Recently we receive similar questions about employment and being entrepreneur at the same time. Read more about this.
Employment and being entrepreneur at the same time
Employment and being entrepreneur at the same time is a question that has come to us a lot recently. People are employed, but receive a freelance offer they are keen to cash on. Is that possible? Yes it is.
In this time and age many do not work full time. Not working full time implies you could start activities next to your employment. Mind you, do check your employment agreement if there is a anti competition clause. If you do not compete with the employer, check if there is anything else that could prohibit you from working on the side. In fact, legally, that should not be possible.
Employment, freelance and tax
The one does not hurt the other. Hence you can register a company with the Chamber of Commerce and start working freelance. Having two sources of income or two different sources of income is not a problem.
Tax wise there is something you need to be aware of. The two types of income will be stacked on top of each other in the income tax return. The higher the income, the more tax you pay.
Indeed, up to EUR 73.031 (2023) you pay the 36,93% income tax. You could think that as long as you are under this amount, the tax over the combined income will not go up that much. That is not a correct thought. The higher the income, even under EUR 73.031, the lower the labour and general tax credits will be.
Next tax level
The moment your employment income and your self-employed income combined exceed EUR 73.031 taxable income. The excess is taxed at 49,5%. The employer already withheld over the employment income the correct amount of tax over that income. Hence the freelance income is the income over which more tax is to be paid.
When you start an extra source of income next to employment save half of that income for tax. Then you are sure you have enough at the end of the year to pay for income tax.
The entrepreneurs deductions such as the starting entrepreneurs deduction (EUR 2.123). The entrepreneurs deduction EUR 5.030 (2023) depend on conditions. The condition is that you can only claim these if the freelance income is more than the employment income and you worked at least 1225 hours for the freelance income.
The other one, the small company tax credit of 14%, does not have the above mentioned conditions. Hence you can apply that. If you have a loss, it will be a small company tax debit, which implies your loss becomes less.
In either case, the above mentioned credits only apply in the lower tax bracket. That implies you can have a combined income exceeding EUR 73.031 (2023), still the credits will be applied at the 36,93% tax rate.
Tax is exciting
We think tax is exciting. We are also excited if you can earn extra money on the side. However, you need to be aware that if you act as an entrepreneur, you need also to handle the formalities as an entrepreneur. It is not that as this is a side freelance job, you do not need to file a VAT return or do a bookkeeping. No, you need to comply with the same rules and formalities as a company that has no employment on the side. We will be pleased to assist you.