sole trader vs 1 man private ltd company

paddyc

What are the pros and cons for both of the above.....

Is is not better to be a 1 man ltd company to avail of the 12.5% tax ??


thanking you, paddyc

madramor

paddyc wrote:

What are the pros and cons for both of the above.....

Is is not better to be a 1 man ltd company to avail of the 12.5% tax ??


thanking you, paddyc

how do you think this 12.5% tax works?

ianmc38

12.5% tax - LOL

paddyc

how do you think this 12.5% tax works?

I dont know thats why I was asking....

ianmc38

If you're a one man private company, then you pay 12.5% on the business profits.

So if you make €100,000 profit then you'll pay €12,500 in corporation tax. That money is then left in the company.

Alternatively you make 100k profit and you set your salary at 100k. Therefore, the company pays no tax but you pay income tax at the standard rate 20% and 42% on the 100k.

You'll also be making alot of reductions on your tax bill by claiming various business expenses, bills, home office, equipment purchase, workwear, business lunches/dinners etc.

I'm not too au fait with the workings of a sole tradership. I work as a ltd contractor, so i understand a small bit of the ltd company side of things.

Tom Dunne

ianmc38 wrote:

You'll also be making alot of reductions on your tax bill by claiming various business expenses, bills, home office, equipment purchase, workwear, business lunches/dinners etc.

It has been suggested to me to set up as a sole trader (I will be doing some work on the side of my main PAYE job). One of the reasons are for what you outlined.

Are there any details on the net on what exaclty you can claim? I've looked at the CRO and Revenue website and can't seem to find much on this kind of stuff ("seek professional advice").

dahamsta

Can you have a one-man limited company? I thought a company needs two directors?

madramor

Ken Shabby wrote:

Can you have a one-man limited company? I thought a company needs two directors?

yes you can have a single member limited company but you still need 2 directors so use your parents or granparents as a director.

James_M

You also have limited liability in a company which you don't have in a sole trade. However, you have to be willing to take responsibility (and probably pay someone) for mor compliance, such as directors meetings (and keeping minutes of these), AGM, financial statements (probably exempt from audit but they will have to be filed in the CRO).

By the way, as a shareholder, you can also pay yourself a dividend as well as a salary.

ianmc38

Tom here's a good outline of claimable expenses:


Basis of Business Expenses Claims

Payments can only be made, where they are no more than a reimbursement of vouched expenses, actually incurred, in performing the duties of the employment. They must be incurred wholly, exclusively and necessarily, in connection with same. Expenses incurred in travelling to and from the place of employment do not qualify.


1.Home Office

Basis allowed: Home Computer , Desk, space allocated to Business Use
Expenses allowed:
One sixth of expenses, allocated on Home Office space used
Rent
Light and Heat
Insurance of home office

What is required: The documentation to back up the estimates.
The highest bill you have here for gas and electricity can be multiplied by 6(as its bimonthly) to get your annual estimate.

2.Motor and Travel
Basis Allowed: Director's Mileage Sheet submitted and Claims as Business mileage
Site Visits
Meetings

What is required: Signed Travel Claim - Details Required, include, Date, Miles , Purpose, Car details, Car make and CC

3. Home Office Phone
Basis Allowed: Home office telephone Bill presented and claimed in Business Related Expenses Claim Form

What is required: Home phone bill (original or photocopy)

4. Mobile Office Phone
Basis Allowed Receipts for Pay as you go Phone
Bills for Contract Mobile phone

What is required: Orginal bill or receipts.

5. Office Internet
Basis Allowed: Bill from Internet provider and claims on Business Related Expense claim

What is required: Original receipts

6. Stationary and Postage
Basis Allowed: Receipts and Claimed in the Business Related Expense Claim

What is required: Original receipts

7. Travel Pass
Basis Allowed: Monthly or Annual travel pass for Bus or Train from Licensed transport service provider.

What is required: Original receipts

8.Technical Books
Basis Allowed: Receipts for Books purchased and included in the Business related Expenses Claim Form

What is required: Original receipts

9. Seminars
Basis Allowed: Receipts for Tickets, and copy of Registration at seminar, and information on seminar
Claimed in the Business Related Expense Claim Form

What is required: Original receipts including information on seminar

10. Conferences:
Basis Allowed: Receipts for Tickets , and Registration at conference, information on conference
Claimed in the Business Related Expense Claim Form

What is required: Original receipts including information on conference

11. Educational courses
Basis Allowed: Receipts for Cost of Course, and Registration at course, information on course
Claimed in the Business Related Expense Claim Form

What is required: Original receipts including information on the course

12. Professional Subscriptions
Basis Allowed Receipt for the Payment made to IEI etc

What is required: Original receipts

13.Overnight Business Travel
Overnight trips information must be provided by completing the "overnight business trip" form.
Information regarding destination and purpose of the trip will be required.

14. Business Lunches
Basis Allowed Receipt for lunches/dinners including information about the purpose of the meeting and the person you are
meeting with

What is required: Original receipts including information about purpose and people at the meeting.
Please note that alcholic drinks are not allowable for tax purposes.


The definition of terms such as business lunches, business trips and even business expenses are open to interpretation.

Hope that helps.

Ian

Jivin Turkey

There are certain tax reliefs that are available for a LTD company that are not available for a sole trader such as seed capital relief which can be very beneficial.

Obviously there is the advantage of limited liability.

However extraction of profits from ltd companies can be costly in tax terms.

Its only the tip of a very large iceberg, I suggest you do some serious research relative to your own specific plans before coming to your decision.

Tom Dunne

ianmc38 wrote:

Hope that helps.

Ian

It certainly does - thanks!

So, if I am set up as a sole trader, at the end of the tax year, I submit all these receipts with my sole trader tax return, is that correct? Then presumably the tax man tells me what my final tax bill is?

Is it recommended to set up a seperate sole trader/business account?

Jivin Turkey wrote:

Its only the tip of a very large iceberg, I suggest you do some serious research relative to your own specific plans before coming to your decision.

This is part of my research. I am hoping to meet an accountant this week or next to get the definitive word, I would like to be as prepared as I can before our meeting.

As I am already a PAYE worker with a job, it sounds like sole trader is the way to go.

Jivin Turkey

Some very beneficial advantages of setting up as a company are as follows:

- Loss relief
- Seed capital relief
- Business expansion relief

Id suggest you look them up.

These are not available to a sole trader, and some of the main advantages of setting up as a company (alongside the obvious limited liability and rate of corporation tax). The main disadvantages of setting up as a company is the difficultly of extracting profits in a tax efficient way.

In general, any property used by the company is better held outside the company. It is far more tax efficient.

It all depends on though how you see your company/trade developing over the next number of years. And what income you have earned in the last few years. Some of these reliefs may not be that beneficial to you but could reap thousands in relief for someone else.

It depends on ones specific situation.

Wavey

Ian,
That is a very comprehensive list of expenses. Been looking for that info all week.
Where did u source it? Or is it your own experience?
thanks again

Wavey.

willows

I have been operating as a sole trader for the past 2 years and am changin to a ltd co for the following reasons

You cannot contract as a sole trader easily, revenue are on to this and most agencies will not deal with sole traders

You cannot sell a sole tradership easily as there is no tangeable value on the enterprise

It's more complicated but more tax efficent from a pension and expense point of view.

If you are interested in expanding your business it is easier to do and the banks look kinder on ltd co's than sole traderships.

Alot olf businesses start as sole traderships but to have a full range of finance to grow you are better being a ltd co. It costs about 2k a year to get the books audited.

Choose an accountant that is located near your business its easier.
Hope that helps.

Sean

JackieChan

Two things

1)ianmc38, that business expenses list looks like it is straigh from C.X.C!!
I'm with them also

2)As a ltd. company you have to make PAYE returns every month a sole trader makes one return for the year. So you could set aside your tax each month in a high interest account until you need it to pay your tax bill

Khanis

willows wrote: »

It costs about 2k a year to get the books audited.

You can claim exemption from the requirement to audit if:

* The company is a company to which the Companies (Amendment) Act 1986 applies
* The company has turnover of less than €1,500,000
* The assets of the company are less than €1,904,607.10 at the end of its financial year
* The company has an average of less than 50 employees for the year

I've heard there are several unscrupulous accountants not mentioning this to qualifying customers so if in doubt, ask.

BTW, I know a very reasonable auditor if you need one. Just PM me for details.

dbran

Hi

The correct and current criteria for audit exemption are;

* The company must be a company to which the Companies (Amendment) Act 1986 applies i.e. a Private Limited Company;
* The amount of turnover of the company must not exceed €7.3 million;
* The assets of the company are less than €3.65 million at the end of its financial year;
* The average number of employees must not exceed 50;
* The company must not be a parent company or a subsidiary company;
* The company's annual return, must be filed on time for both the current and previous year;
* A company which satisfies the revised exemption threshold levels in a current financial year, the year in respect of which the audit exemption is being claimed, must also have satisfied those revised threshold levels in the preceding financial year.



Kind Regards

dbran

leitrim lad

single member private limited company is the way to go, for protection reasons against future bad debts, sole trader and you as well off do away with your self if you get into difficulties

and i think he means corporation tax by the 12.5%

drunkmonkey

willows wrote: »

I have been operating as a sole trader for the past 2 years and am changin to a ltd co for the following reasons

When you set up as a company, do you have to buy all assets from yourself(sole trader), do the revenue value these assets.
For example, I started daft.ie as soletrader, domain cost me €20, €100 to set it up but now I want to turn into a ltd company, How much does the company have to pay for the assets, do you decide? Same goes for equiptment, computers, printers, etc..

I suppose the question is what's involved from moving from sole trader to ltd, and should you do it sooner than later if you want to grow your business..

leitrim lad

drunkmonkey wrote: »

When you set up as a company, do you have to buy all assets from yourself(sole trader), do the revenue value these assets.
For example, I started daft.ie as soletrader, domain cost me €20, €100 to set it up but now I want to turn into a ltd company, How much does the company have to pay for the assets, do you decide? Same goes for equiptment, computers, printers, etc..

I suppose the question is what's involved from moving from sole trader to ltd, and should you do it sooner than later if you want to grow your business..

a minimum of 1 euro is required to make the purchase ,i have done it alot of times, but it can be any set amount you wish ,but thats the minimum

lucidus

>> However extraction of profits from ltd companies can be costly in tax terms.

hi guys, i've a quick question, it may be contentious etc. but i am aware that generally it is considered a 'best not to' but... if i needed to take out a couple of grand from my limited business company account for a short time, use it and then put it back in (before any accounts etc. were due) would i get penalised or anything?

like i said i know it is considered better not to do this but i have money in another account abroad that is going to take about 2 weeks to hit me and i need to use it now.

i'm fairly new to this and don't have an accountant yet but am going to do this in the next few weeks...

any help appreciated!

EIREHotspur

Thats a great source/list of info.

What about other means of expenses like leasing a personal asset like a room in a home as an office to your company?

Edit* Also meant to ask that do you have to meet one or all of these requirements for audit exemption.

Take it you can do your own Tax returns for your Ltd Company the same as A sole Trader?

dbran

All of them for the last two years. Or one year if it is a new company.