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’re thinking of striking out on your own, here are the things to get right.
At the end of maternity leave in 2013, Emma McKernan, a chartered accountant and registered auditor, decided to makes changes to her working life
“I didn’t want to go back to work in Dublin so I set up a firm here in Wicklow,” says McKernan. Switching from being an employee to working for herself gave her more control when her children were young.
“I didn’t 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’t need me as much, I am now pushing the firm,” she says of her company McKernan & Co, an independent accountancy firm in Wicklow town.
As a mentor with Wicklow Local Enterprise Office, she also advises others taking the same path.
“If [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,” says McKernan. “I’m seeing it with more men now too. They are saying, the kids are older now so I can put more into it.”
Right structure
If you are thinking of working for yourself, it’s important to structure things properly. Your options include being a sole trader or setting up a limited company.
“If 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,” says McKernan.
She advises sole traders in her work and describes them as “people who are confident in what they do”. They include IT consultants, film industry professionals, tradespeople, online retailers, alternative health practitioners and hairdressers.
“If you start as a sole trader, it’s cheap to set up and it’s easy to get out of,” says Mark Quinlan, a chartered accountant with Dunne Quinlan & Co in Kilcoole, Co Wicklow. “If you start off as a limited company, it’s like bringing a child into the world – with the costs, the obligations, the compliance and the discipline required.”
You don’t have to be a limited company to have a business name either, he says. “If you want to give yourself a separate identity other than your own name, you can register a business name for about €20 with the Companies Office.”
The first step to becoming a sole trader is to register for income tax with Revenue’s Online Service (ROS), and then fill out a TR1 form. Income tax is paid once a year using a Form 11 tax return.
If your turnover is going to be more than €40,000 a year for the provision of services, you must register for VAT too, says Quinlan.
For those just starting out, the €40,000 threshold might be moot, but if it looks like your turnover will exceed that, register immediately, he says. “Don’t wait until you get to €40,000 and then register because you could technically be liable for VAT on sales you didn’t even charge VAT on.”
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.
“If you’re a dog walker and none of your competitors are registering for VAT, you shouldn’t either if you haven’t hit the threshold,” says McKernan. “You will be putting your prices above everyone else because you will be charging VAT.”
Taxing times
Dealing with your own tax – being “self-assessed” – can seem onerous. You can use a professional to help file your Form 11 or make a stab at it yourself.
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.
“Someone said to me, finance is the biggest part of my business, but it’s not my business, it’s not what I do,” says McKernan. “You become your own Finance department; you have to do your own taxes.”
You’ll be filling in a blank form the first year but parts will be pre-populated for you to update thereafter, she says.
If you file the paper tax return early, before August 31st, Revenue will complete the self-assessment section on your behalf.
“They will check it over for you with no penalties,” says McKernan. Revenue’s helplines are helpful and they are patient with those trying to do the right thing.
People who are self-assessed need to be disciplined, setting aside some income each month to pay their tax bill.
“It’s good discipline to have a separate business account to a personal account,” says Quinlan. “Transfer an amount out to your personal account every month as your budget to live, but leave the rest,” he says.
There’s no magic number as to how much to set aside for tax. Everyone’s circumstances can differ based on marital status, tax credits and a spouse’s income.
“Maybe someone hitting €33,000 should be keeping aside roughly 50 per cent: for someone else, they could be earning €42,000 before they have to keep that aside,” says McKernan.
“For a single person, you are looking at earning €42,000 before you get into the 40 per cent bracket, but for a married couple, one spouse can earn €51,000 and another €33,000,” she says.
When you do hit the 40 per cent tax bracket, you’ll need to keep aside 40 per cent of your earnings.
Those earning less than €5,000 don’t get charged PRSI. Once you go over that, you have to pay a minimum of €500. Over €12,500, it rises to 4 per cent of all your income, says McKernan.
If your gross income is over €13,000 in a year, you must pay the Universal Social Charge (USC). The rate rises with your income. For example those earning from €25,760.01 to €70,044 will pay 4 per cent on that money.
“So 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’s tough,” she says.
Tax can be a big financial hit in the early years of trading, says Quinlan.
If you started work now, you’d only be working a few months before the year ends. “Your preliminary tax is going to be based on a very small period. So then you get to October 2026 and you’ve got a full year’s accounts for 2025 to pay tax on, and if you’ve 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.”
“If you haven’t put money aside, you are in trouble.”
Tax credits
For married couples, it can make sense for a lower earning sole trader to give their tax credits to a higher earning spouse.
“Most people will say, I’ll give my credits over to my husband because I’m only starting, my income is going to be low,” says McKernan. But as the sole trader earns more, the absence of tax credits can start to bite.
“It’s grand when you are earning little but as your income starts increasing, as you are hitting €30,000, €35,000, 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,” she says.
You may decide to take back your tax credits.
Pros and cons
Sole traders must do without employer paid holidays, pension contributions, health insurance, maternity and paternity leave and training. If your computer claps out, there’s no IT department to call either. But then there’s the autonomy, the potential to earn more while being able to claim back some expenses.
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.
Switch to a limited company?
Sole traders whose income reaches a certain point may decide to form a limited company, says Quinlan.
“If 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,” he says.
There are a few factors to consider when switching structure. “I normally have a guideline in my head. If you are earning between €10,000 and €20,000 more than you need to live, a limited company is definitely of interest to you,” says Quinlan.
“As 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,” he says.
“If 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.”
Sometimes clients will prefer to do business with a limited company.
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.
“Some 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,” says Quinlan.
Some companies are requiring the self-employed person to form a limited company or to become an employee.
Personality
Being self-employed isn’t for everyone. It will best suit those who are good at managing their time, pacing their workload and keeping records.
“There are some people who are more suited to being employees,” says Quinlan. “Some people thrive on being self-employed, others muddle along and it’s a struggle.” Recognise your limitations, he says.
Those worried about their health could be entitled to better benefits and security as an employee. “It can be a lot less stressful when you know where the next pay cheque is coming from,” says Quinlan
The rewards of self-employment however, can be greater, financially and in terms of lifestyle.
“The upside is flexibility, especially if you’ve got kids,” says McKernan. “If 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’s my son’s birthday, I can take the day off.
“But then I might have to work until 10pm to make up those hours because if I don’t work, the money doesn’t come in.”
