Sole Trader Income Tax

Reamer Fanny

Hi,

I am in the process of becoming a sole trader for the first time, I am a bit tentative about sending the forms off to the CRO and making it official mainly because I have some unanswered questions relating to tax. Am I right in saying all my income will be subject to 20% Income Tax? And the government levy(i.e 1% of my yearly earnings). I would also like to know how to work out a tax return for the tax year, is this difficult to do? How do you do it? VAT would not apply to me yet, but could if my venture takes off. I appreciate any help you have to offer.

Many thanks,
Ryan

Boom Boom

Hi Justryan,

not all your income will be taxed at 20% it depends on you profits as a sole trader, but some maybe at the higher rate of 41% and whether you make it on to that band generally depends on your personal circumstances like are you single or married. if married does your spouse work (working for you does not count)


My advice would be to contact a reputable accountant or Tax Consultant and pay the few quid to get it done at the end of the year. It is piece of mind for you that its done right because if you get it wrong revenue charge interest and penalties for getting it wrong.

hope this helps.
Boom Boom

kennyb3

justryan wrote: »

Hi,

I am in the process of becoming a sole trader for the first time, I am a bit tentative about sending the forms off to the CRO and making it official mainly because I have some unanswered questions relating to tax. Am I right in saying all my income will be subject to 20% Income Tax? And the government levy(i.e 1% of my yearly earnings). I would also like to know how to work out a tax return for the tax year, is this difficult to do? How do you do it? VAT would not apply to me yet, but could if my venture takes off. I appreciate any help you have to offer.

Many thanks,
Ryan

firstly id say to have a look at the revenue website (www. revenue.ie), after that if your still unsure go get professional advice.

Its not your income thats subject to tax, its your profit after tax adjustments. It will be at 20% as long as your total income (trade profit and other forms of taxable income) are below €35,400 (assuming your single). After that its up to 41%. Income levy, prsi and health levy also apply.

you ve alot of reading to do by the sounds of it!

I work in an accountancy firm and if there is one piece of advice i could give to any sole trader it would be - set up a special tax designated bank account if your going to be profitable. Any drawing you take out of the business take a minimum of 25% out of these and put them in the account.

kennyb3

Boom Boom wrote: »

Hi Justryan,

not all your income will be taxed at 20% it depends on you profits as a sole trader, but some maybe at the higher rate of 41% and whether you make it on to that band generally depends on your personal circumstances like are you single or married. if married does your spouse work (working for you does not count)


My advice would be to contact a reputable accountant or Tax Consultant and pay the few quid to get it done at the end of the year. It is piece of mind for you that its done right because if you get it wrong revenue charge interest and penalties for getting it wrong.

hope this helps.
Boom Boom

I agree with what you say but id definitely suggest getting advice now rather than later. mainly because so many sole traders get hit with tax bills and they wonder why and how they are meant to pay it given they ve now spent all the drawings. Also the getting a handle on preliminary tax is very important (they may face double whammy in first year if profitable)

Reamer Fanny

Thanks for all the advice

+1 on having a business, account i intend on keeping all profits and money relating to the business into this account, keeping it seperate from my personal account.

I am currently single and in full-time employment, with plans for sole trading on the side so far my venture is proving profitable. Can someone tell me the rough cost of hiring an accountant to file my return for the end of the tax year, I know this would depend on how reputable the accountancy firm is, but a ballpark would be helpful.

Maths was never my strong point so I may have to hire someone to do it for me. Thanks much appreciated

maddogcollins

Above have said it all really..Plenty of reading and the tax bank account is a very good idea.

It is very hard to put a price on accounting work. An accountant that values their reputation will not file a tax return without having looked over the accounts work presented to them. Depending on the standard preented they may have to do further work.

If you have a good excel worksheet done up with Income on one Sheet and all expenses on the other, it is very easy to do up a basic I&E account and that would not cost alot.Assuming you had back up to all details input on sheets. A consultation with an accountant to gauge their price would be free but very few firms will give a fee at the start as this could end up being drastically different depending on files received.

If you know somebody who can do book keeping, it may be worth your while having somebody look over your records once a month for an hour or two to insure being kept on track. Again an accounting firm may recommend one to you that they use.

This would normally be cheaper than handing in a ball of stuff to the accountant at year end.

Hope this helps.

I have attached a "starting in business" pdf available on http://www.revenue.ie where there is also alot of other good reading material. Have a read and get familiar with how the tax system works!

Boom Boom

just re-read what i wrote earlier you are right Kennyb3

What I meant to say is contact an accountants now to discuss your potential tax liabilities and they will set you on the right path with regards to record keeping and potential liabilities and then they will prepare a income and expenditure report and income tax computation for you at the end of the year. Also, a good point made about the preliminary tax, a lot of people get confused very easily about this.

hope that makes more sense.

With regards to costs it ranges some will do it from 350 +VAT upwards depending on the firm/company/practice and the amount of work involved by them. So the more you can do yourself the better and it will give you a better control of your finance if you are constant and up to date in record keeping.

kennyb3

also just one more point on the OP's last point - i dont just mean having a seperate bank account - i mean have a tax saving account i.e something you can pay the tax with even if your business current account comes under pressure. As you are a paye employee you know your boss takes out 25% or more in paye/prsi each month or week, make sure you put at least an equivalent amount into this tax account from any profit you make.

also definitely bare in mind that as you have paye income, once the combined of your paye and trade profit goes over €35,400 in 2009 your up to the higher rate. You may end up paying 1 in 2 euro over to the revenue, so be sure your business is 'worth it' in terms of time and effort for the return you ll get if at this higher rate