Tax for a Limited Company

obriendj

Hi There

This is probably a question you get 100s of times and for that I apologies.

I have a query about a limited company as I am thinking of going out with my own, contracting.

Say for example I get 50,000 in 1 year and have 5,000 in expenses. How would it be best to break up the rest of the 45K?

Would I pay myself 45K and pay normal tax @ 20% / 42% & USC and PRSI?
or would it be best to pay myself 30K (pay the tax etc on that) and leave the remaining 15K in the bank and at the end of the year pay tax on the profit (13% if I am correct) leaving about 12K in the bank

Can I then take out that 12K the next year or would that be subject to tax?

I am just confused on the tax on a limited companies profit.

Can any one shed some light.
Thanks

adrianw

It depends on what the company does and what future plans you have.

If you intend on taking out all the cash that the company has after paying other expenses, excluding wages, it may be better to simply operate as a sole trader.

However, any money that is extracted from a company is taxable as income (with the exception of legitimate expenses and the like) and subject to PAYE, USC, PRSI.

If you do not have any immediate need of the the €15k for example you could make a company donation to your pension plan - highly tax efficient.


Kind regards,
Adrian.

obriendj

adrianw wrote: »

It depends on what the company does and what future plans you have.

If you intend on taking out all the cash that the company has after paying other expenses, excluding wages, it may be better to simply operate as a sole trader.

However, any money that is extracted from a company is taxable as income (with the exception of legitimate expenses and the like) and subject to PAYE, USC, PRSI.

If you do not have any immediate need of the the €15k for example you could make a company donation to your pension plan - highly tax efficient.


Kind regards,
Adrian.

Thanks for this Adrian

I am not sure what percentage I can contribute to a pension at my age. But think I will look to getting a limited company up and running. Just have to find an accountant.

Mr. Incognito

If you have limited turnover there is no point having a company.

If you cannot afford to run a company properly you cannot afford a company.

Plus the are really really inefficient for any income for a one man band as you pay corp tax then income tax on any income.

obriendj

Mr. Incognito wrote: »

If you have limited turnover there is no point having a company.

If you cannot afford to run a company properly you cannot afford a company.

Plus the are really really inefficient for any income for a one man band as you pay corp tax then income tax on any income.

What do you mean by cannot afford to run a company properly?

What would you suggest I do if I cant remain a PAYE employee in my current role? Sole Trader?

Mr. Incognito

obriendj wrote: »

What do you mean by cannot afford to run a company properly?

What would you suggest I do if I cant remain a PAYE employee in my current role? Sole Trader?

Can you afford an accountant? Do you intend registering for VAT. If so can you afford to file VAT returns, annual returns.

Can you afford a few hundred to incorporate the business.

Can you afford Bank fees on a company account?

Can you afford to pay for legal and tax advice when you need it?

If you do then why are you asking these questions on an internet forum for free.

I know nothing about your business on that you are thinking about it. That is not a business. It's an idea. Have a business before you spend money you dont have incorporating.

obriendj

Mr. Incognito wrote: »

Can you afford an accountant? Do you intend registering for VAT. If so can you afford to file VAT returns, annual returns.

Can you afford a few hundred to incorporate the business.

Can you afford Bank fees on a company account?

Can you afford to pay for legal and tax advice when you need it?

If you do then why are you asking these questions on an internet forum for free.

I know nothing about your business on that you are thinking about it. That is not a business. It's an idea. Have a business before you spend money you dont have incorporating.

Thanks for the input. A few things to think about there.
The reason I would ask on an online forum for free is mainly for impartial advice rather than talk to a professional who primarily looking for a customer.

Mr. Incognito

obriendj wrote: »

Thanks for the input. A few things to think about there.
The reason I would ask on an online forum for free is mainly for impartial advice rather than talk to a professional who primarily looking for a customer.

if you are not a customer then why consult them?

Pay for advice. Or get crap advice.

obriendj

Mr. Incognito wrote: »

if you are not a customer then why consult them?

Pay for advice. Or get crap advice.

What I mean is If I speak with a professional they may tell me what i want to hear just to get my custom.

At least on here you have people who are willing to offer their opinions to help without looking to gain from it. It not going to be the best advice I can get but at least I might know more when speaking with a professional.

But like i said thanks again your advice is welcome.

Mr. Incognito

obriendj wrote: »

What I mean is If I speak with a professional they may tell me what i want to hear just to get my custom.

I really dont understand this.

You go to a professional for professional objective advice. I never advise anyone with a view to milking fees. If I did I would be out of business very fast and struck off by my professional bodies. The Law Society would probably prosecute me to boot.

You pay for advice and its up to you to take it. They will advise on a structure for you. The right structure for your circumstances.

Right now you have no business. Get something up and running and generating fees and if you are in that position think about incorporating when your advisor feels it is appropriate.

deathtocaptcha

Mr. Incognito wrote: »

Can you afford an accountant? Do you intend registering for VAT. If so can you afford to file VAT returns, annual returns.

All tax deductible.

Can you afford a few hundred to incorporate the business.

Tax deductible.

Can you afford Bank fees on a company account?

Tax deductible but also most banks offer 1/2/3 years free banking for startups.

Can you afford to pay for legal and tax advice when you need it?

Tax deductible

If you do then why are you asking these questions on an internet forum for free.

Research and education. Give the guy a break. Have you never used the internet to research something in order to learn more about it?

I know nothing about your business on that you are thinking about it. That is not a business. It's an idea. Have a business before you spend money you don't have incorporating.

OP doesn't say he has no customers lined up. He says he's thinking about contracting which to me implies he knows he can get work out on his own or possible already has customers.

OP, you will pay 12.5% tax (not 13%) on profits. You will also pay 15% on half of retained profits (if there are profits after you take a salary).

The general rule of thumb is that if you intend to take all profit as a salary, you're better off as a sole trader.

If you're building up considerable profit within the company, there are tax gains to be had over being a sole trader.

Mr. Incognito

These expenses are only tax deductible if you have enough taxable income to shelter them. Which he doesn't have. So he will eat the costs until he can roll them against taxable income.

Just because something can be offset doesn't mean it will.

chompdown

Mr. Incognito wrote: »

These expenses are only tax deductible if you have enough taxable income to shelter them. Which he doesn't have. So he will eat the costs until he can roll them against taxable income.

Just because something can be offset doesn't mean it will.

Jesus.

It's clear from the OP's posts that he is a PAYE employee now, and for some reason his employer would rather he set up a company and receive payment through it.

He's looking for a little guidance not a lecture.

chickenlicken2

Google contracting in Ireland or contractor payroll in Ireland.

You will come up with a number of companies offering different solutions for contractors, from umbrella to director to managed company to assisting in setting up your own company.

Ring them up, explain what you are looking for and they should be able to advise accordingly.

There are a handful of companies that specialised and are very experienced in this area. There are also a lot of accountancy firms who will offer a company formation, accounting and tax function.

Mr. Incognito

chompdown wrote: »

Jesus.

It's clear from the OP's posts that he is a PAYE employee now, and for some reason his employer would rather he set up a company and receive payment through it.

He's looking for a little guidance not a lecture.

The guidance is dont set up a company. It's not appropriate in his circumstances.

Companies are not tax effient until you have proper turnover.

People cannot seem to grasp this very very basic point.

prettyrestless

Mr. Incognito wrote: »

The guidance is dont set up a company. It's not appropriate in his circumstances.

Companies are not tax effient until you have proper turnover.

People cannot seem to grasp this very very basic point.

Couldn't agree more.

Eugene Norman

Mr. Incognito wrote: »

These expenses are only tax deductible if you have enough taxable income to shelter them. Which he doesn't have. So he will eat the costs until he can roll them against taxable income.

Just because something can be offset doesn't mean it will.

He's presumably expecting income. Your arguments are spurious. Those costs of doing business you mention are same as any other costs.

Mr. Incognito

Eugene Norman wrote: »

He's presumably expecting income. Your arguments are spurious. Those costs of doing business you mention are same as any other costs.

I am "expecting" to win the lottery. Should I put a down payment on a Villa in Spain?

Eugene Norman

Mr. Incognito wrote: »

I am "expecting" to win the lottery. Should I put a down payment on a Villa in Spain?

Look. A contractor has a good idea of his earnings. There are good legal reasons to be a company even if some costs are higher. Dismissing it is silly.

Calahonda52

Mr. Incognito wrote: »

Can you afford an accountant?

Why does he need an accountant?
Annual CRO/CORE return on line 20 euro

Do you intend registering for VAT. If so can you afford to file VAT returns, annual returns.

VAT on line with ROS, RDI from bank account, no drama

Can you afford a few hundred to incorporate the business.

One off cost.

Can you afford Bank fees on a company account?

Maybe 50-80 a year if done right.

Can you afford to pay for legal and tax advice when you need it?

If the company is making money and he need advice then he can.

The only one of these that is unique to incorporation is the cost thereof, the rest are there even if self employed.

OP: a couple of pointers
Being a company director exposes you to fines for late filing of all your tax returns, including PAYE.
Form 11 much more onerous than 12

http://www.revenue.ie/en/tax/ct/close-companies.html

Close "service" companies are also liable to a surcharge of 15% on one-half of their undistributed trading income.

Having said all that, depending on how you are pitching for work, having a company looks way more professional.

If you are a contractor working in company office read the rules for claiming travelling expenses very carefully

prettyrestless

Calahonda52 wrote: »

Why does he need an accountant?
Annual CRO/CORE return on line 20 euro

Are you actually serious?

sky6

Wouldn't he also have Limited legal liability protection as a Company unlike as a sole trader. Plus as has been said the option of creating a decent pension for himself down the road.

Eugene Norman

prettyrestless wrote: »

Are you actually serious?

God knows it's impossible to do stuff online these days.

Eugene Norman

sky6 wrote: »

Wouldn't he also have Limited legal liability protection as a Company unlike as a sole trader. Plus as has been said the option of creating a decent pension for himself down the road.

Yes. Surely that's the main reason. I can't believe someone would put their own assets at risk. In the UK ( where there are huge tax advantages to being a single director company anyway). I couldn't get into contracting without setting up a single director company and getting liability insurance for that company, which the bank arranged on incorporation.

prettyrestless

Eugene Norman wrote: »

God knows it's impossible to do stuff online these days.

Advising someone setting up a company that they don't need an accountant = not the best advice IMO, but sure whatever you think.

Eugene Norman

prettyrestless wrote: »

Advising someone setting up a company that they don't need an accountant = not the best advice IMO, but sure whatever you think.

There are online accountants. There are online tax calculators. However doing accounts on the simple contracting the op seems to be doing is very simple indeed.

chickenlicken2

Eugene Norman wrote: »

There are online accountants. There are online tax calculators. However doing accounts on the simple contracting the op seems to be doing is very simple indeed.

There is nothing per se stopping the op simply setting up a company getting his P45 from his boss and happily going back to his place of work but invoicing as a contractor.

People are advising against it because there are far more elements than just this and he needs professional advice.

If he were to speak with an accountant about his plan he would get informed advice in relation to it, the risks and any potential pitfalls and he could then decide whether to do it or not.

Opting to set up by yourself and have a go without seeking professional advice is risky. Fine you'll save a few bob on accountancy fees. However do something wrong even by mistake or lack of knowledge and you'll quickly find out you've just cost yourself a heck of a lot more.