economics finance politics

The Joy of Self-Employment in Ireland

An ironic title as such joy is largely confined to the freedom to pick your work hours that exists in a quite limited sense if you’re providing services to people and you have to fit around their schedules.
Let’s look at the positive side:

  1. You’re the boss. Customers or clients may harass or harangue you but at least the boss won’t bully you.
  2. You have some flexibility regarding place and time of work that you may otherwise not be afforded as a PAYE worker.
  3. Expenses. You get to factor in some expenses associated with a home office into your tax bill. More on this later.
  4. Job security in the sense that you are ultimately responsible for whether you have it rather than a VP or SVP with no personal stake in your life deciding you need to be downsized because your division doesn’t look good on his spreadsheet or you’re at a grade where his costings suggest he could bring in someone younger to bugger up your job.
  5. The sense of achievement that comes with making it on your own.

And the negatives are often financial and as a direct result of the Irish tax system which is regressive towards self-employed people.

  1. Savage taxes when you’re starting off. As you grow your business, it’s inevitable that many people will be on modest salaries or drawings but you’ll pay at least double (and potentially as high as 5.5 times) the tax on  low income salaries under 20k. The only conclusion I’ve come to on this is that the incumbent government dislikes low income self-employed people and wants them to emigrate.
  2. Vendettas against the self-employed from the Revenue Commissioners such as the National Contractors Project which essentially targeted self-employed contractors in areas such as IT on the assumption they weren’t paying their fair share of taxes. The problem for such contractors was that their accountant may have advised them incorrectly or they simply didn’t know that an expense was disallowed. There was particular confusion about mileage and where your “place of work” was. If the revenue wasn’t happy with the size of your disclosure they would dispute it, add some extra and levy penalties / late fees / interest. Reviews of revenue decisions are made by revenue officials so it’s not like there’s a neutral third party arbitrator.
  3. Plain old risk. It’s riskier being self-employed as you may have a bad month, have personal risk for loans, litigation etc.
  4. Book-keeping and boring administrative tasks. A self-employed person is their own HR, accountant, financial planner etc. They may have assistance from third parties but they have to learn fast or crash to earth.
  5. Professional fees. You’re not just paying more tax. You’re paying an accountant a few hundred Euro to calculate that tax.
  6. Late payment or non-payment by clients. This applies particularly to service providers to the general public and is a specific form of risk that rarely applies to PAYE workers, except in cases where their employer is insolvent. Few people believe that taking clothes of a rack and running out the door without paying isn’t stealing. It’s obvious. However, you’ll find many people who feel it’s ok to part-pay or not pay a service provider whose time and expertise they’ve used because they didn’t like the result or would rather spend the money on a holiday, new TV etc. This sounds petty but it’s scarily accurate. Ask any self-employed person about their debtors list and they’ll wistfully stare into the distance. Funnily enough, few businesses will avoid paying you, unless they’re effectively bust, because they appreciate the problems that non-payment causes to the business supply chain. My experience is that many PAYE workers do not share this insight.
  7. Banks’ are risk averse. It’s one thing to deny a credit card to someone who wants to go on an expensive foreign holiday but not providing even modest credit to businesses that need capital to grow or short term cash to work around late payment issues is stifling business in Ireland. When I talk to other business owners, they cite the unhelpfulness of their banks and the tax system as the 2 greatest impediments to being successful.

Many people believe professional fees are high in Ireland. They are but so are taxes, indemnity insurance, loss of income to non-payment, borrowing fees due to late payment, fees to other professionals and other costs the self-employed have to absorb to provide that professional service. It’s not a case of just opening the doors & seeing what happens.

If we want to lower professional service fees across the board, as has been suggested by the troika, then we need to lower VAT on professional services & income taxes on self-employed persons. Otherwise, lower fees are not achievable.

By paying a service provider on time, you’re not just compensating them for their time. You’re also investing in the future of that business and the expertise that they offer to local people and businesses.

Equally, the state needs to invest in entrepreneurship in the most direct and least convoluted way they can. By giving entrepreneurs a tax credit of at least the same as the PAYE credit and ideally greater to compensate them for greater risk & job creation.