Self Employed Taxation

muineachan

Is it just me or is this a totally unfair area of taxation.

PAYE employee's get 2x 1650 (3300) tax credits, self employed 1650. But self employed aren't entitled to dole among other things, yet PAYE are

So how is this fair that self employed get less tax credits, paying more tax, for less services? Employee's get less tax and more services?

I don't want to be the bleeding heart, but I went self employed there last year, I was made redundant and I decided rather than go on the dole to go it alone. I know many in my position that are cash in hand, and I can see why now. Playing by the rules really puts you at a disadvantage. Business is slow but I am surviving, yet am likely in a position where if I was an employee id be paying no income tax this year and just the prsi & usc, but because Im self employed Ill have a tax bill that mightnt sound much to a lot of people but with my margine's is crucifies me to the point I'd of been better not even bothering.

Correct me if I'm wrong here, but from where I'm standing the new government need's to create an environment where it pays to be entrepreneurial and get out there and make money.

Mongarra

No, you're not wrong. I am self-employed and I know a lot of others who are self-employed.

The 2 big bugbears are what you just mentioned (less tax credits than PAYE payers and less services - although up to this year we did pay a smaller rate of PRSI, 3% as against 4% for PAYE workers - but for 2011 and later years it will be the same - 4%), and the apparent bias of employment legislation weighted in favour of employees. The tax credit position means that an employee who earns the same as the employer, quite common nowadays, will pay €1,650 less tax in the year than the employer.

A point regarding PRSI - I pay 8.5% or 10.75% employers' PRSI for the privilege of employing someone. They may not have to pay any PRSI if their income is below certain limits e.g. someone working part-time and earning less than €352 in a week, but they will still have a week's credit chalked up on their PRSI record. If I have a loss in my business or an income in a year of less than €3,174 I will not pay PRSI but I lose a full year's credits.

No one ever said life would be fair.

muineachan

True enough, but for all the lip service paid to growth, it seems the the government (whichever party) is focused and relying on big FDI to come and create jobs. Maybe if they had of focused on domestic businesses and making sure the small man could build and create we'd have a better domestic economy and wouldn't have been so vulnerable to multinationals running away with their money and jobs when the recession hit. But sure no they tax self employed more, dont support them when business falls off, impose huge rates on local business, while at the same time providing big breaks and incentives for big companies. So we are subsidizing all this is it?

I can say for certain as soon as a job comes up self employment is over for me. If you can't beat them join em?

barneystinson

I'm not saying I subscribe to this philosophy but I imagine the PAYE credit is a tipping of the hat to the socialist notion of the oppressed working class; there is an implicit assumption that the self-employed are the "elite"...

When you are self-employed you have potentially unlimited earnings, whereas an employee is a wage slave!

I ain't saying it's right, but merely suggesting what the reasoning behind the policy might be...

muineachan

I wouldnt disagree but amn't I a working man!?

seco

If only the PAYE tax credit was based on political idealism! It came into being quite a few years ago, correctly based on the tax system then, that there was a time lag of over a year between when the PAYE worker paid his tax and when the self employed worker paid his tax for the same year. This tax allowance as it was then, tax credit as it is now, was the political answer to address this imbalance. Nowadays, because of subsequent corrections to the tax system, the self employed taxpayer pays tax on a current year basis. Therefore, the question begs, why is this tax credit still there?

barneystinson

seco wrote: »

If only the PAYE tax credit was based on political idealism! It came into being quite a few years ago, correctly based on the tax system then, that there was a time lag of over a year between when the PAYE worker paid his tax and when the self employed worker paid his tax for the same year. This tax allowance as it was then, tax credit as it is now, was the political answer to address this imbalance. Nowadays, because of subsequent corrections to the tax system, the self employed taxpayer pays tax on a current year basis. Therefore, the question begs, why is this tax credit still there?

Thanks for clearing that up, I was only hypothesising about it, as I am quite young, so to me it has always just been there!

I'd say it's a safe bet that it is still there because it would be political suicide of the highest order for any party who attempted to get rid of it!

Mr. Incognito

Self employed

Benefits: Can write off costs and claim expenses, can reclaim VAT on purchases ( if registered) lower rate of PRSI,

drawbacks: no dole if things go pear shaped, personally liable etc.

Employee: set wage- usually much much less than what the company is earning through him, less risk etc.

That's the world - you make your choice -

Alan Shore

Like Seco says it is the remnant of a bygone system.
The Commission on taxation report Recommendation 5.7 was the introduction of an earned credit.

Legend100

I always thought the reasoning behind it was to reward PAYE people as they take the hassle out of the self assessment system.

Good to learn the actual reason. Thanks for that Seco