Starting a Partnership, confused about tax and VAT

insinkerator

Okay, so me and two of my friends are starting a partnership business in the advertising/marketing sector, while continuing working part-time in our current jobs

Our main business is to design, print(well, get another company to print), and deliver flyers in doors, and then after that maybe move into billboard advertising and other similar ventures.

We have already sent off our business registration form, which from our understanding, registers our name, and provides us with a business number with which we can fill out our VAT registration form, as well as open a business bank account.

Our first question is about regular tax.
Any profit that the company makes. That basically gets added onto our own incomes and then we get taxed under PRSI and inome tax etc etc. Is that right?

How is that split up? Are we asssigned a third each, or can we allocate in the way that whoever earns the least from our original job "earns" the most from the company, so we pay less tax overall? or is that tax evasion

Also, in the new financial year, we have to pay 90% of last years tax, as a forecast for the new year? Is that right? Does that include tax we pay on our original jobs?

Regarding VAT

So they way VAT works is, we pay it on pretty much anything we buy, and we collect it from our customers over two month periods. The VAT we pay is totalled, and the VAT we charge is totalled, and then if we paid more than we charged, we claim that back, and if we charged more than we paid, we send a cheque to revenue for the difference. This is all assuming that we reach a certain threshold?

We have no idea what we are going to pulling in from this so we havent a clue whether we will reach the threshold or not, but one of our potential clients is pretty adamant on the V.A.T number. So can we go ahead, register for V.A.T, without reaching the limit? What happens then?

Also, my dad is also self employed, and he says that the V.A.T number will be attached to one of our RSI numbers? He says im best off not getting involved with that, is this true or whats the story with it.

I think thats it for now!

Thanks in advance for any help


EDIT: 2 of us, if not 3, are going to be full time students in the middle of all this, does this change anything?

dbran

Hi

You have it basically right.

You can split the profits any way you like, but it is usually on a fixed amount based on the partnership agreement that you should each sign up to when you set up the partnership. The problem with having a profit share arrangement you mention is that someone who is doing all the work could end up with the least amount of the profits and vise versa. This will lead to disharmony and conflict down the road. I do not therefore believe that an individuals tax affairs should be a factor in working out the share of the profits. Just my 2c though

As regards VAT you esentially have it correct again. However with a partnership, one of the partners is required to be the the primary partner for tax purposes and is responsible for filing the partnership tax return (Form 1). The partnership will be given its own tax number though which will be different from the individual partners. But each partner will be responsible for there own tax returns.

You can register for VAT at any time even if you are below the threshold. You will be subject to the same rules in that you have to charge VAT on all your sales and can claim back VAT on your purchases.

Partnerships by thir nature are very messy and you would be better off to form a limited company if at all possible.mAgain just my opinion.

Kind Regards

dbran

kenbrady

dbran wrote: »

Partnerships by thir nature are very messy and you would be better off to form a limited company if at all possible.mAgain just my opinion.

Partnerships are very dangerous you are liable for everything your business partners do. They can get loans and run up debts and you will have to cover them. Avoid partnerships at all cost.

insinkerator

dbran wrote: »

As regards VAT you esentially have it correct again. However with a partnership, one of the partners is required to be the the primary partner for tax purposes and is responsible for filing the partnership tax return (Form 1). The partnership will be given its own tax number though which will be different from the individual partners. But each partner will be responsible for there own tax returns.

Does being the "primary partner" impose any extra liability on someone or make them different in anyway other than for filling out the tax form. Say if the company goes bust, does the primary partners credit rating get damaged any more than anyone else?

dbran wrote: »

You can register for VAT at any time even if you are below the threshold. You will be subject to the same rules in that you have to charge VAT on all your sales and can claim back VAT on your purchases.

Lest say we dont register for V.A.T, do we essentially charge no V.A.T, and then claim all our V.A.T back on purchases?

[QUOTE=dbran;64286860Partnerships by thir nature are very messy and you would be better off to form a limited company if at all possible.mAgain just my opinion.[/QUOTE]

kenbrady wrote: »

Partnerships are very dangerous you are liable for everything your business partners do. They can get loans and run up debts and you will have to cover them. Avoid partnerships at all cost.

How difficult/expensive is it to set up a limited company?

dbran

Hi

The precident partner is only required to file the form on behalf of the partnership. This sets out the profit of the partnership and each partners share of it. It is then up to the individual partners themselves to deal with their own tax liabilities.

As the other posted said, if the partnership goes bust you are all jointly and individually liable for the debts of the partnership. Partnerships are very dangerous in this respect. I have heard of many occasions where loans have been taken out by a rogue partner unknown to the other partners and they have all been held to account.

If you do not register for VAT you are NOT entitled to claim back any VAT on you purchases.

A limited company can be set up for about €500. This should include registering for taxes and first annual return.

Kind Regards

dbran