How to open your own Business in Ireland : Taxes, VAT and PRSI.
How to open your own business in Ireland? All About Self Employment, Taxes, VAT, and PRSI. Anticipate your self-employed income tax with this complete guide.
Becoming self-employed in Ireland is a fantastic journey. As an entrepreneur, you are carrying on your own business and no longer working for an employer. When you do so, there are several things to take into consideration. For example, it means you are more in control of what you do. On the other hand, sometimes, it translates into working very hard. Most entrepreneurs have extended hours and no longer have a regular income.
This article gathered more than six years of expertise working with and as a sole trader in Ireland. Here you will learn how to establish your business as a sole trader when you start. We answer the most popular questions about the status and related taxes. You will soon discover that being a sole trader is relatively straightforward to set up.
EEA or non-EEA National
If you are an EEA (European Economic Area) or Swiss national, you are entitled to come and work in Ireland. Opportunities are open for you either as an employed or a self-employed person. These nationalities do not need permission to establish a business in the emerald isle. Neither requires a visa to visit, travel to, live or work in Ireland.
If you are a non-EEA or Swiss national, things will be slightly more complicated in Ireland. Before 16 March 2016, the business permission scheme allowed immigrants to start retail, catering, personal services, or similar business. Unfortunately, it is no longer in operation.
How to register as a Sole Trader
Registration of business name
To begin with, you can register your business name with the Companies Registration Office using Form RBN1 for individuals.
You can register online using the CORE service (Companies Online Registration Environment).
Why should I register a business name? First, the bank may ask you to have a business name registration certificate to open a business account. Having a separate account is not mandatory for any entrepreneur, but convenient when things get serious and your business is busy. An independent business bank account allows you to keep your business income separate from your reserves. Most banks request a mandatory Certificate of Business Name to open a business bank account.
You may carry your business using your name or choose a brand name. It’s really up to you. Picking a brand name and designing a whole brand identity is exciting and can be pricy. Make sure you are surrounded by the right professionals doing so.
Register for Income Tax (IT)
Registering for income tax is easier than it seems. You must register for income tax with Revenue as a self-employed sole trader. You do this using Revenue’s online service. Revenue has improved to make it easy digitally, and their customer service is reliable and fast.
Registering online is the fastest, cheapest, and most efficient way of doing taxes. You can manage your registrations yourself. Another way to do it is by having agent links representing your business (an agent link might be your accountant, for instance). It’s fast and straightforward.
You can register for Income Tax (IT) in myAccount through Manage my Record and Tax Registrations. You will then be able to register any other fee that you want to register for. As soon as you complete the process, Revenue will email or post mail you a confirmation.
How to apply online for your Tax Clearance Certificate
A Tax Clearance Certificate is a written confirmation from Irish Revenue that a person’s affairs are in order at the date of issue of the Certificate.
As an Independent Contractor, it is helpful to have at hand a valid tax clearance certificate to be able to provide it when requested to do so by a client.
This is a guide on how to apply online for your tax clearance certificate for a Self-Employed person.
You are getting your Tax Clearance Certificate done by an accountant, which costs around €40. You can complete this yourself in less than 10 minutes.
Taxes: VAT, USC, PRSI, and Income Tax
Income Tax (IT), Self-Assessment & Form 11
It is strongly recommended to keep invoices and sales receipts of:
- Everything you buy for your business. Goods and Services alike.
- All amounts received from customers.
These will help you prepare your imposition but also plan for the years ahead. For audit purposes, you must keep a trace of these records in case of an inspection. Most sole traders send their invoices and sales receipts at the end of the year to their chosen accountant to collect them and send them to the Revenue.
Some of your business expenses can lower your total tax amount. Those expenses are all the purchases that enter in the creation of your final service or product: the rent you pay, the reparations to your premises, and energy costs, for instance—part of contributions to your pensions are also deductible from your total tax amount.
The taxable amount is different from the total sales. Your taxable amount is your total of sales minus the expenses eligible. Most business-related expenses are qualified.
Working from home professionals can claim a proportion of their household bills such as telephone, heating, lighting.
To make your Income Tax return, use the Revenue Online Service (ROS) to complete a Form 11.
Revenue: Pay and file system – how does it work?: https://www.revenue.ie/en/self-assessment-and-self-employment/guide-to-self-assessment/pay-and-file-system-how-does-it-work.aspx
Revenue: What forms do you need to complete?: https://www.revenue.ie/en/self-assessment-and-self-employment/guide-to-self-assessment/what-forms-do-you-need-to-complete.aspx
Youtube Video by the Revenue: Help completing self-employed income: https://www.youtube.com/watch?v=ZnnEFwHTN6w
Pay Related Social Insurance (PRSI)
In Ireland, PRSI is the pension scheme set up by the government. There are different classes according to your type of contract. When you choose to become self-employed, you pay Class S PRSI contributions.
Class S PRSI entitles you to a limited range of social insurance payments.
In 2021, PRSI Class S is at a flat rate of 4%.
To calculate your Class S PRSI contribution, you apply a flat rate of 4% on your total yearly income (after deduction of your expenses.) The minimum contribution is €500.
Sole traders earning less than €5,000 from self-employment in a year are not requested to pay Class S PRSI. However, most contribute voluntarily to keep the benefits from the scheme and avoid losing your previous contribution years.
Universal Social Charge (USC)
USC is the Universal Social Charge. Everyone pays this tax when their gross income is over €13,000 in a year. USC is a progressive charge, which means that the more you earn, the higher your percentage.
This charge applies to the total income as soon as your total income is more than €13,001.
2021 USC, and information is available and up to date on Citizen Information.
Value Added Tax (VAT)
The Value-Added Tax is a specific tax everybody pays when they purchase a product or a service in most countries in the world. VAT is not automatic, and each business must register for Value Added Tax if they meet the eligibility criteria.
In 2021, the standard VAT rate is,23% and the reduced VAT is 13.5%.
As a sole trader, it is not mandatory to register for Value Added Tax. Suppose your turnover on a 12 months’ period is more than or is likely to be more than €75,000 for the supply of goods or €37,500 for the supply of service. These two VAT thresholds cover musts cases met by sole traders. Specific conditions may apply to your business, and you can consult all details on the Revenue website.
The difference between the VAT charged by you and the VAT you paid must be transferred to the Revenue.
Use this easy formula:
VAT Paid (to your suppliers) – VAT invoiced (to your customers) = VAT payable to Revenue.
Usually, businesses complete their VAT returns every two months. Special arrangements exist for small businesses that can pay at less frequent intervals.
How to estimate my Taxes?
Rates and Thresholds of USC for Self-Employed People:
|First €12,012 => 0,5%||First €12,012 => 0,5%|
|From €12,012 to €20,687 => 2%||From €12,012 to €21,295 => 2%|
|From €20,687 to €70,044 => 4,5%||From €21,295 to €70,044 => 4,5%|
|From €70,044 and over => 4,5%||From €70,044 and over => 4,5%|
|Income over €100,000 => 11%||Income over €100,000 => 11%|
Rates for PRSI: 4% on all income or €500, whichever is the greater
Budget 2022 is estimated to increase the standard income tax rate by €1,500.
|Single person||First €35,550 => 20% Balance => 40%||First €36,800 => 20% Balance => 40%|
|Married or in a civil partnership (single income)||First €44,300 => 20% Balance => 40%||First €45,800 => 20% Balance => 40%|
|Married or in a civil partnership (single income)||First €43,550 => 20% Balance => 40%||First €44,300 => 20% Balance => 40%|
|Married or in a civil partnership (both partners have incomes)||First €70,600 => 20% Balance => 40%||First €72,100 => 20% Balance => 40%|
|Single Parent||First €39,300 => 20% Balance => 40%||First €40,800 => 20% Balance => 40%|
Check if you can apply for an earned Income tax credit. You could gain up to €1,650 tax credit.
Examples: In both situations, the self-employed are is a single person.
To do a tax calculation simulation, go there.
What is a Fair Price for an Accountant Services?
Around €200 yearly is a fair price for PRSI, USC, and Income Tax declaration.
If you are VAT eligible, a VAT return by agent costs €75 every two months
Insurance & Other Information
In Ireland, you are not legally obliged to be insured as a business. However, it is generally advisable to have insurance cover for various situations. Public liability insurance, which covers you for whatever can happen to an external person in your business, is a must-have.
If you are receiving or did receive certain social welfare payments, the Back to Work Enterprise Allowance (BTWEA) Scheme will support you to become self-employed.
Alternatively, the other scheme worth a shot is the Start Your Own Business Relief. If you were previously employed in Ireland for at least 12 months, the plan provides an income tax relief that can be put to good use to start your own company.
Useful Websites and Contacts
Companies Registration Office
Department of Employment Affairs and Social Protection