Part-time freelancing alongside a job: tax, hours and pitfalls

Your incomes are added together

Salary from employment and profit from your business both fall in box 1. The tax authorities add them up and calculate your income tax on the total. Your employer withholds payroll tax as if your salary were your only income, so that withholding is too low as soon as you make a profit.

The result is that your profit is taxed at your top rate, not your lowest. Earn 40,000 euros in employment and make 8,000 profit, and that profit is not taxed at 35.75 per cent but largely at 37.56, because your salary already filled the first bracket.

Payroll tax credit with one employer only

If you have two jobs alongside your business, you may apply the payroll tax credit with only one employer. Applying it with both means receiving it twice and repaying it later.

This does not apply to your business itself, because there is no employer withholding. That is precisely why tax on your profit runs entirely through your return.

The hours criterion: do you meet it?

For the self-employed deduction and starter's deduction you must spend 1,225 hours a year on your business. Alongside a four or five-day job, or alongside full-time studies, that is a tall order: it works out to over 23 hours a week, every week of the year.

More counts than your billable hours. Acquisition, keeping records, maintaining your website, writing quotes, taking courses and travel to clients all count. The burden of proof is yours, so track it from day one. See self-employed deduction and hours criterion.

Not reaching those hours still leaves you an entrepreneur for income tax and you may deduct your costs as normal. You only miss the entrepreneur allowances. You keep the SME profit exemption, for which the hours criterion does not apply.

Are you an entrepreneur for tax purposes?

This is the question beneath the question. With one client alongside your job, especially your own employer or a party that sets your hours and rate, the tax authorities may classify your income as other work rather than business profit. Your entrepreneur facilities then fall away.

• Several clients point to entrepreneurship; a single fixed client does not
• Do you set your own rate, hours and way of working?
• Do you bear business risk, such as a client not paying?
• Do you invest in your business and present yourself as one externally?
• Working for your own employer? Then false self-employment is a real risk

VAT is entirely separate

For VAT you are an entrepreneur as soon as you independently and regularly supply services for payment. That assessment is entirely separate from income tax: you can be a VAT entrepreneur without counting as one for income tax.

That means VAT on your invoices and a quarterly return, even if you only work a few hours a week. Staying below the turnover threshold means the small business scheme can spare you that. More on the distinction in entrepreneur for income tax or VAT.

What to arrange right away

Most problems arise because people only start calculating at return time. Four things that prevent it.

1. From your first invoice, set aside 35 to 40 per cent of your profit in a separate account.
2. Request a provisional assessment stating your expected profit, so you pay in instalments rather than one lump; see provisional assessment.
3. Track your hours, even if you think you will not reach 1,225. You only know in December whether you made it.
4. Keep private and business separate, even at a few thousand euros of turnover.

Frequently asked questions