There is no issue with being a sole trader and PAYE employee at the same time. Many people start their business by working as a sole trader on the side while maintaining a wage through employment. The normal rules around registering a business name with the CRO apply. You must register a business name if you are operating under any name except your own. This costs €20 and can be done here.
In the course of your employment, you will be taxed by your employer as normal and the employer will continue to return your tax paid to Revenue. At the end of the year, you will need to do a tax return to notify Revenue of the additional income you have earned. Any PAYE income that you earned and the tax that you paid will be brought into your tax computation at the end of the year.
Two scenarios for informing Revenue of additional income:
1. Earn less than €5,000 net income from non-PAYE sources
In this case, you can do an abbreviated tax return called a Statement of Liability (old Form 12) through your Revenue MyAccount without needing to register as a sole trader. Net income refers to total income earned fewer expenses. This form allows you to declare the additional income earned from your business by inputting a single figure. You should still retain all books of account and receipts relating to the business. Any losses incurred can be carried forward also. You will pay income tax on the additional income but no PRSI. USC depends on your overall earnings.
2. Earn more than €5,000 from non-PAYE sources
If you earn more than €5,000 from non-PAYE sources, then you are deemed to be a chargeable person. This means you are obliged to register as a sole trader on ROS and complete a full tax return (Form 11). You will need to register for Income Tax AND separately register for a ROS account. You will pay income tax and PRSI on this income. USC depends on your overall earnings. You may need an accountant as a full tax return will be required with extracts from your accounts. PAYE income and tax paid on PAYE income will be brought into the tax computation and you will be taxed at your marginal rate on your TOTAL income.
It is worth noting here that you become a chargeable person if you have a non-PAYE gross income of over €30,000 even if you are not paying any tax on this due to capital allowances, losses or reliefs. You will still be required to disclose it in a tax return. Further information can be found here.
My other blog posts contain helpful information for sole traders on topics such as:
- What expenses are tax deductible?
- Is food and drink an allowable expense?
- Helpful tips for new businesses
Disclaimer: This post does not constitute financial advice and is for information and educational purposes only. This blog does not constitute an accountant/client relationship.
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