Adv/Disadv of Registering as a Company

John Electrician33

Do most electricians register their business as a company or continue to operate as a sole trader.

For example an electrician operating on his own with a projected profit of approx €60,000 p.a.

The only advantage from a tax point of view I see from registering as a company is
1 - Pension contributions can be made thus avoiding paying tax on this income - I believe you can retire from the business in your 50's thus availing of these pension contributions.
2- Your spouse can be registered as a director of the company and she can be paid a salary at an effective 20% tax rate.

Apart from the above I see no advantages.

The main disadvantage is you are charged tax at over 50% if you decide to take money from the company. ( this includes the higher rate of tax, prsi contributions & universal social charge).

Anyone any opinions?? Or good links to useful websites

2011

As a sole trader you are under no obligation to file accounts or have an annual audit, both of which add to the costs of operating your business. However you are fully liable for any debts the business incurs and claims that customers may have against you. In other words as a sole trader you could loose your home if successfully sued.

Calahonda52

John Electrician33 wrote: »

Do most electricians register their business as a company or continue to operate as a sole trader.

For example an electrician operating on his own with a projected profit of approx €60,000 p.a.

The only advantage from a tax point of view I see from registering as a company is
1 - Pension contributions can be made thus avoiding paying tax on this income - I believe you can retire from the business in your 50's thus availing of these pension contributions.
2- Your spouse can be registered as a director of the company and she can be paid a salary at an effective 20% tax rate.

Apart from the above I see no advantages.

The main disadvantage is you are charged tax at over 50% if you decide to take money from the company. ( this includes the higher rate of tax, prsi contributions & universal social charge).

Anyone any opinions?? Or good links to useful websites

When you say profit, how is that estimated?

Am not giving advice here as its verboten but much of what you have penned is somewhat inaccurate.

You might be better posting it in the Biz section.
1 re pensions: pensions is a minefield and the rules are very clear in the objective that they can't be used for tax avoidance.

There are also pension pot limits on value

Getting early access, i.e. before 65 or 66 to private pension scheme can only happen on very special cases.

The other one on pensions is the key issue is investment return on your contributions.

10 year bond rates are less than 1 % now so lets do some simple math, ignoring investment return, fund costs and inflation.
First question in pension planning is how long do you expect to live behind retirement date? let say 15 years
second question is what income do you expect: lets say 40k per annum before tax.

So if you have 30 years of contributions at 20k gross per annum, then you will have a fund that will pay out 40k per annum gross for 15 years and then thats that.
Food for thought perhaps.

2: Yes your spouse can be a director and is subject to the Form 11 late filing penalties

The rules for close company taxation is another mine field and the idea of 20% tax as the final rate is misguided.
http://www.revenue.ie/en/practitioner/law/notes-for-guidance/tca/part13.pdf

A key advantage of having a company is that the benefits from social welfare contributions is better than self employed, but unless tweaked, not the same as arms length employee.

2011 wrote: »

As a sole trader you are under no obligation to file accounts or have an annual audit, both of which add to the costs of operating your business. However you are fully liable for any debts the business incurs and claims that customers may have against you. In other words as a sole trader you could loose your home if successfully sued.

The audit exemption is
Balance sheet total not exceeding €4.4m
Turnover not exceeding €8.8m
Employees not exceeding 50
https://www.cro.ie/Annual-Return/Accounts-Requirements/Small-Company

If the bank requires an audit then sceil eile.

Filing costs are 20 euro per annum with CRO
No filing costs with Revenue using ROS which is a great system.

Doing the accounts for a plumbing business is not difficult as long as you read the Revenue site and don't try any funny stuff with things like mileage etc.

The liability protection of the Corporate shield works up to a point, but yes, is an advantage if not abused.

ps the rules for small companies is changing later this year so perhaps wait, also costs of incorporation are coming down so its worth a look

https://www.cro.ie/New-Act-2014/Overview

Have fun

2011

This might help.