A trap of incompetence, sole proprietorship (IchAG) for freelancers without regular customers

The beginning is always difficult, but it doesn't have to be!

About 20 years ago, an acquaintance had a business idea, an artistic activity, the details of which are unimportant. He consulted a local tax consultant in Mecklenburg-Vorpommern who was employed by an agency. One might expect that a tax consultant employed by an agency would have enough experience and know-how to explain all the details to the client and develop a suitable strategy. Instead, the consultant recommended setting up a sole proprietorship.

The problem?

For an artist who normally works on a freelance basis and is unlikely to exceed the small business regulation in the first year, a sole proprietorship entails additional costs.

He followed the consultant's advice, drew up a business plan for a sole proprietorship, consulted the Chamber of Industry and Commerce, where the business plan was also approved, and received the approval of the tax consultant. He then registered a sole proprietorship with the trade office. This resulted in a fatal business registration.

Without a good advisor, you're in a mess - better stay unemployed!

At the time, he didn't know that setting up a sole proprietorship meant that monthly advance VAT returns were due and that he had to regularly submit the income and expenditure statements in paper form to his tax advisor on time to avoid tax office letters due to delays. The IHK called and asked why he wasn't paying his taxes and sent a letter with a large debt. This was followed by further document requests for Value added taxincome tax return and business tax return. And today the health insurance company would also contact you and that would cost around 350 euros a month.

Debt without borrowing: how it works:

Although he had only earned a few hundred euros at the time, he had to spend 50 euros a month on a tax consultant. He also had to find someone to complete the application for exemption from IHK contributions. Then he had to pay several hundred euros for assessments due to missed tax office appointments and try to get the money back by submitting it later. He didn't even know that he could immediately make use of a small business regulation.

Now, I'm no expert from the tax office, but it's clear that setting up a sole proprietorship was a mistake in his case. Although it nominally freed him from unemployment and he also received a grant from the IHK thanks to the business plan, it was unmanageable for an artist who is chaotic by nature and just wants to be left alone to concentrate on creating. The German proverb "give with one hand and take with the other" hit him hard.

If the tax consultant had said stop back then:

It wouldn't have happened if the tax consultant had said stop! He should have told him: "I understand your enthusiasm, but you should try freelance part-time work first. First get the Tax number and see how it goes.

The advantages are quite clear: no business registration, no VAT, annual submission of income tax returns, and if you have a sideline, you can even declare your income in your normal income tax return. The tax office doesn't take you seriously, nobody wants anything from you because there is practically nothing to be gained from you, and you rarely need a tax consultant.

And the worst thing is that he didn't even know, and I didn't know, that this nightmare was very easy to end by closing the sole proprietorship and registering a freelance side business. No one told him and he didn't ask about it either.

But even freelance work as a sideline can quickly become a nightmare in some countries!

Conclusion:

The story of the acquaintance illustrates the importance of sound advice and planning when setting up a business. Despite good intentions and a promising business idea, inadequate advice from the tax consultant led to a series of problems and financial burdens. It becomes clear that even supposedly simple decisions such as the choice of company form can have a considerable impact on the financial situation and the administrative burden.

The keys to avoiding such problems lie in careful planning, obtaining expert advice and understanding the legal and tax framework. It is important to consider all options and choose the one that best suits your individual circumstances and objectives. Ultimately, this story shows that sound preparation and advice can make the difference between success and failure when starting a business.