Tax question - additional Income

thumpybum

A friend an I want to start a small entertainment business as a sideline. We're both paye workers and plan to declare additional income in returns each year rather than create a company. Profits will be small for first 2 years - let's say 5k each year at which stage it will either take off and grow to what we think is a max of 25-30k per annum each. We don't think it Would grow anymore than that if even.
At which point does it make sense to create a company and tax through that separately from paye.

Mr. Incognito

There are a host of reasons for starting a company

Limited liability,
VAT registration (although a self employed individual can do this also)
Can sell it on.
etc.

However a company is a very inefficent way of making money for small businesses as there is a myriad of corporate filings including filing memos and arts and company filings.

The biggest drawback is through a company there is only two ways of extracting cash. Salary or distributions. Salary will suffer employers and employee PRSI and USC. so you pay income tax, the company pays income tax and THEN you have to apply corporation tax and then as a participator you will suffer tax on the drawdown of additional funds. If you leave the money in the company a close company surcharge will apply.

In short, unless you have turnover over about 50K there is no point incorporating, and if you do I GUARANTEE you will make a balls of it without professional guidance.

thumpybum

Mr. Incognito wrote: »

There are a host of reasons for starting a company

Limited liability,
VAT registration (although a self employed individual can do this also)
Can sell it on.
etc.

However a company is a very inefficent way of making money for small businesses as there is a myriad of corporate filings including filing memos and arts and company filings.

The biggest drawback is through a company there is only two ways of extracting cash. Salary or distributions. Salary will suffer employers and employee PRSI and USC. so you pay income tax, the company pays income tax and THEN you have to apply corporation tax and then as a participator you will suffer tax on the drawdown of additional funds. If you leave the money in the company a close company surcharge will apply.

In short, unless you have turnover over about 50K there is no point incorporating, and if you do I GUARANTEE you will make a balls of it without professional guidance.

Thanks. Well answered.