Taxation for online business

sean61

Hi everyone. Sorry if this is a regular question but I can't find the answer using search function.

I'm setting up a side business selling online. It may or may not take off but I currently work full time in a PAYE job so it's not the end of the world if it doesn't work.

As I'll be starting small to get a feel for things, I don't plan on getting an accountant for the initial period but I will keep a good track of everything.
However it would be handy to know what is considered profit for tax purposes as I will declare it.
For example, if I pay 10k for goods, sell for 15k but then use this 15k to buy more goods, would revenue class this as 5k profit even though I haven't taken a cent of it yet?

namenotavailablE

Your taxable profit under the above scenario would be €5k.

Effects

sean61 wrote: »

I don't plan on getting an accountant for the initial period but I will keep a good track of everything.
For example, if I pay 10k for goods, sell for 15k but then use this 15k to buy more goods, would revenue class this as 5k profit even though I haven't taken a cent of it yet?

Talk to an accountant. It shouldn't be that expensive for advice, ahead of filing returns. There's expenses you can write off as a business. It's not as simple as paying tax on the 5k profit you make.

sean61

Thank you both. I heard you could reinvest in the business and was hoping I could do that with all the money as long as I kept receipts etc.
It would be hard to find money to pay high rate of tax on profits when it's capital I'm so badly in need of to begin with 🙈.

I'll get in touch with an accountant for a better idea.

rostalof

sean61 wrote: »

Thank you both. I heard you could reinvest in the business and was hoping I could do that with all the money as long as I kept receipts etc.
It would be hard to find money to pay high rate of tax on profits when it's capital I'm so badly in need of to begin with 🙈.

I'll get in touch with an accountant for a better idea.

It's quite simple. In a black and white situation as you have described, there would be tax owing on the €5k profit. But as another poster has stated, there will be other business costs and expenses to deduct also. The simple formula is Total Sales - (Total Purchases + Expenses) = Taxable Profit

If in your case you keep buying stock with the returns from each set of purchases, your profit for tax is worked out in the same way as I outlined above using the total sales, total purchases and total expenses. You can also state the value of the stock at hand at the end of the accounting period.

I agree with the last poster, speak to an accountant. There's a saying in Revenue, "Ignorance is no excuse"!

sean61

rostalof wrote: »

It's quite simple. In a black and white situation as you have described, there would be tax owing on the €5k profit. But as another poster has stated, there will be other business costs and expenses to deduct also. The simple formula is Total Sales - (Total Purchases + Expenses) = Taxable Profit

If in your case you keep buying stock with the returns from each set of purchases, your profit for tax is worked out in the same way as I outlined above using the total sales, total purchases and total expenses. You can also state the value of the stock at hand at the end of the accounting period.

I agree with the last poster, speak to an accountant. There's a saying in Revenue, "Ignorance is no excuse"!

Thanks.
I suppose it makes sense that revenue get their share whether it's tax on sales or stock in hand.

rostalof

sean61 wrote: »

Thanks.
I suppose it makes sense that revenue get their share whether it's tax on sales or stock in hand.

That element would be calculated as the difference between opening stock and closing stock i.e. stock held at the beginning of the year and at the end of the year.

Will Yam

sean61 wrote: »

Hi everyone. Sorry if this is a regular question but I can't find the answer using search function.

I'm setting up a side business selling online. It may or may not take off but I currently work full time in a PAYE job so it's not the end of the world if it doesn't work.

As I'll be starting small to get a feel for things, I don't plan on getting an accountant for the initial period but I will keep a good track of everything.
However it would be handy to know what is considered profit for tax purposes as I will declare it.
For example, if I pay 10k for goods, sell for 15k but then use this 15k to buy more goods, would revenue class this as 5k profit even though I haven't taken a cent of it yet?

Be sure to keep records of everything you spend on the business. You might be surprised at what is allowable. And if you are in doubt if an expense is allowable or not keep the receipt.

You won’t have to pay tax on any profits until 31st October next year so I would focus on getting the business up and running and making profits before deciding what to do with them!

And remember that any business related expense in the 3 years before you started can be written off as well in your first year.

As you get nearer the tax deadline next year it might be worth considering an accountant. For a few hundred € you might save more than that. And if your records are very well kept an accountant may not charge you very much.

It’s a plastic bag of receipts that accountants charge a lot to sort out. Send in a clear spreadsheet and the charge will be much less.

CIARAN_BOYLE

sean61 wrote: »

Thank you both. I heard you could reinvest in the business and was hoping I could do that with all the money as long as I kept receipts etc.
It would be hard to find money to pay high rate of tax on profits when it's capital I'm so badly in need of to begin with ��.

I'll get in touch with an accountant for a better idea.

This is why some small businesses would set themselves up as companies.

You can play corporation tax at what might be a lower level than income tax if you are reinvesting. Make sure to take advice before considering this.

Will Yam

sean61 wrote: »

Thank you both. I heard you could reinvest in the business and was hoping I could do that with all the money as long as I kept receipts etc.
It would be hard to find money to pay high rate of tax on profits when it's capital I'm so badly in need of to begin with ��.

I'll get in touch with an accountant for a better idea.

Is it working capital or capital expenditure you need.?

If the former there’s no reason you can’t spend the money on supplies and make no profits. Therefore no tax.

Capital expenditure a bit more tricky - you can only claim 12.5% of it.