of reducing your tax liability )


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## desd (7 Nov 2006)

WOW! Great infos. I am a Sole Trader who will be audited in 2 days, yikes!...my accounts are pretty much in order so I'm not too worried but I have one question...

Do the same rules apply to claiming VAT back on a Bi-monthly basis as do with deductions? (i.e. claiming back the VAT for business expanses)
I have been claiming back for my phone, internet, ESB, office equipment and the like.
Thanks in advance,
desd


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## extopia (8 Nov 2006)

You can claim back VAT paid on legitimate business expenses, provided you are registered for VAT.

Is that what you meant?

Sounds like you badly need an accountant!


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## ubiquitous (8 Nov 2006)

Its worth noting that VAT is not reclaimable on certain legitimate business expenses, for example cars and petrol. This applies regardless of the context.


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## desd (10 Nov 2006)

Auditor was sick!! Guess I'll have to wait for another date but would like to have it over with.
I have an accountant but do VAT returns myself and if anything have been underestimating on claims. No car stuff!
Thanks for your reply.
desd


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