Company Registration Tax/ Personal Income Tax

airneal

I'm not 100% on this, but does anybody know if you pay 12.5% corporation tax on your company, do you then pay personal income tax (.e.g. 20/40%) on earnings/profits one makes from that company in addition to the 12.5%??

Many thanks,

relax carry on

airneal wrote: »

I'm not 100% on this, but does anybody know if you pay 12.5% corporation tax on your company, do you then pay personal income tax (.e.g. 20/40%) on earnings/profits one makes from that company in addition to the 12.5%??

Many thanks,

If you set up your own limited company and pay yourself a salary as a director , you are taxed as any normal employee with the exception that you lose your paye credit.

dogsears

relax carry on wrote: »

If you set up your own limited company and pay yourself a salary as a director , you are taxed as any normal employee with the exception that you lose your paye credit.

And the company can deduct your salary as a business expense in calculating its own profits - therefore in effect income taken out of a company as salary is taxed only once.

yop

So if your company is paid say 6k per month for work done and your total paid to the employee (yourself) is 6k euro, then there is no money in the account at the end of each month, then you pay no corporation tax as the company has no profit?

Or are there other things that are needed to be paid outside of CT?

dogsears

yop wrote: »

So if your company is paid say 6k per month for work done and your total paid to the employee (yourself) is 6k euro, then there is no money in the account at the end of each month, then you pay no corporation tax as the company has no profit?

Or are there other things that are needed to be paid outside of CT?

Obviously in practice its more complex, there would be more expenses, the company may be charging VAT etc etc but in the scenario you describe the company hasn't made a profit , so there is nothing to charge tax on.

But you as the employee still have income that is taxable, and the company has to apply the usual employer obligations to that e.g. deducting PAYE, USC etc and paying these over to the Revenue (slightly different rules re PRSI if your a proprietary director).

Also there are complications if the company does make a profit (perhaps you don't draw out all of the income as salary) - and you then take a dividend. The divi is liable to income tax in your hands, may have a different withholding tax deducted by the company (you'll get a credit for that) before payment and the company does not get a deduction, so all in all it can be a mighty bad idea.

yop

dogsears wrote: »

Obviously in practice its more complex, there would be more expenses, the company may be charging VAT etc etc but in the scenario you describe the company hasn't made a profit , so there is nothing to charge tax on.

But you as the employee still have income that is taxable, and the company has to apply the usual employer obligations to that e.g. deducting PAYE, USC etc and paying these over to the Revenue (slightly different rules re PRSI if your a proprietary director).

Also there are complications if the company does make a profit (perhaps you don't draw out all of the income as salary) - and you then take a dividend. The divi is liable to income tax in your hands, may have a different withholding tax deducted by the company (you'll get a credit for that) before payment and the company does not get a deduction, so all in all it can be a mighty bad idea.

Thanks for the reply, appreciate it.
The figure was EX VAT just for the example.

I am paying the PRSI and USC with my P30 each month.

From what I am read and I would love to know other peoples experience, that its better to take the full amount as a salary as opposed to taking it as a dividend. I hope I have picked that up correctly!

My own plan is to take as much money as I am eligible to take out as a salary.

Legend100

yop wrote: »

From what I am read and I would love to know other peoples experience, that its better to take the full amount as a salary as opposed to taking it as a dividend. I hope I have picked that up correctly!

At a basic level, yes, salary is better than dividends as there would be no corporation tax relief on the dividend. There would be full CT relief on the salary.

dogsears

yop wrote: »

Thanks for the reply, appreciate it.
The figure was EX VAT just for the example.

I am paying the PRSI and USC with my P30 each month.

From what I am read and I would love to know other peoples experience, that its better to take the full amount as a salary as opposed to taking it as a dividend. I hope I have picked that up correctly!

My own plan is to take as much money as I am eligible to take out as a salary.

As a shareholder who is also a director/employee taking a dividend out of a private company is a disaster from a tax pov.

However if you do take all the profit out of a company as a salary you may want to question why you use a company at all instead of being a sole trade. You get the benefit of limited liability but against that there are increased costs. There are a few things to consider. Principally I would consider where you expect business to go in the next while - will it grow, especially will it grow beyond the level where you'd want or need to draw all the profit each year. If so then I'd say be off to your local friendly tax adviser to make a plan.

yop

dogsears wrote: »

As a shareholder who is also a director/employee taking a dividend out of a private company is a disaster from a tax pov.

However if you do take all the profit out of a company as a salary you may want to question why you use a company at all instead of being a sole trade. You get the benefit of limited liability but against that there are increased costs. There are a few things to consider. Principally I would consider where you expect business to go in the next while - will it grow, especially will it grow beyond the level where you'd want or need to draw all the profit each year. If so then I'd say be off to your local friendly tax adviser to make a plan.

Thanks for that. Ya I had to switch as companies now don't want to deal with sole traders like myself, so I had to setup the whole thing, preferred to have stayed Sole Trader as you said, there is only more costs and zero benefit apart from the liability side of it.