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Self-Employed vs Small Business Owner: What’s The Difference?



Over the past couple of months, we have had inquiries from individuals asking if there are any differences to being self-employed and being a small business owner. These queries came about since many inquirers were wondering if they would still qualify for the Self-Employed Income Relief Scheme (SIRS) announced by DPM Heng Swee Keat in the Resilience Budget in March this year. SIRS provides some 100,000 eligible self-employed persons with up to $9,000 in cash over nine months following the announcement to tide over tough times in the current recession.


In addition to the SIRS, the differences between self-employed vs a small business owner can affect your liabilities and tax requirements.


Self-Employed: You Are Your Own Business


Being self-employed means you are either (a) a sole proprietor of a business; (b) a partner in a business partnership; or (c) an independent contractor. In all 3 cases, the main characteristic is that your business cannot expand beyond your personal capacity.


As a self-employed person (SEP), you either perform work for others under a contract for service arrangement (i.e. you are not an employee), or you work for yourself: either way, your business profit or loss is one and the same as your personal income/loss.


That said, since the individual and the business entity (for the case of sole proprietors or partnerships) are one and the same, you are responsible for all financials and have unlimited liability.



Small Business Ownership: You Run a Business


The key characteristic of a small business owner: you run your business, and you employ others to work for you, either as employees or independent contractors. Many small businesses often start off as self-employed (e.g. a consultant or accountant), and as business grows, the founders expand to become small business owners.


In Singapore, small businesses often take on a limited company or a limited liability partnership structure. In both cases, the members of the business cannot be personally held liable for company debts.



Self-Employed vs Small Business Owner: Pros & Cons


Self-Employed

Pros:

  • Independence (versus being an employee)

  • Low startup costs

  • Flexible schedules

  • Self-Employment Tax Deductions

Cons:

  • If you stop working, you stop earning

  • Debts of the business are the debts of the individual

  • Responsible for own financials

  • No employee benefits (e.g. paid leave, sick leave etc)



Small Business Owner

Pros:

  • Building a business system that ensures the company can continue to generate revenue even if the owner does not work for a period of time

  • Business is a separate entity from the owner, i.e. different legal obligations and personal financial risks

  • Can delegate tasks to others instead of working alone

  • More options in terms of business financing (e.g. loans, government grants etc.)

Cons:

  • Higher set up and running costs

  • Requires a larger number of skill-sets to manage

  • High entrepreneurial risk

  • Responsible for employee payroll & compensation


Can a Small Business Owner Quality for the SIRS?


We now come to the question that everyone’s been asking: can a small business owner still enjoy benefits like the SIRS or other similar schemes in the future?


To answer this question, let’s first look at the eligibility criteria for the SIRS:


  • Started work as an SEP on or before 25 March 2020

  • Net Trade Income (NTI) of not more than $100,000

  • If SEP also has employment (i.e. dual status worker), the income earned as an employee must not be more than $2,300/month

  • Live in a property with an Annual Value (AV) of more than $21,000 based on the place of residence on the NRIC; and

  • Do not own two or more properties


It is also important that SEPs file their taxes properly and accurately to enjoy their SIRS payouts.


Based on the criteria, business owners who registered their business as sole proprietorships and meet all the eligibility criteria will qualify for the SIRS; however, SEPs who registered their businesses as a private limited company will be disqualified from the scheme even if they satisfy other existing requirements.


A business owner who runs a single-man operations in a small business registered as a private limited company will therefore not qualify for the SIRS (and other schemes in future to assist self-employed individuals) because he or she draws a monthly salary as a company employee rather than as a SEP. Additionally, the same business owner would not qualify for other government schemes such as the Jobs Support Scheme (JSS) since he or she does not have any employees that require subsidies in the current recession.



It’s Important to Register One’s Business Accurately


One of the key lessons to learn from government schemes introduced during the COVID-19 crisis is that it is important for you to register your business accurately and having the necessary records to justify your eligibility for the SIRS or JSS and other similar schemes.


Whether you’re a small business owner or an SEP, it’s important for you to structure and organize your business carefully, and to ensure proper compliance, such as timely filing of your annual returns and ensuring you have done your taxes properly. These should be done regardless of whether you plan on applying for government grants and subsidies.


At FidCorp Services, we can help advise you on how to set up your business accurately, and to better advice you on how to do timely and proper filing of your annual returns and taxes. Feel free to drop us your inquiries at fidcorp@fideliumgroup.com today.


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