accountancy questions

monkey8

I was just made redundant last month after working for the same company for the last 15 years.
I have been given the opportunity to buy a business in my area of experties. The accounts look good and it has made a net profit of 50,000 for the last few years. The business is valued at 170,000 and i will need a bank loan of €100,000.
My accountancy info is not the best so I have a few questions
1) I would be the sole director and shareholder so is it fesible to put the majority of the companies net profit into paying back the bank loan?
2) apart from corporation tax is there any other taxes on the net profit?
3) when you go to sell a business we'll say for €170,000 do you get taxed at the highemarginal rate like income tax on a sale like this?
sorry if these questions seem a bit stupid!
Thanks you in advance for your replies

ted2767

You really need to get yourself an accountant a bank won't even consider giving you finance without a business plan, cash flow projections etc so you'll need one anyway.

monkey8

thanks ted,
I am in the middle of doin the business plan, goin to get accountant, solicitor etc but just lookin for some info in the meantime.

Mongarra

I agree with ted2767 - get yourself an accountant.

Meanwhile brief replies to your questions:
1. Impossible to say without projected cashflow but don't forget to take into account your own salary requirements.
2. At present there is no Corporation Tax (CT) payable on profits of a start-up company where the liability to CT would be less than €40,000. It may be that you are buying the shares in the company in which case it will not be a start-up company unless it commenced in 2009 or later. There are unlikely to be other taxes on the profits unless it is regarded as a service company in which case there is an additional 20% tax on undistributed profits.
3. Your question is a little vague but if a business is being sold it depends on the original and additional costs involved and the selling price. It is most likely the Goodwill (mainly the difference between the book value of the assets and the price being paid) will be liable to Capital Gains Tax (not income tax).

monkey8

Hi Mongarra, thanks for the advise.
The directors wage is already taken into account before the profit of 40,000 is calculated.
My thinking is that if this profit is put into paying off the bank loan it will be nearly paid off in total in two years but I fear that its not that simple!!

jennypeny

Well just one thing, if it is a company that you are buying you need a min of 2 directors in a Irish company so if it is a ltd company you are buying then you will need another Director (not shareholder you will own 100% but you need 2 directors)

Also if you take out a bank loan to buy the company /shares (im not sure what your buying) then if the company paid the bank loan back out of its profits you personally will be taxed on it as effectively the company is paying back your bank loan. I.e. Additional wages for you - and you will get taxed heavily on. Any money you take out of the company you pay Income Tax on. (bar the general mileage exp etc allowable which you will discuss with you accountant)

It’s a very common thing that people who go from being a normal PAYE employee take over a company do not realise the implications that taking money out of the companies bank account has on there personal tax as at the end of the day even as you own the company it’s not your money IYKWIM.

This if course is a completely different story is you’re a sole trader and if I have taken you up wrong my apologies.

But get yourself a good accountant! (There are bad ones out there so try getting a recommend as opposed to search who is in the area )

seco

I am an accountant am willing to meet you foc to assist you with your proposal. I will pm my details to you if you wish to call me.