Drawbacks to going it alone
Q. I am considering leaving my day job and setting myself up as a self- employed person. Are there any tax disadvantages in being self-employed – and what entitlements can I expect to lose which I would have otherwise enjoyed as a PAYE worker?
A. Leaving secure, permanent employment in order to set up your own business is a major step and one which should not be taken without a lot of research into the long-term viability of your new enterprise. Remember income is your number one asset.
As a self-employed person, you will have to register with Revenue and, depending on the type of business you start and expected annual turnover, you may also have to register for VAT. There are no obvious tax disadvantages to this.
Indeed, there may be some advantages as you may be able to get tax relief on some of your outgoings, depending on the area of business.
The main thing to be aware of is that as you will no longer be in the PAYE net, you will be liable to pay your tax at the end of the year and so will have to get used to the idea of setting this aside. You will also lose the benefit of your employer making a contribution to your pension plan – if you were lucky enough to have this type of employment.
Also, you will lose out on the things all employees take for granted such as paid annual leave, sick pay and illness benefits, statutory bank holidays and the intangibles such as being part of a team and the companionship and human contact with fellow employees. You will continue to have to pay the universal social charge and PRSI –although you will no longer be entitled to many of the social welfare benefits available to PAYE workers.
You should get yourself a good accountant who will be able to advise you, including on whether or not you should set yourself up as a sole trader or a limited company.
Q. My husband and I are both in our late 20s and we are just about to get our first mortgage. We are arranging mortgage protection insurance for the loan. My husband has a heart condition and we understand we'll get a cheaper quote for mortgage protection insurance if we don't mention his heart problem. Are we taking a risk in doing so?
A. Mortgage protection insurance is an essential when taking out a mortgage on a family home. It is not just something you have to buy but is your security in case either of you should die before the mortgage has been paid in full.
All life insurance products are contracts between you and the insurance company and are drawn up on the basis of a Latin term uberrimae fidei – or utmost good faith. Therefore, if you do not disclose all relevant medical details when completing the proposal form, the likelihood is that this would come to light in the event of a claim under the policy and the policy would then be deemed to be void. It would be false economy to conceal some details in order to get a lower premium on a policy which could be worthless and I would absolutely recommend you should not even consider this course of action.
If the premium is simply too expensive, you can still request your lender to waive your husband's life cover. They may agree to this but you would be financially exposed should anything happen him.