Limited Company : advantages and disadvantages Ireland

Limited Company: Advantages and disadvantages

Introduction

It is relatively straightforward to set up a private limited company in Ireland. You can set up a single director company in Ireland which requires a minimum of two people. One EEA resident director and one company secretary. If you don’t have a company secretary you can hire a company to do it which costs roughly €250 + VAT per year. If you are not an EEA resident director you can purchase a non-resident director bond for roughly €2,199 + VAT which lasts for 2 years.

If you are considering starting a business it’s important to note in general, it is only worthwhile setting up a limited company when you have an established business. Only when you are generating a significant profit should you set up a limited company. The amount depends on your situation. If you are not taking a salary from the business and you’d like to reinvest all of the profits in the business then anything over €10,000 is sufficient to justify setting up a limited company. If you are taking a salary then the net profit less your salary should be well above €10,000.

Often you are advised to set up a company sooner than is needed because there are more fees involved for the person giving you the advice. The average self-employed tax returns costs €250 – €350. If you have a company the return can cost €1,000 – €1,500. Make sure you get impartial advice on when is the best time for you.

“Often you are advised to set up a company sooner than is needed because there are more fees involved for the person giving you the advice.”

Advantages of a Limited Company in Ireland

Expenses

You can expense your salary unlike a sole trader which takes the full residual profit as a salary. Also, if you travel a lot employees (including directors) are allowed to claim civil servants rates. In some cases these can be higher or lower than actual expenses depending on your circumstances. These rates are not available to sole traders. Also, as an employee, if you work from home you can claim the e-worker / home worker allowable expense of  €3.20 per day.

Tax efficient - More funds to reinvest

If you operate as a sole trader all of your profits are taxed at the PAYE tax rates of 20-40%. In general, most trading companies are taxed at 12.5%. If you have a limited company you will have more funds available to reinvest in comparison to a sole trader. If you are a new company you can be exempt from paying tax on your profits for the first 3 years of existence. There are a number of conditions, the biggest being you can not transition what was previously your job into a company.

Limited liability - Less Risk

You are not held personally liable for the debts of the company. Your personal assets are protected. Unlike a sole trader who is held personally liable for the debts of the company.As a sole trader if you default on your debts your personal assets such as your home can be sold. If this is a significant advantage really depends on the nature of your business. If you are only supplying your labour then it’s unlikely you’ll have debts. If however you’re buying goods on credit to sell later then it is likely you will have more of a risk.

Access to Start-up Funding

Some startup funds require you to have a limited company. If you are a sole trader you can not apply for certain grants.

More Clients

If you work as a contractor some potential clients will not work with individuals. This is mostly due to the fact they don’t want you classified as an employee. As a result of this most contractors work through a limited company in Ireland.

3 Year Startup Tax Exemption

If you setup a company in Ireland you may be exempt from paying corporation tax for up to 3 years. There are a number of conditions set out on Revenue’s website. The main one being you cannot claim relief if you are transferring an existing trade to a company. Also, your corporation tax must be less than €40,000. If your corporation tax is less than €60,000 partial relief may apply.

Disadvantages of a Limited Company in Ireland

Cost

The setup costs and the annual costs are much higher than a sole trader as mentioned above. To set up a company costs €250-€300 + VAT and the annual accounting fees can be €1,000 -€1,500 per year. A sole trader has no setup costs, you simply register for income tax with Revenue. A self-employed tax return costs €250 – €350.

Penalties

As a company you are required to submit a set of accounts to the CRO If you fail to comply you will be subject to penalties. Also, you will lose your audit exemption which will result in far higher accounting fees. 

Privacy

As a limited company you have much less privacy. The accounts you submit to the CRO can be viewed by anyone for a cost of less than €15. Within those accounts a directors salary will also be disclosed.

Losses

Unlike with a sole trader you cannot offset your personal income. For example, as a sole trader you can offset your self-employed expenses against your PAYE income A company is unable to do this. .
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How to stop being self-employed in Ireland

How to stop being self-employed in Ireland

If you are no longer self-employed you need to inform Revenue as soon as possible. The best way to do this is through Ros.ie. If you don’t have access to ROS you can complete a TRCN1 available on the Revenue’s website. The process on how to complete on ROS is below along with screen shots of the ROS website.

Finally, if you have registered a business name with the CRO this will need to be cancelled. This can be done online through Core.ie or by completing a form listed in the link above.

Please ensure you complete your last income tax return and VAT returns after you deregister.

ROS Website

After you login to ROS go to the “Other Services” section and click on “Manage Tax Registrations”. 

From the next screen you need to click on “Cease Registration” for Income tax and complete the form on the next page.

Also,if you are registered for VAT you will need to deregister. Simply click on deregister next to VAT and complete the form.

Do I need an accountant to stop being self-employed in Ireland?

You do not need an accountant to complete the deregistration process. Please note because your business is no longer a going concern how certain items are accounted for is different. For example, capital allowances are treated differently in an operating business v a business which has ceased trading. 

If you only have income and expenses then this is not an issue. If you have assets on your balance sheet and you are not sure how to account for these you should speak to an accountant. 

 

Being Employed and Self-Employed at the same time in Ireland

Being Self Employed Part-time and Working as an Employee

Being Employed and Self-Employed at the same time in Ireland

Introduction

In Ireland you can be both employed and self-employed at the same time. To do this you simply register on ROS for income tax. There are a number of benefits of being both employed and self-employed. The biggest being you can offset your self-employed losses against your PAYE income. One of the biggest drawbacks is you need to keep proper records and submit an annual return. Depending on your trade and your income you may need to also register for VAT. You can do this yourself or hire an accountant. The fees for an accountant to complete a self-assessment return can range from €250 – €750 + VAT for a sole trader.

It’s also important to be aware there are a lot of things you can expense when you are self-employed like the rent you pay on your home if you’re working from home. There are other things you can’t expense like client entertainment.

Generally, if you are working part-time self-employed you won’t be earning enough to take advantage of the benefits of a company but in some circumstances it makes more sense to setup a company than to be self-employed in Ireland.

Being Self Employed Part-time and Working as an Employee

Keeping Proper Records

Looking for an Accountant in Ireland?

 

Request a quote from the accountants on Accountant Pages

You have a legal obligation to maintain a set of proper records should Revenue decide to audit you in the future. These records should be able to substantiate the figures included in your annual income tax return. You should keep copies of anything that was included in your income tax return. These include:

  1. Receipts for expenses
  2. Receipts for purchases of equipment or assets
  3. Sales invoices
  4. Bank account statements
  5. Method for apportion mixed expenses ie when you have expenses which were both private and personal, how did you apportion the business expenses.

Being Self-Employed in Ireland

The Advantages of being Self-Employed in Ireland

One of the biggest advantages of being self-employed is the flexibility it offers in terms of what you can expense. If you are working from home you can expense a portion of your rent, internet, electricity and heating costs. If you buy office furniture or new equipment you get a capital allowance of 12.5% each year over 8 years which will reduce the amount of tax you need to pay. You can also expense any training courses or the purchase of educational material. If you are registered for VAT you can also claim the VAT back. You are allowed to use your business equipment for personal use as long as this use is kept to a minimum. For more information please see our article on allowable expenses for the self-employed in Ireland.

The Disadvantages of being Self-Employed in Ireland

The biggest disadvantages of being self employed is your obligation to keep proper records and your filing obligations. You can hire an accountant to complete these for you. The expected fee for an annual return is €250 – €750 + VAT. This can vary depending on a number of factors including: the quality of your records, the number of transactions, if you have employees, if you are registered for VAT and the complexity of your business. Please see our article on reducing your accountant’s fees. Your ideal accountant is someone working from home who you can communicate with remotely. Accountants with staff and an office will have to charge you a higher fee to cover their higher cost base.

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Allowable expenses for the Self-Employed in Ireland

As mentioned already in the advantages of being self-employed in Ireland you have a lot more flexibility in what you can expenses in comparison to someone who works as an employee. We have already written a detailed article on allowable expenses for the self-employed if you need more detailed information. You can also read the specific guidance issued by revenue. 

General expenses

As a self-employed person in Ireland you can claim the following general expenses:

  • Advertising & Marketing
  • Salaries
  • Professional fees
  • Travel – Transports, food & accommodation
  • Training & Education
  • Interest and other bank fees
  • Insurance 
  • Purchase of assets – through capital allowances

Disallowable expenses for the Self-Employed in Ireland

It is important to note you can not expense certain items when calculating your tax liability. These include:

  • Clothing – Unless protective
  • Food or Travel – Unless you are away from your normal place of work
  • Client Entertainment
  • Staff Entertainment – Must be reasonable
  • Your Salary
  • Structural alterations to your home

Self-Employed Home office

If you are setting up a home office you can expense a portion of your rent, internet, electricity and heating expenses. It is not recommended you try to expense your mortgage as this will be taxed as income. As mentioned previously you get a capital allowance for any equipment you purchase for your home office. You receive a capital allowance of 12.5% over an 8 year period against the cost of these assets. You are allowed to use the assets as long as this use is kept to a minimum and there are no additional charges to the business as a result of you using those assets. 

It is advisable that you use a separate phone for your business as it can be difficult to keep track of costs for business calls. If you do have a separate phone for your business you are allowed to use it as long as that use is kept to a minimum and there are no additional charges to your business as a result of your personal use.

Self-Employed Pre-trading expenses

If you have any pre-trading expenses you can claim these expenses. These expenses must have been incurred in the 3 year immediately to the trade commencing and must ordinarily be an allowable expense if they had been incurred after the trade commenced. Additional information available from Revenue

Self-Employed Motor Expenses

If you are using your car for business use you can expense a portion of the running costs to your business. These costs can included:

  • Insurance
  • NCT
  • Fuel
  • Repairs
  • Servicing
  • Tyres

It is not advisable you use a company car for personal use as the cost of the benefit in kind is very high. If you would like more information on the topic please see this guidance

Questions on being Self-Employed in Ireland

Should I setup a company in Ireland instead of being Self-Employed?​

Generally if you are only self-employed part-time in Ireland you probably will not be earning enough to justify setting up a limited company in Ireland. One of the major benefits of a company is its tax efficiency for reinvesting profits. As a self-employed person your profits are taxed at 20-40%. Whereas with a company profits are taxed at 12.5%. If you are able to survive on your PAYE income and you expect to make significant profits you’d like to reinvest into your business then it makes financial sense to change from a sole trader (self-employed) to a limited company. If your profits are at a certain level there are a number of advantages to having a limited company.

How do I setup my website?

There are a number of low cost options available to you. You can hire a freelancer (affiliate link) to build one for you. Or you can use an application like Wix. Wix is designed for those who have no technical background. No coding is required it’s all online with a graphical interface. It costs roughly €124 (incl. VAT) per year.  If you would like more advice on business tools you can look at a new website we are starting called Softintro.com

Do I need a separate business bank account in Ireland?

Legally you do not need to have a separate bank account. However, there is the added benefit of making your accountant’s life easier which does result in lower fees. There’s also the privacy issue as well to consider. You will need to provide your accountant with your personal bank accountant statements. Also, if you are using your own personal credit card to purchase items for your business these will also need to be shared with your accountant as proof of payment. 

We have more information on business bank accounts for startups in Ireland if you need more information.

Do I need to Register a Business Name in Ireland if I’m Self-Employed?

You will need to register a business name with the CRO if you are trading under a different name to your own. You can do this through core.ie. The process is very straightforward and the cost is €20. There is more information on registering a business name in Ireland here. You need to make sure the name you select is not already registered. The onus is on you to check this not the CRO.

When do I need to register for VAT in Ireland if I’m Self-Employed?

If you haven’t made any sales then you do not need to register for VAT. Only when your turnover exceeds certain thresholds are you expected to register for VAT. The thresholds are:

  • €37,500 for supply of services only
  • €41,000 for making acquisitions from other European member states
  • €75,000 when supplying goods

The content in this article is not financial or tax advice. If you need advice specific to your situation please consult a professional or contact Revenue. 

Allowable Expenses for the Self-Employed in Ireland

Self employed allowable expenses in Ireland

Allowable Expenses for the Self-Employed in Ireland

Introduction

If you are self-employed in Ireland it’s important you are aware of what you can and can’t expense. One of the best ways to lower your tax liability is to ensure you have captured fully all of your business expenses.  In Ireland there are specific things which you can and can’t expense. It’s important that you are aware of both so you can keep your tax liability to a minimum while also adhering to the rules set out by revenue. In this article we will run through what you can expense and how to calculate less straightforward expenses such as your rent if you’re working from home. 

Self employed allowable expenses in Ireland
Self employed allowable expenses in Ireland

Track Expenses & Keep Receipts/Invoices

Firstly, it is incredibly important you keep track of all of your expenses. This is something you need to do regularly. Little and often is key. You do not want to leave it until the last minute before your income tax return is due. It is mostly likely you will miss certain items and this will result in you paying higher taxes.

Also, you need to keep a record of your receipts and invoices as Revenue can ask for proof of expenses under certain circumstances. 

 

Self-Employed General Allowable Expenses in Ireland

Advertising & Marketing

Any expenses related to promoting your business can be expensed. Payments made to Google or facebook to promote you business can be expensed.  Payments made to create your logo or website can be expensed even if the business hasn’t traded yet. More below. There is also direct guidance from revenue on what can be expensed.

Salaries

Any salaries of those working for you can be expenses. But please note your own salary cannot be expensed if you are self-employed or a sole trader.  You also cannot expense any drawings used for to pay for goods or services which are not used by the business.

Professional Fees

Any accounting fees or consultancy fees you have paid can be expensed. Like most pre-trading expenses these can be offset against your future trading income. Please note, certain conditions do apply. More on this below.

Travel

If you travel for business you can expense your travel fees, accommodation and the cost of meals while away from your normal place of work. It is important to note that Revenue will not accept deductions for travel or subsistence expenses of the self employed based on the civil service rates. This is only available to employees.

Training & Education

Any training courses which you undertake can be offset against your total income as long as these courses are relevant to the trade of the business. The cost of educational material can also be expensed. 

Interest and other bank fees

Any interest on loans can be expensed as well as bank charges and other fees. Your bank should be able to provide you with a statement of any fees and charges you’ve paid.

Insurance

Any insurance premiums you pay like any other expenses which arises from you engaging in business activities can be expensed. These include property and indemnity insurance. 

Purchase of Assets

Assets are depreciated over their useful life. You can expense assets through capital allowances. Most assets from a tax perspective are depreciated over 8 years. Meaning, each year you have a capital allowance of 12.5% of the purchase price of the asset.  

If you rent a room on airbnb. If that room is only used by people on airbnb you will have a capital allowance for new beds or televisions. If you buy a new desk and computer for your business so you can work from home, these will have a capital allowance of 12.5% each year for 8 years.

Self-Employed Home Office Expenses in Ireland

If you are working from home there are a number of expense you can claim. It’s important you utilise all of these expenses to minimise your tax bill. Please see our guide on working from home in Ireland.

Rent & Mortgage

If you are working from home you are allowed to expense a portion of your rent to the business. If you have a dedicated room, this will be based on the square meters of the room as a percentage of the total area of your home.

It is recommended you do not try to expense your mortgage. It will be taxed as income so there’s no benefit in doing so. You can try to expenses the interest only portion but make sure this is excluded from your mortgage interest relief which is due to end 31/12/2020. The rent a room scheme does not apply to businesses renting space.

Electricity & Heat

Similar to rent you can expense both of these. If you live alone you would expect the percentage to be much higher than your rent. 

Phone & Internet

Generally, it’s better practice to have a separate phone for business and personal calls. It’s easier to track and calculate what the business expense is.

You are allowed to use your business phone for personal use and you will not be liable for benefit in kind if the use is minimal and it does not result in additional charges to the business.

Furniture & Equipment

As mentioned above you can claim a capital allowance against the cost of office furniture and equipment in your home. These assets are assumed to have a useful life of 8 years which means you can expenses 12.5% of the purchase price each year.

You can also use these assets for personal use as long as this use is minimal and does not result in additional costs to the business.

For more information see Revenue’s guide.

Self-Employed Pre-trading Expenses in Ireland

A deduction is available under  Section 82 TCA 1997 where the expenses can be offset against income generate through the trade or profession when the expenses incurred meet the following two criteria:

  1. The must have been incurred within the three year period immediately before the start date of the trade or profession

     

  2. The expenses would be ordinarily expensed if they had been incurred after the commencement of the trade.
There are some exceptions to this, one being rental property which doesn’t allow a lot of pre-letting expenses. 
self-employed-pre-trading-expenses-ireland

Self-Employed Motor Expenses Ireland

Are you covered by insurance?

If you plan on using your own car for business use make sure you are covered by your insurance. A number of insurance policies specifically exclude using your car for business use. If you have an accident and it is revealed you were using the car for business use you will not be covered.

Personal car for business use

If you are using your own car for business use you can claim a portion of the running expenses of he car which include:

  • Insurance
  • NCT
  • Fuel
  • Repairs
  • Servicing
  • Tyres 

The amount you apportion to business use must be reasonable and justifiable. You cannot expenses journeys to and from your work location. 

Using a business car for personal use

Generally it’s better not to use a company car for private use. The benefit in kind is very expensive. Particularly if you’re driving a second hand car, the benefit in kind is based on the original market value. There is more information on Revenue’s website.

Exemptions - Car Pool

If a car is deemed to be a “pooled car” ie more than one employee has use of the car then there may, under certain circumstances, be no benefit in kind payable.

From Chartered Accountants Ireland: “One or more employees using a car during the course of the tax year, or their employer, may claim that the car is a “pooled” car.”

  • The car must not stay near the residence of any employee regularly overnight 
  • The car is made available for use by more than one employee
  • Any private use is minimal

Self-Employed - Things you Cannot Expense in Ireland

Clothing - Unless protective

This means you cannot expense any business attire. There is a page on the Revenue’s website for dis-allowable expenses but it’s not very detailed.

Food or Travel

Unless you are working away from your normal place of work you cannot claim travel or expenses. 

Client Entertainment

Client entertainment is strictly excluded as an expense. Even though entertaining clients can be classified as a marketing expense, it cannot be included. 

Staff Entertainment - Must be reasonable

You can have seasonal parties, meals and other events for employees. The cost of these events must be reasonable and available to all employees. More information available here.

Your Salary

As a sole trader or being self employed, you can not expenses your salary. Your salary is the net profit.

Structural Alterations to Your Home

If you are setting up an office in your home your can add furniture and equipment as described above. However, you can not make major structural alterations to your home. 

Guide to Running a Business from Home

Guide to Running a Business from Home in Ireland

Introduction

You are legally allowed to setup an office in your home. However, if you plan to have employees there will be health and safety and insurance issues to consider. This article is aimed at giving advice to single individuals running a business from home. There are a number of benefits in working from home such as it being cheaper and you can claim expenses. There are disadvantages which also must be considered, the biggest being social isolation and lack of networking opportunities. There also general regulations and industry specific regulations you must adhere to. 

Pros of Working from Home

Cost

It is generally much cheaper to work from home than renting a hot desk. Renting a desk can cost anywhere from €200 – €350 per month. The money saved from renting a desk can be reinvested back into the business. It can be spent on additional advertising to boost sales or to hire a freelancer to improve your service. 

You can also expect bigger savings if you need to rent a premises for your business. Being able to run your business from home is generally the cheaper option. 

Speed

For most office based businesses you don’t need a lot of things to get started at home. Most homes would have a PC or laptop, internet and a desk to work on. Because of this it is very quick to start working from home.

No Commute

You will save a significant amount of time each working day as you do not need to commute to the office. Also, depending on how you commute it can also reduce your stress levels.

Flexibility

Working from home offers greater flexibility. You are not restricted by office opening hours. You can plan your day to suit your schedule. You can start as early or as late as you want. 

More Responsive

Working from home allows you to be more responsive to potential clients. If you work in a rented space you may only work during the hours you are in that space.

Opportunity to test a business idea

Linked to the previous point, if you are just at the idea stage working from home will give you a better opportunity to test a business idea without wasting money. As you are spending less money you have more opportunities to test your ideas.

Cons of Working from Home

Social Isolation

One of the biggest disadvantages of working from home is social isolation and the negative effects it can have on mental health. For some people the isolation is welcomed. For others who have a strong need for social interaction, the social isolation of working from home could have a very significant negative impact on your ability to work. 

If you are one of these people who need to work with others around it might be a good idea to network with other entrepreneurs in a similar situation and invite them to work in your home. If possible, it might be a good idea to try to find those who complement your skillset. Eg a sales person & an accountant.

Lack of Networking Opportunities

I visited the wework office a couple of months ago. I was really surprised by the amount of startups renting their office space because it is not cheap. The environment they have created is very impressive. You have an amazing opportunity to network with many different people. People who can provide you with useful advice or people who could introduce you to potential clients. 

Setup

In some cases your home may not be suitable for a business or it may take longer to setup. 

Distractions

It may be easier for some to work in an office as there are fewer distractions. Particularly if you have a young family. It can be very difficult to get focused work done. 

Harder to separate work from living

For a lot of people they need to have their life separated from work. When they leave their place of work their brain completely stops thinking of work. For these types of people working from home can be a nightmare because they are always thinking about work.

Restrictions

There are legal restrictions which will prevent you from using your home for certain uses. Generally you need to apply for permission from the local council to run a business from your home if your business will have any impact on your neighbours. For more information speak to your local council

There will also be health and safety issues to consider if people need to be physically present at your business. 

Also, different industries have different regulations. Eg childcare, food and selling online. For more specific industry regulation please see businessregulation.ie.

No commuting

For those who can walk to a place of work no commuting can be a disadvantage. Being forced to walk everyday has a number of health benefits such as weight loss, improved cardiovascular health as well as a number of other benefits associated with increased vitamin D absorption.

Examples of Businesses you can run from Home

  • Office based services, some examples include: accounting, graphic design, recruitment, web development, architect etc.

     

  • Sales either – over the phone or through an online shop.

     

  • Childcare

     

  • Food manufacturing

     

  • Personal assistant

Tax Benefits from Working from Home

There are a number of tax benefits associated with working from home. 

You can expense a reasonable portion of your rent

You can expense a reasonable  portion of your electricity and heating expenses.

You can expense a reasonable  portion of your internet expenses.

You can expense your setup costs. Items such as desks, chairs and equipment needed to perform your job are depreciated over 8 years.

You can use business equipment for personal use as long as that use is minimal and doesn’t result in additional expenses to the businesses. If your use of business assets is not minimal then you will need to pay benefit in kind. Major structural changes to your home property can not be expensed to your business.

Mortgage – If you have a mortgage it is not recommended you charge rent to your business. It will be taxed as income so there is no benefit. You can expense the interest portion of your mortgage but if you are claiming interest relief you must exclude that portion. Also, not the interest relief scheme is due to end on 31/12/2020.

If you are an eWorker or working from home you are entitled to a payment of €3.20 per day tax free. This applies to employees only.

March Question & Answers

March 20 - Questions & Answers

Introduction

Each month we’ll take 5 questions our audience have and write an article. This month’s 5 questions are:

  1. How much does it cost to setup a limited company in Ireland?

  2. What are the pros and cons of setting up a limited company in Ireland?

  3. What are allowable expenses while being self-employed in Ireland?

  4. Can you be employed and self-employed at the same time in Ireland?

  5. How do I unregister as being self-employed?

How much does it cost to setup a limited company in Ireland?​

If you set the company up yourself the total cost is €50. It’s not as difficult as you think to setup your own company. The CRO has streamlined the process by removing the articles and memorandum of association. They have replaced this with a company constitution for which they provide a template. 

If you hire someone they will charge between €200 €300 plus VAT. You may get it for cheaper so do ask around if you are on a tight budget. If you do hire someone make sure they have the relevant experience and ask for at least 2 references from people who have purchased a similar service.

What are the pros and cons of setting up a limited company in Ireland?

Pros

  1. More funds available to reinvest as taxes are lower 12.5% v 20-40% as a sole trader
  2. Greater access to funds as you can have shareholders. Also, some grants require you to have a limited company
  3. You can only lose what you invest, you are not personally liable for the debts of the company
  4. Some employers only deal with companies eg hiring IT contractors
  5. You can expense your salary

Cons

  1. Higher cost to setup
  2. Running costs are higher as you will pay higher accounting fees
  3. You have increased filing obligations
  4. You will be fined if you do not complete your filing on time and will lose your audit exemption.
We have a more detailed article and video on the topic here: “Sole Trader or a Limited Company in Ireland – What is the best option?

What allowable expenses exist for the self-employed in Ireland?

In general any expense arising during the normal course of business can be expensed. If you have incurred a cost which can be linked to your business you can offset that expense against your income. Some expenses which are often overlooked if you are working from home include: rent, electricity, heating and internet. 

Generally, if costs are mixed, i.e. arising from both private and business use you can apportion those costs to your business. That apportionment must be reasonable. 

Can you be employed and self-employed at the same time in Ireland?

You can be both employed through the PAYE system and self employed. You simply register as being self-employed and when completing your tax return you simply state your PAYE income.

 

What is also very useful is you can offset any business expenses against your PAYE income. So if you are in the early stages of a startup make sure you register as being self-employed first before you start selling as you can offset your startup costs against your PAYE income.

 

How do I unregister as self-employed in Ireland?

You can ideally do this through ROS. After you login, scroll down to “Other services” and click “Manage Tax Registrations”. From here you click on “Income Tax”. Make sure you deregister for other services if applicable such as VAT and as being an Employer. 

If you don’t have ROS you can deregister by completing a TRCN1.

Also, if you’ve registered a business name you’ll need to notify the CRO you have ceased trading and deregister the business name.

Changing from sole trader to limited company in Ireland

changing-from-sole-trader-to-limited-company-ireland

Changing from sole trader to limited company in Ireland

When should I change to a limited company?

In Ireland the cutoff for a single person is €35,300 and €44,300 for a married couple. Anything earned above these bands will be taxed at 40%. Before you even consider changing to a limited company, you should be earning in excess of these bands. All income from a sole trader will be taxed at 20-40%. A limited company is tax at 12.5%. This makes limited companies far more tax efficient for keeping funds within the company. 

You should switch to a limited company if your earnings are in excess of your higher tax band. Also, if the salary you need from the company is less than the profits generated by the business. The benefit of having a limited company in this situation is the excess funds are taxed at 12.5% rather than 40% so you have greater funds available for reinvestment in future years.  

 

changing-from-sole-trader-to-limited-company-ireland

What are the benefits of a limited company?

For more information on the benefits of a sole trader versus a limited see our article here.

How can I change to a limited company?

You can complete the process yourself but it is advisable you speak with an accountant to ensure everything is processed correctly. When you transfer the assets to the business you are effectively disposing of the assets. However, any capital gains tax is deferred through Transfer of Business Relief
(Section 600 Tax Consolidation Act 1997).  There are a number of conditions to qualify for this relief:

  • There must be a transfer of business assets from an individual to a company
  • The business must be transferred as a going concern
  • It must have business logic and not done to avoid taxes
  • The transfer of asset must be partly or wholly for shares in the new company
  • All of the business assets excluding cash, must be transferred

You will need to form a limited company, the most common is a private limited company by shares. You will need to file a cessation of the current business name  being used by the sole trader and register the business name with the new company. When selecting your new company name make sure the name isn’t already in use. 

An accountant can form a limited company for you. It can take 4 -8 working days. The cost is roughly €295. Once your limited company is formed you’ll need to pick an end date to cease trading as a sole trader. It’s also important to have a separate bank account for your new company. Finally make sure that you update revenue of your new situation.

What else should I be aware of?

There are a number of disadvantage of having a limited company that you should be aware of:

 

At a minimum you need two people for a limited company. You need an EEA director and a secretary. If you do not have an EEA director you need to have a non EEA director bond in place. 

Selling through video

The cost of producing video for your target client has dropped dramatically making it very accessible to a broad range businesses. Video allows the customer to vividly see the benefits of your product / service before they buy, reducing the risk or concerns they may have. Also, as most people source information from the web, video helps boost your credibility, increasing the level of trust of potential customers.

Video also help communicate and answer very effectively one of the biggest question all potential customers have on their mind. ?What do other people saying about this product (or service)??. The combination of customer referrals plus video is one of the most effective forms of advertising.

Customers, your best sales reps

Customers make the best sales reps. People who have used your product or service and are willing to risk their reputation to recommend your business. However most businesses do not benefit from this simple fact. The best way to is to simply ask for a referral. Given the prevalence of social media such as facebook, twitter, linkedin etc sharing information is quick and simple.

Another method could be to set up a referral program which offers your customer a discount off their next order or a monetary reward. For example, a number of recruitment agencies offer a ?250 voucher for referral people who get successfully placed and stay for a minimum period.

The benefit over traditional advertising is that you only pay when you get a customer and a referral is the gold standard in advertising a product or service.

Selling through referrals

One of the best ways to sell your product, particularly to business customers, is through referrals and referral groups. A referral group is made up of members who have the same target customers but who are not in competition with each other. For examples, an accountant and a web developer targeting small & medium businesses in Dublin.

There are organisations such as BNI who run referral groups for a fee. You can also start your own referral group but it does require a lot of work. The biggest worry is allowing in a member who supplies a poor quality service or product. You have to be very careful who you let join.

The benefit for you is the cost is relatively cheap in comparison to traditional advertising or even online advertising. But it really depends on type of product or service you supply. In general terms, if the price is high or there is a significant cost resulting from purchasing a poor quality product, the more likely you will need to sell through referrals.