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Setting up a ltd company

  • 28-01-2016 05:02PM
    #1
    Registered Users, Registered Users 2 Posts: 50 ✭✭


    Hey, so last year I went over my tax cap at 32,000 by 8000 and had to pay 4000 extra on income tax roughly.. This was because I had a very good business year.
    I am now looking to set up another business so will have to set up a company I have been told otherwise I will be paying 52% on anything made over 32,000..
    What is the best thing to do?
    Continue as a sole trader and also set up a company been the director of that company? What is my salary cap? Don't know much as you can tell so all advice welcome
    My main business is a pub and I am now looking to start up a business in property short letting


Comments

  • Registered Users, Registered Users 2 Posts: 8,779 ✭✭✭Carawaystick


    If you set up a company, it'll be paying 12.5% on every euro of profit, and then you'll pay income tax when that company pays you.
    Plus you'll have to pay an accountant to audit the accounts


  • Registered Users, Registered Users 2 Posts: 8,779 ✭✭✭Carawaystick


    If you set up a company, it'll be paying 12.5% on every euro of profit, and then you'll pay income tax when that company pays you.
    And possibly another 10% employers prsi too.
    Plus you'll have to pay an accountant to audit the accounts


  • Registered Users, Registered Users 2 Posts: 50 ✭✭Themag


    So like I would pay myself 600 euros a week which keeps me at 32000 so I won't have to pay higher tax rate....
    What happen the money the company makes then... It's the companies money? How can I get the money? Or do I just reinvest that money and try expand the company and that could make me more money by paying myself more?


  • Banned (with Prison Access) Posts: 295 ✭✭mattaiuseire


    Dividends my friend.


  • Registered Users, Registered Users 2 Posts: 50 ✭✭Themag


    Dividends my friend.

    Explain? Don't know anything about that?


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  • Registered Users, Registered Users 2 Posts: 50 ✭✭Themag


    Are they taxed


  • Banned (with Prison Access) Posts: 295 ✭✭mattaiuseire


    Yes but it all depends on what you withdraw. Some instances you'll be better off taking a higher income, in other instances you'd be better taking a larger dividend. This is down to corporation tax versus income tax. For example, lets use €80,000 as a salary:

    Paid as a salary: Gross pay €71,232, personal tax €22,954, corporation tax €0, net income after tax = €48,277.

    Paid as dividend: Gross pay €80,000, personal tax €6,673, corporation tax €16,000, net income after tax = €57,326.

    Then compare if you paid a salary of €7,696 and the rest as a dividend: Gross pay €80,000, personal tax €6,866, corporation tax €14,460, net income after tax = €58,673.

    (Very basic illustration).

    You'd need an accountant to advise you properly and sure they don't come too cheap!


  • Registered Users, Registered Users 2 Posts: 535 ✭✭✭dogsears


    Yes but it all depends on what you withdraw. Some instances you'll be better off taking a higher income, in other instances you'd be better taking a larger dividend. This is down to corporation tax versus income tax. For example, lets use €80,000 as a salary:

    Paid as a salary: Gross pay €71,232, personal tax €22,954, corporation tax €0, net income after tax = €48,277.

    Paid as dividend: Gross pay €80,000, personal tax €6,673, corporation tax €16,000, net income after tax = €57,326.

    Then compare if you paid a salary of €7,696 and the rest as a dividend: Gross pay €80,000, personal tax €6,866, corporation tax €14,460, net income after tax = €58,673.

    (Very basic illustration).

    You'd need an accountant to advise you properly and sure they don't come too cheap!

    I can't make head nor tail of these calculations but for OP generally speaking dividends are less efficient than salary because they come out of post (corporation tax) income. So forming a company and taking out what you need to live on but leaving the rest in the company to reinvest etc is a good idea even though you pay CT at 12.5% on what isn't drawn as salary. If the business has a short life you could liquidate the company later and get access to the accumulated non-drawn profits at the Capital Gains Tax rate (currently 33%).

    Put it this way:

    1. No company. Income 100 - less 52% = 48 remaining
    2. Use a company, but don't draw all the income, and pay a dividend later.
    Company income 100 less salary, say 50 = 50. Tax on this is 12.5% (leaving 38.5 to dividend later). Personal income = Salary 50 plus Dividend 38.5 = 88.5 less 52% = 42.5 remaining.
    3. Same as 2 but take no dividend and later liquidate the company.
    Company income 100 less salary, say 50 = 50. Tax on this is 12.5% (leaving 38.5 to distribute on liquidation later). Personal income = 50 less 52% = 24 remaining. Personal Capital Gain = 38.5 less 33% = 25.8 remaining. Total remaining 49.8

    These are just illustrations and leave out certain factors, especially timing. Timing is important because if the salary you take is enough for your day to day spending, and there is a considerable gap in time before you liquidate and take the rest of the money (and therefore before you pay the CGT) you get a very worthwhile advantage in that the company has the funds fully available to make more money in the interim.

    A tax deferred long enough is as good as a tax saved.

    However overall this seems like a complex enough scenario for you to be justified in getting professional advice specifically related to your own situation. Hope this helps.


  • Registered Users, Registered Users 2 Posts: 86 ✭✭SRASE


    I think mattaiuseire is looking at UK tax rates rather than Irish tax rates.


  • Registered Users, Registered Users 2 Posts: 535 ✭✭✭dogsears


    SRASE wrote: »
    I think mattaiuseire is looking at UK tax rates rather than Irish tax rates.

    And possibly also using UK rules regarding taxation of dividends - but these are drastically different to here, so the whole thing is just misleading.


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  • Registered Users, Registered Users 2 Posts: 9,798 ✭✭✭Mr. Incognito


    Bear in mind

    Undistributed reserves are subject to a close company surcharge at 20%

    You will also have to file corporate returns and an income tax return as a director and PRSI filings/ PAYE Filings annually if you are taking a salary.

    I would normally advise operating as a sole trader but register for income tax until your income is greater than 50K or thereabouts.

    While the accountants fees etc can be taken as bona fide expenses of the company, for smaller incomes self employed is more tax efficient whereas for larger incomes companies are vastly superior


  • Registered Users, Registered Users 2 Posts: 9,798 ✭✭✭Mr. Incognito


    Bear in mind

    Undistributed reserves are subject to a close company surcharge at 20%

    You will also have to file corporate returns and an income tax return as a director and PRSI filings/ PAYE Filings annually if you are taking a salary.

    I would normally advise operating as a sole trader but register for income tax until your income is greater than 50K or thereabouts.

    While the accountants fees etc can be taken as bona fide expenses of the company, for smaller incomes self employed is more tax efficient whereas for larger incomes companies are vastly superior


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