Going Sole Trader to Ltd Company, totally different business!

Teamhar

Hey folks,

I'm currently set up as a sole trader (IT freelance and contracting) and have been registered as self-employed with Revenue since last summer. It's been going great amd I'm doing better than I ever was as PAYE. This October I will pay my tax bill, yikes.

Thing is, I'm hoping to get a totally different business off the ground this summer, a retail enterprise, non-IT and this will become my main source of income though there will be some IT on the side! This means I'll be setting up a limited company and registering this company for VAT.

I don't have an accountant as I've been taking care of my books myself but now I wonder if this is the time to get some professional advice? Not so much because of the shop, as I can handle the accounts there too, but more to do with winding down as a sole trader and transitioning into limited company and my obligations to Revenue.

Has anyone been in this sort of situation?

I know, I know, chat with an accountant! Any recommendations?

Thanks,
T.

jackbauer

I did all that back in the day. Started as a sole trader and , through bad advice , changed to a ltd company. Unless you intend to be exposed to significant risk (ie millions) or keep a lot of profit tied up in the company then the advantages of a ltd company are useless. Sole trader business model can do almost anything a ltd can , has much less accounting requirements and FAR less red tape and nonsense with the cro.

kenbrady

Teamhar wrote: »

Not so much because of the shop, as I can handle the accounts there too, but more to do with winding down as a sole trader and transitioning into limited company and my obligations to Revenue.

Has anyone been in this sort of situation?

I know, I know, chat with an accountant! Any recommendations?

Thanks,
T.

You are not moving from a sole trader to a limited company. A company is totally separate entity.

You just set-up the limited company. They you will have all your company obligations tax, cro etc..

Then when you want to stop being a sole trader you just tell the revenue you are doing so. It's that simple http://boards.ie/vbulletin/showthread.php?t=2055802819

wishful thinker

Teamhar wrote: »

Hey folks,

I'm currently set up as a sole trader (IT freelance and contracting) and have been registered as self-employed with Revenue since last summer. It's been going great amd I'm doing better than I ever was as PAYE. This October I will pay my tax bill, yikes.

Thing is, I'm hoping to get a totally different business off the ground this summer, a retail enterprise, non-IT and this will become my main source of income though there will be some IT on the side! This means I'll be setting up a limited company and registering this company for VAT.

I don't have an accountant as I've been taking care of my books myself but now I wonder if this is the time to get some professional advice? Not so much because of the shop, as I can handle the accounts there too, but more to do with winding down as a sole trader and transitioning into limited company and my obligations to Revenue.

Has anyone been in this sort of situation?

I know, I know, chat with an accountant! Any recommendations?

Thanks,
T.

IT free lancing & consulting - re Income Tax - if you are aware that you will have a fairly significant tax bill, then for your own sake you should be saving for that rainy day - 31st October - put money into a deposit account - you might aswell earn something from it while your awaiting the tax deadline.

Are you sure you would have the cashflow at that time to write a cheque for 5k or 10k.......remember you're expected to pay your tax bill for 2009 and prelim tax for 2010.....so the amount could be sizeable

Anyway back to your Q:
Some thoughts

• Totally new separate business to your current - then if a company can avail of corporation tax exemption if company is set up in 2010.

• Rule of Thumb on forming a company is if your profit outstrips the salary you expect to take - then a company is the better option
• You could set up the company and loan the company finance on start-up - then you could extract cash more tax efficiently
• Retail - you would have to have Public liabilty insurance
• 3 words - Business Plan...Business Plan and Business Plan
• PAYE and VAT - you could simplify these compliance issues - once conditions satisfied
• Premises costs - that you probably do not have these at the moment....this something you can really push the landlord on!!
• Retail Sector - look at the competition, are they surviving the onslaught at the moment?

If you form a company you can do certain things to limit your compliance issues.......i would not agree with the above statement about company formation

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the reasons for forming a company should be for positive reasons and not just for the sake of it.

You can contact me.....if you require assistance.....check out my contact details or pm me

FusionNet

I agree with Jack B,

A lot of people form limited companies cause they hear its the thing to do but it costs more to audit, it costs more to exist and it costs more to wind up. Id get advice from a Retired accountant. A current one would love you to be a ltd cause he can charge you lots to do the auditing. I know people that are sole traders and pay huge tax bills, one was an accountant himself!!

wishful thinker

FusionNet wrote: »

I agree with Jack B,

A lot of people form limited companies cause they hear its the thing to do but it costs more to audit, it costs more to exist and it costs more to wind up. Id get advice from a Retired accountant. A current one would love you to be a ltd cause he can charge you lots to do the auditing. I know people that are sole traders and pay huge tax bills, one was an accountant himself!!

just to update you.......on present conditions.......

no1. to be upfront I am a current accountant & tax consultant

not all companies need an audit

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most SMEs in ireland should be audit-exempt......

what does that mean----well no audit to start with, but you would as a matter of course prepare a set of financial statements

wow.:eek:...why......because it is from these that one determines how much tax the company has to pay on it's profits.......

This to me highlights people who set up a company without any understanding as to the + and - of it.

Remember, Rule of Thumb on forming a company is if your profit outstrips the salary you expect to take - then a company is the better option....

why.....as a ST, you pay tax on profits @ >50% at the moment, whereas a company, you pay tax on company profits @ 12.5% at the moment.

As I said earlier - the reasons for being either a ST or Co should be decided by the person themselves......but they should look at all avenues open to them...

so if you are looking for an accountant.....you would be looking for possibly the following

for company

• preparation of financial statements
• preparation and submission of corporation tax compliance for company
• preparation and submission of company registration office compliance
• preparation and submission of income tax compliance for directors

Vs
soletrader

• preparation of financial statements
• preparation and submission of income tax compliance for directors

and the cost between the 2......as I know......would not be very different.......

but this annual cost

kenbrady

wishful thinker wrote: »

for company

• preparation of financial statements
• preparation and submission of corporation tax compliance for company
• preparation and submission of company registration office compliance
• preparation and submission of income tax compliance for directors

• preparation and submission of corporation tax compliance for company

takes 5 minutes to fill out the form CT1 with the figures from your P&L

• preparation and submission of company registration office compliance

takes five minutes for audit exempt company, get previous years return, change the dates, put in the latest figures from balance sheet

I did 2 semesters on accounting in my CA degree and a few one day courses on business accounting. That's all I needed to do all the accounts for my company. I have mates who are directors of big accounting firms and I can talk rings around them. All because I do my own accounts and better understand how they relate to a business and where you need to massage figure for different things.

Basic business accounting is very easy to do. You need to know it and understand it to run a successful business.

wishful thinker

kenbrady wrote: »

• preparation and submission of corporation tax compliance for company

takes 5 minutes to fill out the form CT1 with the figures from your P&L

• preparation and submission of company registration office compliance

takes five minutes for audit exempt company, get previous years return, change the dates, put in the latest figures from balance sheet

I did 2 semesters on accounting in my CA degree and a few one day courses on business accounting. That's all I needed to do all the accounts for my company. I have mates who are directors of big accounting firms and I can talk rings around them. All because I do my own accounts and better understand how they relate to a business and where you need to massage figure for different things.

Basic business accounting is very easy to do. You need to know it and understand it to run a successful business.

very interesting your take on that.......you having more insight than your friends......ok...in a bigger organisation, people specialise....

are you a tax consultant......do you know how to advise clients on tax efficient cash extraction, different tax reliefs that may be apparent.....just as a matter of interest?

if you do understand the implications of accounts better than your friends, fair play.....well does that mean you have a better understanding of the business sector this company is in and factors that affect this industry??

i guess blase' comments like some that are here such as being a ST Vs Co, and submitting tax forms......are a little annoying

yet if these were done with that kind of attitude, you'd be p$%$ed if this cost you money!!!!

FusionNet

Wishful are you saying the accounting bill annually for a sole trader and a ltd company are very similar??? From my experience Ive seen the average accountant bill for end of year etc for a sole trader is about 300 euro, are you telling me a ltd company is that cheap? I doubt it..

Also though I agree with some of your very knowledgeable points I do think its important to mention one thing. If you have 10k in your sole trader bank account and 10k in the company bank account, as a sole trader I can walk into the bank and withdraw it all and spend it on mars bars.. As a ltd company though you pay only 12.5% corp tax you as the owner dont own the money the entity does.. Ya you can take salary etc but having a ltd company is more complicated and more paper work, Im pretty sure you'd agree no?

wishful thinker

FusionNet wrote: »

Wishful are you saying the accounting bill annually for a sole trader and a ltd company are very similar??? From my experience Ive seen the average accountant bill for end of year etc for a sole trader is about 300 euro, are you telling me a ltd company is that cheap? I doubt it..

Also though I agree with some of your very knowledgeable points I do think its important to mention one thing. If you have 10k in your sole trader bank account and 10k in the company bank account, as a sole trader I can walk into the bank and withdraw it all and spend it on mars bars.. As a ltd company though you pay only 12.5% corp tax you as the owner dont own the money the entity does.. Ya you can take salary etc but having a ltd company is more complicated and more paper work, Im pretty sure you'd agree no?

firstly, it depends on the amount of work involved....some ST book-keeping can be in sh1te and then expect you to do merlin magic.....but in my experience these guys know they pay the price for doing things like that.

in most cases if a smaller SME with good book-keeping requires annual accounts prep (not audit) and company compliance......then it won't differ too much from what some ST may pay. Admittingly ST fee would be smaller usually, but it depends on factors.

You might be aware that accountants are losing clients everywhere, so fees are very negotiable.......but they cannot afford to do them for nothing.... there has to be something more to keep the good clients besides a smaller fee.

I would be interested to ask what kind of ST paid €300.....I have done a fair bit of ringing around last autumn (to gauge the opposition) and the lowest I got was €500, and €650 was the average......but once again this was based on proper book and records being kept.

The 10k example......
ST - pay tax on your profit @ >50%
CT - 12.5%

You could still withdraw the money......

• has the company a director's loan----does the company owe the director money?....tax efficient
• company could buy back shares (not really the best option, just an idea)....tax efficient
• dividend.........tax efficient
• you could employ your wife & kids.....tax efficient
• pay money into a company pension (well what might you be withdrawing 10k for.......besides mars bars)....tax efficient

just some ideas of the top of my head

FusionNet

300 euro was based on returns for one year, paper work filled with revenue and a check to make sure everything was in order. Nobody can do stuff for free but I bet you know yourself of many firms that were charging over the odds in the boom just because they could. Now as you say people are shopping around and doing more themselves. I think the down turn is the best thing that happened to us, perspective has finally returned..

WhyFronts?

You may find this article of use for an outline of some of the things worth considering as regards sole trader vs limited company:-

http://webkit.o2online.ie/ideasroom/?p=1501