Worth my while setting up ltd. Company?

Business Idea

Hi, a question for accountants/tax advisors:

I am a PAYE worker, on around 50 grand a year. I will be doing other work over the next year, which will be worth 4-5 grand, or maybe more. Would it be worth my while to set up a limited company, to pay corporation tax at 12.5% on this instead of 40%? Is it worth the hassle?

Thanks in advance for any advice

Synode

Really depends on what the other work is. Is it long term with potential for growth? As in can you see it replacing your PAYE work?

If you do go the company route you can pay all profits as salary so no corporation tax.

relax carry on

Business Idea wrote: »

Hi, a question for accountants/tax advisors:

I am a PAYE worker, on around 50 grand a year. I will be doing other work over the next year, which will be worth 4-5 grand, or maybe more. Would it be worth my while to set up a limited company, to pay corporation tax at 12.5% on this instead of 40%? Is it worth the hassle?

Thanks in advance for any advice

The company pays 12.5% on its taxable profit not you. If you want to take money out of the company in terms wages or distributions then you are back to your marginal rate.

Business Idea

Synode wrote: »

Really depends on what the other work is. Is it long term with potential for growth? As in can you see it replacing your PAYE work?

If you do go the company route you can pay all profits as salary so no corporation tax.

Thanks for the reply. I dont think itd ever replace my PAYE work. Would i be correct in saying id be oayon 40% if i set up as a sole trader aswell?

Rulmeq

A limited company has several legal requirements to fulfil every year, so you would have to hire an accountant. They will charge you probably between €1-2k. You will have to keep on top of all the other legal requirements, and ensure that you are compliant. The company would be paying 12.5% on any profits retained in the company (and there's also a retention tax if you use the company to unnecessarily hoard money - although I think it's small, and you probably wouldn't run into it a the level you are talking about). You're accounts would be published every year, and accessible (both turnover and profit are now required on the accounts).

The only real benefit to having a company would be if you were to use it to dump money into a pension for yourself - there's more generous annual limits, and you can retire from 50.

You will still have to pay your PAYE/USC when you pay yourself a wage from the company - and the company will have to file P30s/P35s with revenue. You will have to do up your P60 as well at the end of the year. From next year you will have no choice but to use payroll software as well so you can file with them under their new "live" system.

I guess what I'm saying is there's very little benefit to you setting up a company (especially for the mistaken belief that you can somehow get away with paying 12.5% instead of 50%), and there's lots of costs, downsides, and potential unforseen issues (audits!)

Watergirl4

I don't think that it would be worth it for the amount of income that you are talking about, for the reasons that Rulmeq outlined. You would pay 40% PAYE plus USC as a sole trader as well, though any expenses that you would incur in running the business would be tax deductible.

You might be better off increasing your pension contributions into the pension fund linked to your PAYE role and effectively funding it with your additional income (eg place €4k AVCs into pension fund, saves you €1600 in income tax), so from an overall net income point of view, you have the same net pay but your pension fund has increased by the €4k that you earned, all subject to Revenue limits and depends on your current arrangements.

professore

I can tell you that I have a business that keeps me and my wife full time employed and the only reason I do it is for limited liability. As a previous poster outlined there aren't any real world tax advantages over a sole trader and you absolutely need an accountant unless you are making way more than you need to live, and can put tens of thousands into a pension.

I was a sole trader for many years and its much simpler and cheaper.

Business Idea

Watergirl4 wrote: »

I don't think that it would be worth it for the amount of income that you are talking about, for the reasons that Rulmeq outlined. You would pay 40% PAYE plus USC as a sole trader as well, though any expenses that you would incur in running the business would be tax deductible.

You might be better off increasing your pension contributions into the pension fund linked to your PAYE role and effectively funding it with your additional income (eg place €4k AVCs into pension fund, saves you €1600 in income tax), so from an overall net income point of view, you have the same net pay but your pension fund has increased by the €4k that you earned, all subject to Revenue limits and depends on your current arrangements.

Thanks for all the answers, very helpful. I wonder if travel expenses would count as a sole trader?

Watergirl4

Deductiblity of travel expenses would depend on the business and whether your business has a premises of its own. Travel from your home to your place of work (if fixed) is unlikely.

Possibly - depends on reason for travel.

Calahonda52

Watergirl4 wrote: »

Deductiblity of travel expenses would depend on the business and whether your business has a premises of its own. Travel from your home to your place of work (if fixed) is unlikely.

Possibly - depends on reason for travel.

I would say more than unlikely, in fact not:D