A sole trader making over 200k a year, does this make sense?

Paddyg96 · 12-04-2021 09:40PM #1

Hi all,

I'm operating an online business bringing in a forecasted 200k-300k this year. I have very little expenses (under 20k) and don't really need to expand or invest to grow any bigger.

At present I'm registered as a sole trader but all my friends and a lot of fellow entrepreneurs tell me I'm crazy to not register as a limited company. I want to do the most tax efficient thing possible but I'm struggling to see the advantages of a limited company.

Perhaps with the limited route, I could invest the extra cash reserves into property and stocks? I also wonder if I could perhaps just build up a large cash reserve and pay myself 35k long into the future

I'm of course seeking advice from financial experts, but would love to hear the general consensus, is it crazy to be a sole trader after 100k per year profit?

adrianw · 12-04-2021 10:22PM

Paddyg96 wrote: »

Hi all,

I'm operating an online business bringing in a forecasted 200k-300k this year. I have very little expenses (under 20k) and don't really need to expand or invest to grow any bigger.

At present I'm registered as a sole trader but all my friends and a lot of fellow entrepreneurs tell me I'm crazy to not register as a limited company. I want to do the most tax efficient thing possible but I'm struggling to see the advantages of a limited company.

Perhaps with the limited route, I could invest the extra cash reserves into property and stocks? I also wonder if I could perhaps just build up a large cash reserve and pay myself 35k long into the future

I'm of course seeking advice from financial experts, but would love to hear the general consensus, is it crazy to be a sole trader after 100k per year profit?

If you are earning circa €200k and circa €90k net profit and plan on spending €90k, a limited company offers little or no benefits.

The main benefits limited companies provide arise when the levels of profits earned are greater than the level of income an individual needs / wants for their personal standard of living.

Bass Reeves · 12-04-2021 10:31PM

Paddyg96 wrote: »

Hi all,

I'm operating an online business bringing in a forecasted 200k-300k this year. I have very little expenses (under 20k) and don't really need to expand or invest to grow any bigger.

At present I'm registered as a sole trader but all my friends and a lot of fellow entrepreneurs tell me I'm crazy to not register as a limited company. I want to do the most tax efficient thing possible but I'm struggling to see the advantages of a limited company.

Perhaps with the limited route, I could invest the extra cash reserves into property and stocks? I also wonder if I could perhaps just build up a large cash reserve and pay myself 35k long into the future

I'm of course seeking advice from financial experts, but would love to hear the general consensus, is it crazy to be a sole trader after 100k per year profit?

I think you can however it costs you 12.5% once off in tax on profits. You can however invest in other vehicles through a limited company. It would allow you to reinvest after the 12.5% tax rate as opposed to the higher personnel tax rates. There is nothing to stop you investing in property or stocks however capital profit gains are taxed at 33% dividents and income profits are taxed at 12.5%. it might be as efficient to invest in high dividend utility type stocks as opposed to low divident stocks.

AFAIK you could incoporate a REIT into you business this would shelter property profits from tax to an extent.

Best advice is talk to an accountant. However accountancy fees are higher for a limited company as opposed to sole trader

BingCrosbee · 12-04-2021 10:38PM

Paddyg96 wrote: »

Hi all,

I'm operating an online business bringing in a forecasted 200k-300k this year. I have very little expenses (under 20k) and don't really need to expand or invest to grow any bigger.

At present I'm registered as a sole trader but all my friends and a lot of fellow entrepreneurs tell me I'm crazy to not register as a limited company. I want to do the most tax efficient thing possible but I'm struggling to see the advantages of a limited company.

Perhaps with the limited route, I could invest the extra cash reserves into property and stocks? I also wonder if I could perhaps just build up a large cash reserve and pay myself 35k long into the future

I'm of course seeking advice from financial experts, but would love to hear the general consensus, is it crazy to be a sole trader after 100k per year profit?

Definitely form a limited company and pay yourself a wage you think is reasonable and learn to ride the system using every type of receipt you can and justify all your spending towards a business write off. Buy a company car and write it off over 4 years. Get the house done up as office renovation etc etc Do your own VAT and claim oil and electricity and anything to do with paying VAT

Paddyg96 · 12-04-2021 10:40PM

adrianw wrote: »

If you are earning circa €200k and circa €90k net profit and plan on spending €90k, a limited company offers little or no benefits.

The main benefits limited companies provide arise when the levels of profits earned are greater than the level of income an individual needs / wants for their personal standard of living.

All I need is 30k a year and I can live comfortably

Paddyg96 · 12-04-2021 10:42PM

adrianw wrote: »

If you are earning circa €200k and circa €90k net profit and plan on spending €90k, a limited company offers little or no benefits.

The main benefits limited companies provide arise when the levels of profits earned are greater than the level of income an individual needs / wants for their personal standard of living.

Could you expand on the benefits? As this is my situation! Thank you

secman · 12-04-2021 10:42PM

BingCrosbee wrote: »

Definitely form a limited company and pay yourself a wage you think is reasonable and learn to ride the system using every type of receipt you can and justify all your spending towards a business write off. Buy a company car and write it off over 4 years. Get the house done up as office renovation etc etc Do your own VAT and claim oil and electricity and anything to do with paying VAT

Seriously...... do yourself a favour OP and ignore, get proper financial advice and don't get on the wrong side of Revenue.

Bass Reeves · 12-04-2021 10:46PM

secman wrote: »

Seriously...... do yourself a favour OP and ignore, get proper financial advice and don't get on the wrong side of Revenue.

While I would not do what BC proposes a limited company certainly gives you more latitude on personnel spending, however it a case of talking to an accountant

12-04-2021 10:51PM

Paddyg96 wrote: »

Could you expand on the benefits? As this is my situation! Thank you

I think that guy is wrong for sure. Many contractors are in limited companies. You are also safe from being sued for your personal goods etc.

I don’t know why you think your income will drop off next year but to pay yourself 35K a year using a company makes sense and is tax efficient.

BailMeOut · 12-04-2021 11:01PM

A directors pension would be one of the biggest benefits for which you can put in upto €2m tax free over time but as others noted get a good tax accountant to assist and advise you.

ulster · 13-04-2021 09:27PM

BailMeOut wrote: »

A directors pension would be one of the biggest benefits for which you can put in upto €2m tax free over time but as others noted get a good tax accountant to assist and advise you.

Isn't there risks with that? Don't you get taxed upon extracting the pension. Can't it devalue over time too?

BailMeOut · 13-04-2021 09:43PM

ulster wrote: »

Isn't there risks with that? Don't you get taxed upon extracting the pension. Can't it devalue over time too?

You can do a one-time very large tax free withdrawals once retired. That plus to you usually pay a lot less tax on pension on way out than you would have on original earning.

History has also shown that any properly invested pension will always make money over time.

A sole trader making over 200k a year, does this make sense?

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