Self-Employment for Employees

Bart Van den Bossche writes:

As you start reading this article you may be thinking:

What benefit is there for me to be an employee with a self-employed activity?

Well the monthly salary and benefits of most employees in Belgium are fairly fixed; so every month your salary and benefits are taxed at source. That means you receive your remuneration after the appropriate income tax and social security costs have already been deducted. (To get an idea how high these are in Belgium, compare what you earn gross to what you receive net).

Employees can lawfully obtain additional income by having a self-employed activity in addition to their full-time job.

In fact, the Belgian tax system has certain incentives to encourage employees to set up their own part-time business.

Perhaps this subjects sounds a little more interesting than at first sight? Well the following example helps illustrate how this situation can operate:

Outside her full-time job, Alex loves pop music and enjoys mixing music for her friends' house parties.  Recently, she has started mixing music at home on some old turntables she purchased on eBay.

As long as this activity remains a private hobby, then Alex's turntables and vinyl records are all paid out of money that she has already paid income tax and social security contributions on.

At weekends, Alex decides to set herself up as a professional DJ for family events like wedding and christening parties.  She buys new equipment (a digital music and light system) and starts to play at weekend family events. 

The income Alex receives from being a DJ goes towards her legitimate business expenses. So she can start to pay for her equipment, advertising, travelling to and from the parties out of her bussiness' gross (untaxed) income.

Turning from the example, we can look at some of the main advantages and disadvantages of also being self-employed.

The main advantages are:

1. Hobby and money, not hobby v. money.
You spend your time doing something you enjoy doing anyway and get paid some money for doing it.

2. You are your own boss.
As an employee, it is likely you do not need this additional income to live on. So you decide how much effort you will make with your self-employed activity.

3. Business expenses. 
All your legitimate business expenses arising from your self-employed activity can be recovered from your self-employed acitvity's gross income.

4. Social security costs.
After all your expenses have been deducted from your gross income, you only pay some income tax on the income leftover. As long as your net income per year is less than 1216.96 Euro, then you do not have to make social security payments.

The disadvantages are:

1. Administration. 
First you must start-up your self-employed activity and then you must complete the regular administration (such as quarterly VAT declarations and payments, annual list of VAT clients). 

Either you yourself can file all the necessary papers with your annual tax declaration, or you can pay an accountant to do that. If you use an accountant, then the cost is a business expense and is paid for out of gross (pre-tax) income.

2. The risk of bankruptcy.
You must keep control of the costs of your business. It is advisable to start small (particularly not borrowing any money) and see how your self-employed activity develops. Do not incur big debts that you are unlikely to repay.

So is this self-employed status open to every employee?

As a full-time employee, you can qualify for this self-employed status as long as you are working as a full-time employee at least 50% of the time.

As a part-time employee, then you can still be an employee with a second "self-employed" profession. As long as your net income per year is less than 1216.96 Euro, then you do not have to make social security payments. But you will make social security contributions as your net income rises.

It is always helpful to do some research before starting up your self-employed activity. This article explains the broad issues a useful next step is to speak to other employees who also have a self-employed activity. They can tell you more about the balance between the advantages and disadvantages of also being self-employed.

Related articles

While aimed at self-employed lawyers, the Newcomer section contains three series of articles for beginners looking at various aspects of self-employment.

These articles may help gain a greater understanding of the issues involved in becoming self-employed.

Series 1: Just arrived, no idea what to do next ...

Series 2: Fiscal issues for self-employed lawyers

Series 3: Lawyer-accountant: practical matters
Author: Bart Van den Bossche ©
Source: Brussels Legal
First published: 5 October
Last updated: 31 August 2006
Location: Brussels Legal/Archive/Interests & Hobbies 
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