For the self-employed, it can take a while for it to sink in that, no matter what they are doing, for tax purposes they are running a business, writes Patrick Freyne
I AM A businessman. After a lifetime believing that Denis O’Brien and Richard Branson were a breed apart, I’ve realised relatively recently that the first word in the phrase “freelance journalist” puts me in their exalted company. I’m a freelancer, a self-employed person, a businessman.
I am not the only person to ever suddenly wake up to this realisation. It’s surprisingly common among the self-employed. Whether they’re plumbers, solicitors, journalists, or web designers – the fact that they are, in fact, starting a one-person business can elude them. This means that best-practice rules of running a business often pass them by, and can ultimately cost them money.
Greg Swift, of the Dublin City Enterprise Board, frequently sees this phenomenon. “People who are consciously entrepreneurs go out and find out all the things they have to do and set up systems to deal with them,” he says. “But often self-employed people have left nine-to-five jobs without a specific plan. They find themselves doing different jobs here and there, and without consciously deciding to, they suddenly find that they’re running a business.”
The first thing people should do is register as self-employed for tax purposes, not only for income tax, but also for VAT if their gross income is above a certain threshold – €37,500 for services and €75,000 for goods, although these figures could change after next week’s budget.
If the thought of tax and VAT automatically stresses you out, Swift has two pretty simple suggestions: “Throw every receipt you get into a shoebox – it all adds up to saving you money,” and more crucially, “develop a relationship with an accountant from an early stage.”
Keith Bohanna, a self-employed business and web consultant adds: “make sure it’s a good accountant. It’s important to source them by word of mouth from someone whose opinion you absolutely respect. There are an enormous number of crap accountants out there.”
Even with a well-sourced professional doing your accounts, it’s advisable to keep a tally of your incomings and outgoings.
There are many free accounting packages for this, and a good accountant will set you up with one. Apart from anything else, without making rough calculations of costs, people can underestimate, and more usually, over-inflate, their earnings.
Bohanna says it can take the newly self-employed a while to realise this. “We’ve all been ostriches,” he says. “I often find myself in a position with fledgling businesses where I have to get them to accept that their actual earnings are a lot less than they had extrapolated based on the fees they were charging. Those fees don’t always take account of the money that was spent chasing up the work.”
It can also be difficult not to get carried away projecting a glorious future based on one good week, month or year. “It’s very important to take a longer-term view,” says Swift. “Self-employed people should always, where possible, have some money put aside.” And in this spirit, it’s crucial that self-employed people take account of the things that PAYE employees take for granted: sick pay, holiday pay, pension payments and parental leave. These are things that must be saved for and should be factored into financial planning.
There are also some elements of the freelancing life that are simply discriminatory.
The self-employed pay a lower rate of PRSI, which means that should the person require the State’s assistance, they are not entitled to job-seekers’ benefit unless they had sufficient credits from previous PAYE work. Instead, they can only apply for the means-tested job-seekers’ allowance.
Mark Fielding of ISME has been lobbying to change this. “For the past two budgets the Minister has been promising to look at that,” he says. “Even if it meant that the self-employed paid more PRSI, at least there would be some equality to what they’d get if they were to go out of business.”
Such things aside, however, success in self-employment is about thinking ahead. “This can be difficult in the early stages, but you’ll eventually see the dynamics of your own business and you’ll learn to plan,” says Bohanna. “If I’m going to need money in March, I need to have invoiced in February, I need to have done the work in January, which means that in November I need to be talking to half a dozen people to make sure that that work comes in.”
He is also involved with the entrepreneurs’ networking event Bizcamp, and is a strong advocate of meeting and talking to other small-business people, start-up companies and self-employed people.
“Self-employment can be quite a lonely experience,” he says. “So peer support is very important.” For those who wish to brush up on their business skills, courses run by local enterprise boards teach the rudiments of tax, cash flow and time management.
There are immense benefits to being your own boss. You design the parameters of your job and control and shape your working life in your own way. I’m writing this article on a Sunday morning in a ragged bathrobe – a practice that would, I suspect, be frowned upon if I were sitting in the The Irish Times offices.
However, to make working for yourself a sustainable option, you need to be organised, cognisant of the potential pitfalls, and prepared to plan ahead. All in all, I’m happy to be a businessman.
