PAYE worker looking to Freelance work as Sole trader or LTD

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Hi all ,


So first off I'm a salaried employee and expect to remain as one for at least 2 to 3 years more before I'd be in a financially secure enough situation to even contemplate going full time self employed.

So at the moment my field of work is IT and I occasionally do side projects for people , mostly benefit in kind type of deals ( did a piece of work for a years membership at a gym recently ). But I'm just keen to stress that the money return would be absolute pocket money , we're not taking big figures at all.


However recently had a conversation with someone who thought I was rather crazy for not being either a company or a sole trader for VAT purposes. I was told that things I buy which would be used towards my side venture would be bought VAT free. So for example a laptop I recently bought from amazon could have been bought VAT free. Mentioned that upskilling courses I do could potentially be claimed back on my taxes too. He also suggested since I work from Home ( even as part of my salaried job) and I would be doing the side venture work in the location that i might be able to claim a % of my monthly rent back.

So I went off and started looking up LTD companies set up cost and the responsibilities associated with owning one. ( I looked specifically at this because I've contacts in procurement who've told me that they can only give contractor work to companies and not individuals )

I set up a meeting with an accountant hoping it would broaden my understanding of what's required. However , He scared the be-jaysus out of me. He was saying that since I've no real plans to commit to this full time there would be no income as such but I'd still have all the responsibilities of owning an actual company ( bi monthly VAT returns , monthly PRSI returns , end of year accounts etc). Also saying that my own taxes would be looked at more closely cause I would be considered a "bona fide something or another"

I guess I just found it all a bit daunting , extremely daunting in fact. So now here I am hoping you guys can give me advice on what you think would be the best course of action for me.

• Should I set up as a sole trader and be VAT registered . Just even for the equipment which I use ( spent probably near 2k on electronic equipment in the last few months which I'd have loved to save 23% on )
• Should I maybe get a second opinion from different accountant since those i talked to were surprised by what i was told.

If i do go the route of being a sole trader , I guess I'm just slightly worried that I'll essentially be adding peanuts to my end of year returns as extra income but since I'm a technology freak and buy the latest and greatest stuff regularly that what I save on VAT would equal my earnings through the side work ... Essentially I don't want to get in legal trouble but I've no idea how it would be viewed if my sole trader / limited company was basically making 0 revenue year on year until I decide to commit full time

Graham

Listen to your accountant.

Sorry for the short response but there's really not much more to add.

Stheno

There are limits which you must reach before you are required to register for VAT, see http://www.revenue.ie/en/tax/vat/guide/registration.html and afaik, you can't claim back VAT unless you've charged and paid VAT on the services you are offering.

So if you have bought something for e.g. 1000 and that included a figure of say 200 VAT unless you yourself have paid VAT for the services you are being paid for you can't claim VAT back on purchases.

It's like claiming a tax refund you have to have paid tax to then claim the refund.

Doesn't sound like something that is an option for you at the moment.

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Graham wrote: »

Listen to your accountant.

Sorry for the short response but there's really not much more to add.

No I welcome it , but then would the sole trader be the best route ? I'm just worried how it might look if I'm making purchases through the sole trader VAT number but I've no concrete plans to make liveable money on this for 2+ years

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Stheno wrote: »

There are limits which you must reach before you are required to register for VAT, see http://www.revenue.ie/en/tax/vat/guide/registration.html and afaik, you can't claim back VAT unless you've charged and paid VAT on the services you are offering.

So if you have bought something for e.g. 1000 and that included a figure of say 200 VAT unless you yourself have paid VAT for the services you are being paid for you can't claim VAT back on purchases.

It's like claiming a tax refund you have to have paid tax to then claim the refund.

Doesn't sound like something that is an option for you at the moment.

Cheers thanks for all this , I'm generally clueless with all these things despite my best efforts at reading what's online

hardCopy

Pretty sure you'd need to be charging VAT to your customers you can then offset your VAT spend against this rather than getting a cheque from Revenue. It's hard enough getting businesses to pay VAT in this country ("What's the cash price?"), never mind friends and acquaintances paying for a nixer.

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Pages wrote: »

......... But I'm just keen to stress that the money return would be absolute pocket money , we're not taking big figures at all.

............... Just even for the equipment which I use ( spent probably near 2k on electronic equipment in the last few months which I'd have loved to save 23% on ).............

It sounds like the only reason the Ltd company appeals is so you can get VAT back on laptops etc.

With a very small turnover do you reckon any accountant would advise you to attempt to reclaim the VAT on €2k purchases that are largely for private, non business use?

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Augeo wrote: »

It sounds like the only reason the Ltd company appeals is so you can get VAT back on laptops etc.

Yeah I'm pretty open and honest about what I'm trying to *achieve* essentially keep earning pocket money while I'm getting to the level I need to be at before I go into this full time.

Just while I get to that level I was hoping to get some of the benefits which my other friend was alluding to ( laptop vat etc) . Like although the stuff can be used for personal stuff I'm not lying when I say I'd use my computers 80% for dev related stuff and 20% for personal.

pedronomix

You know this is a try on, your accountant advisor knows it, even I know it, be very certain the Revenue will know it too. Might work in theory but will crash down around your ears in practice. Your smartest move to date was to seek advice, less smart was to seek help here in second guessing the pro......forget it dude!!

TheWaterboy

The information your accountant gave you is exactly correct and the exact same information should be given by other accountants also. Owning a LTD company brings responsibility and quite a bit of added cost. If you were full time self employed then yes of course the positives of company formation outweigh the negatives.

If you are just going to be a Sole Trader and VAT registered then that is a better approach for now.

However be warned, Revenue are pretty clued in - if you are going to start claiming VAT every 3 months and not paying any VAT then alarm bells will start to ring and you could bring unnecessary exposure on yourself and your finances.

The route you are trying to take though is a similar route I took myself - Worked as PAYE worked and took on quite a few freelance jobs in the evenings and weekends. However it wasn't until I became full time employed that I registered for VAT. I always was a Sole Trader and made returns at year end.

ironclaw

Just to echo what's been said and maybe add:

- Most IT companies have anti competitive clauses and / or forbid you doing any other form of employment. The vast majority probably wouldn't care that Joe Bloggs is building the odd website etc on the side but if you had work from home privileges, which you do, then questions could be raised as to how you are spending your time. I'd tread carefully or make a very clear demarcation of where real work ends and your self employment begins. I know of one case where someone's side lines were formally questioned by the company they worked for.

- Earnings, if you declare them (Which you should IMO) then you'll likely be paying in the 40% tax band if you are next or near the average IT wage. It's a right kick in the teeth but when you cost the time versus the tax outlay, you may not actually be making all that much money.

bren2002

I also work in IT and frankly I wouldn't be taking on extras without professional liability insurance. Sorting out small problems is one thing but getting into operational stuff is too risky.

ironclaw

bren2002 wrote: »

I also work in IT and frankly I wouldn't be taking on extras without professional liability insurance. Sorting out small problems is one thing but getting into operational stuff is too risky.

Would agree with this, especially if you are dealing with production systems. You'll also need some form of NDA from their side and formal scope for any work. Furthermore, you'd need to check if the client was a client of your own company, this is specifically disallowed in my contract and nearly all contracts I've seen in the IT world.