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Switching from employed to self employed

  • 23-02-2006 4:02pm
    #1
    connundrum
    Registered Users, Registered Users 2 Posts: 5,563 ✭✭✭


    Hey, the company I work for is allowing us the opportunity to become self employed (not really, they were going to close the office down altogether but then offered us a commission only scheme). So I was just wondering what do I do tax wise? My last salary will be on the 28th of Feb - do I contact the tax office and tell then to not tax me? Can I be considered 'redundant'? I don't know much about the situation at all... :confused:


Comments

  • #2
    seamus
    Registered Users, Registered Users 2 Posts: 68,317 ✭✭✭✭seamus


    connundrum wrote:
    Hey, the company I work for is allowing us the opportunity to become self employed (not really, they were going to close the office down altogether but then offered us a commission only scheme). So I was just wondering what do I do tax wise? My last salary will be on the 28th of Feb - do I contact the tax office and tell then to not tax me? Can I be considered 'redundant'? I don't know much about the situation at all... :confused:
    I'm not sure what you mean? They're probably offering you contract work (which means they don't have to pay as much PRSI and can fire you at the drop of a hat).

    Taxation works like this:
    Your employer works out your salary before tax. Your employer then calculates their own PRSI contribution, your PRSI contribution, and your income tax contribution, subtracts that from your salary and gives you the gross.

    When you leave, you get a P45 detailing how much you've earned and how much tax you paid. You give this to your new employer who then carry on from where the last one left off. If you don't get a new employer, and don't make any more money, you don't pay any more tax.

    In this case, if you become self-employed, you'll have to carry on where your employer left off, calculate your own tax & PRSI and pay that to the tax office yourself.

    The tax office doesn't deduct tax, it collects tax. :)

    check www.revenue.ie for more info.


  • #3
    connundrum
    Registered Users, Registered Users 2 Posts: 5,563 ✭✭✭connundrum


    Sorry I didn't explain it properly. I will be receiving my last paycheck and P45 on Feb 28th and will be working on a commission basis from then on.. at the end of every month I invoice the company for services provided and they send out a cheque.


  • #4
    tred
    Registered Users, Registered Users 2 Posts: 1,473 ✭✭✭tred


    connundrum wrote:
    Sorry I didn't explain it properly. I will be receiving my last paycheck and P45 on Feb 28th and will be working on a commission basis from then on.. at the end of every month I invoice the company for services provided and they send out a cheque.

    youll need to set yourself up as a sole trader. Then at the end of the month based on commision, you will invoice your employer for payment. They will pay you this money. I am not sure on the VAT aspect. You may need to register for VAT, and charge them Commision Fee + 21 Percent VAT. youll need to return this VAT at the end of every 2 months to revenue. You may not need to register for VAT if the incoming is not huge.
    good site for more info
    www.askaboutmoney.com
    Irish site similar setup to here. Not saying the expertese is not here, but that website is run by accountants and tax gurus!


  • #5
    seamus
    Registered Users, Registered Users 2 Posts: 68,317 ✭✭✭✭seamus


    connundrum wrote:
    Sorry I didn't explain it properly. I will be receiving my last paycheck and P45 on Feb 28th and will be working on a commission basis from then on.. at the end of every month I invoice the company for services provided and they send out a cheque.
    As pointed out above, you may need to register for VAT. If you earn more than €25,500 in a year (€2,000 in a month), you have to charge VAT on your purchases and then send the VAT off to the Revenue.

    VAT is only payable by end consumers, which means that if you buy something for business purposes, then although you initially pay VAT on the item, you claim this VAT back, so all business purchases are considered VAT-free.

    Note that what you invoice the company for shouldn't be just your existing yearly salary divided by 12.

    You take the yearly salary you want (before tax), then divide it by the number of *working* days in the year (i.e. don't include Bank Holidays, weekends, public holidays, and also take 20 days for holidays, and 10 days for sick days.). It works out to 200 and something days. Divide your desired yearly salary by this number, and that's your daily rate. For €20,000 a year, the daily rate comes out at almost €90.

    If you think you have any business expenses on top of your personal salary, add them to the yearly salary before calculating.

    There should be plenty of sites detailing this, so you don't have to pay an accountant.


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