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Sole Trader or Limited Company Trading

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  • 27-05-2021 5:35pm
    #1
    tomstud12
    Registered Users Posts: 98 ✭✭


    Hi guys,

    I am just looking for some advice. Is there anyone that is a full time trader here and I just wanted to ask are you a sole trader or did you setup a limited company?

    I’m wondering what is the best way to pay less tax on trading investments as I know when you are a sole trader you pay 33% capital gains tax and then income tax on that aswell.

    In a limited company you pay 12.5% corporations tax and then income tax so is it better to setup a limited company rather then a sole trader? I know a company is it’s own entity when you setup a limited company.


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    #2
    Mach 3
    Registered Users Posts: 233 ✭✭Mach 3


    tomstud12 wrote: »
    Hi guys,

    I am just looking for some advice. Is there anyone that is a full time trader here and I just wanted to ask are you a sole trader or did you setup a limited company?

    I’m wondering what is the best way to pay less tax on trading investments as I know when you are a sole trader you pay 33% capital gains tax and then income tax on that aswell.

    In a limited company you pay 12.5% corporations tax and then income tax so is it better to setup a limited company rather then a sole trader? I know a company is it’s own entity when you setup a limited company.

    In a Limited Company, you pay income tax. The Company will pay 12.5% Corporation tax on any profits left after expenses (Salary, Computer, exchange fees connection fees etc).
    A private pension is very tax efficient.


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    #3
    tomstud12
    Registered Users Posts: 98 ✭✭tomstud12


    Mach 3 wrote: »
    In a Limited Company, you pay income tax. You will pay 12.5% Corporation tax on any profits left after expenses (Salary, Computer, exchange fees connection fees etc).
    A private pension is very tax efficient.

    Thanks for that! So would you say a limited company is the better option?


  • Options
    #4
    Kannon
    Registered Users Posts: 410 ✭✭Kannon


    As a sole trader you won't pay CGT and then income tax on your investments. You will pay CGT on your gains on sale of assets (e.g. shares) and income tax on your income, i.e. dividend income.

    If you set up a company you will be paying yourself a wage I assume, via Director's remuneration. This is deducted before Corporation Tax is applied. You will pay income tax on the wage of course. If you pay yourself a dividend it will be subject to further income tax.


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    #5
    tomstud12
    Registered Users Posts: 98 ✭✭tomstud12


    Kannon wrote: »
    As a sole trader you won't pay CGT and then income tax on your investments. You will pay CGT on your gains on sale of assets (e.g. shares) and income tax on your income, i.e. dividend income.

    If you set up a company you will be paying yourself a wage I assume, via Director's remuneration. This is deducted before Corporation Tax is applied. You will pay income tax on the wage of course. If you pay yourself a dividend it will be subject to further income tax.

    Oh okay so if I have a job which is my normal primary job.

    And I invest money sometimes and then let’s say I withdraw that money and make profit of €5000 let’s say. Do I just pay CGT on that €5000 and that’s the only tax I pay or income tax then aswell?


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    #6
    Kannon
    Registered Users Posts: 410 ✭✭Kannon


    By withdraw I assume you mean that you sell some of your investment, for instance shares or a property. If you have a made a profit it’s actually a capital gain and you pay CGT. No income tax.


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    #7
    tomstud12
    Registered Users Posts: 98 ✭✭tomstud12


    Kannon wrote: »
    By withdraw I assume you mean that you sell some of your investment, for instance shares or a property. If you have a made a profit it’s actually a capital gain and you pay CGT. No income tax.

    Yes it’s forex trading that I do.

    Incase you don’t know what forex trading is it’s the trading of one currency for another and these transactions take place on the forex market.


  • Options
    #8
    Timmaay
    Registered Users Posts: 11,394 ✭✭✭✭Timmaay


    A company might benefit from the 12.5% rate, but you still have the problem of taking money out of the company, so there isn't much benefit from like going 3 years of paying just 12.5%, then trying to cash out the lot and you suddenly are hit with a massive income tax bill, and effectively that would be double taxation (you paid 12.5%. 1st 2 years, then income tax ontop of that 3rd yr). Companies should be considered a totally separate entity to yourself, the company itself can benefit from the corporate tax rate but not you personally. Obviously you could instead do thing's like buy property within the company that 3rd year, but its the company then who owns that property, and not you. Pension's are a tax efficient way of withdrawing money from a company, but in general both paye worker and self employed people have access to tax efficient pension products anyways. And having said all this, it all only applies if the profits are from trading (against investment, cgt).

    So long story short, unless you are making massive profit's in the 100s of 1000s every year from short term trading, and you have got good accountant advice and are willing to accept the large complexity of a company structure, you're most likely better off just call yourself an investor and pay up your CGT.


  • Options
    #9
    TalleyRand83
    Registered Users Posts: 230 ✭✭TalleyRand83


    Timmaay wrote: »
    A company might benefit from the 12.5% rate, but you still have the problem of taking money out of the company, so there isn't much benefit from like going 3 years of paying just 12.5%, then trying to cash out the lot and you suddenly are hit with a massive income tax bill, and effectively that would be double taxation (you paid 12.5%. 1st 2 years, then income tax ontop of that 3rd yr). Companies should be considered a totally separate entity to yourself, the company itself can benefit from the corporate tax rate but not you personally. Obviously you could instead do thing's like buy property within the company that 3rd year, but its the company then who owns that property, and not you. Pension's are a tax efficient way of withdrawing money from a company, but in general both paye worker and self employed people have access to tax efficient pension products anyways. And having said all this, it all only applies if the profits are from trading (against investment, cgt).

    So long story short, unless you are making massive profit's in the 100s of 1000s every year from short term trading, and you have got good accountant advice and are willing to accept the large complexity of a company structure, you're most likely better off just call yourself an investor and pay up your CGT.

    This is pretty good advice, I would add you could get a few other side benefits like giving yourself a certain wage but using company credit card to book "business" flights and hotels, restaurants etc ......not professional advice :D


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