Sole Trader or Ltd Co?

celtictigermrk2

Hi guys,
Quick question I'd appreciate some feedback on.
In the process of starting up a new business and I'm having difficulty in deciding between sole trader or Ltd Co status. I'm well aware of the benefits of limited liability etc conferred by being a Ltd co., but I suppose I'm just wondering about which makes the more sense in terms of minimising taxation paid (corporation and paye/prsi)?
I have a job currently which I will not be leaving, and from that point of view my tax credits are being used for that, so any advice on which way to go would be greatly appreciated?
Also would the reporting/filing necessities of being a Ltd Co be considered overly restricitive/costly/time consuming for a start-up (possibly a seasonal venture at the start anyhow)?
Thanks!

D.W

Morning,
my advise for a new business would be to go the Sole Trader route. Easier, cheaper, less hastle etc... If things grow you can always then change the status over to a LTD Company.

swanvill

Hi,
I would normally advise going the sole trader route when starting up as it is easier and cheaper then setting up a limited company. There is also a lot less administration/legal responsibilities with a sole trader (ST).

However on a tax point of view.
1) PAYE/PRSI - It makes no difference for your future employees.
For yourself there is no difference if you get paid a €20k salary as a director or take €20k in profits as a sole trader. If you decide that you do not want to take any profits/salary and leave it in the business this is easier done in a company.

Corporation Tax
The recent budget gave a three year corporation tax exemption for new start ups. There are conditions to qualify for this exemption which you should check out. This is only valuable if the company is profitable and you are going to keep profits in the company. If you anticipate that your new business will make a loss then you would be better to be a ST as the losses can be offset against other income.

The above information is just an overview and you should contact an accountant to discuss the matter in detail.

celtictigermrk2

Thanks for the updates.

I suppose what I'm getting at from the taxation point of view is, as a Ltd Co you pay corporation tax on profits, then if you want to withdraw funds (for myself) you are liable to further taxation on that.

I wondering is there a (legal) way to maximise the amount of NET profit I can get out of this venture by being either a sole trader or Ltd Co? As I said earlier, I'm currently in full time employment so I can't use any of my tax credits for that.

Does it make it more sense either way to get set up from a banking point of view?

Thanks

lecheile

celtictigermrk2 wrote: »

as a Ltd Co you pay corporation tax on profits, then if you want to withdraw funds (for myself) you are liable to further taxation on that.

Yes, but if you are withdrawing it yourself (except in the case of a dividend) it can be classed as a wage or salary and a deductable expense so you wont pay CT on that amount.

celtictigermrk2 wrote: »

Does it make it more sense either way to get set up from a banking point of view?

No difference except that the bank needs a lot more documentation for setting up accounts for Ltd. Companies.

celtictigermrk2

Thanks lecheile, that makes things a little clearer.

itsonlyme

By forming a company you will save in the present by paying corporation tax. But in the future, when you decide to wind up the company you will have to pay capital gains on the profits that remain in the company.

A Company needs to be formed for the right reasons and not for the sake of what you may think you are saving in tax payments.

To be honest if you set up a new business tomorrow and traded for a lenght of time and then decided, for example, you wanted to emigrate there is no real difference in the tax saving, per say, because as a sole trader you settle your income tax and tax on profits on 31st Oct yearly and with a company you pay your PAYE/PRSI on a weekly basis and you pay captal gains tax on the profits.

If your company has bank loans to repay it may be well best advised to form a company as you will need alot of cash flow generated to repay he loans to the bank. Especially in these bad times.

Tigger

i went sole trader with aview to going ltd if i saw a reason

i am happy with my choice

lecheile

itsonlyme wrote: »

By forming a company you will save in the present by paying corporation tax. But in the future, when you decide to wind up the company you will have to pay capital gains on the profits that remain in the company.

not necessarily true - there are many combinations that may exist here

itsonlyme wrote: »

with a company you pay your PAYE/PRSI on a weekly basis and you pay captal gains tax on the profits.

PAYE/PRSI is payable on a monthly basis and you pay Corporation Tax on profits, Capital Gains tax on the profit from the sale of assets

itsonlyme wrote: »

If your company has bank loans to repay it may be well best advised to form a company as you will need alot of cash flow generated to repay he loans to the bank. Especially in these bad times.

The only thing relevant to repaying bank loans is the cash you have available (either from investment or sales) nothing at all to do with the status of your company.

byrne0f56789

I would go the sole trader route first then if things pick up and you are looking to expand go down the Ltd. Co. route. However, if you are seeking equity investment then you should register as a Ltd. Co.