Starting new business, what tax do I pay?

James T

I am currently in full time employment but starting a new business as a sole trader (in the process of registering with CRO).

I intend keeping my full time job and am wondering what tax will I have to pay on my new business if it takes off. It is a service business that hopes to have most sales via the web.

What are my obligations regarding keeping books? Should I use an accountant?

Many help would be much appreciated.

Zonua

Hey James, congratulations on taking the first leap.

You will file your first tax returns in October 2013, so there is nothing to worry about now.

However, from now, start keeping all of your receipts that are related to your business. This includes petrol receipts if you drive your car (and record all busines meetings you attend), and receipts for new stationary you require/any new equipment you need.

As a sole trader, your obligations are not nearly as complicated as for limited company, however you do need to keep books, or records.

Regarding your question about an accountant, in my opinion, that depends on how much you will earn (and you will of course know how much you take in 2012 long before October 2013). You might only take in a few hundred, in which case it might not make financial sense to hire an accountant, if you earn ten thousand, then I would hire an accountant. If you don't hire an accountant, even just at the end of the year to do your books, then you should check out some bookkeeping and taxing courses or seminars, which start at only 10euro.

You will be taxed similarly to the way you are taxed in your current job (e.g. if you are already in the higher tax bracket, your profit will be taxed at the higher rate).

I strongly recommend you to do a Start Your Own Business Course in one of the Enterprise Centres. If you are employed 9-5, there are a lot of these courses in the evenings.

James T

Thanks v much Zonua, very helpful

Nuttzz

Only paye suckers pay tax!!!

You need to look at the VAT registration thresholds, if you think you are going to do mode than 37500 in the case of supplying services or 75000 in the case of supplying goods then you need to register for and charge VAT at the relevant rates

More info here http://www.revenue.ie/en/tax/vat/registration/index.html

ligerdub

I have a query in relation to taxable income.

I have been offered a position with a company but as a contractor. I will therefore have to establish a company for them to establish a contract.

They are offering me a contract which works out at €30k pa, which I'm not exactly thrilled about but it gets me back on my feet so I'll gladly take the offer.

Were I to start getting paid at a rate above €37.5k would I be liable to pay VAT on the entire amount earned as well as income tax and PRSI? Seems a bit of a ripoff to me!

Toblerone1978

ligerdub wrote: »

Were I to start getting paid at a rate above €37.5k would I be liable to pay VAT on the entire amount earned as well as income tax and PRSI? Seems a bit of a ripoff to me!

To answer your question, yes, the rate would become subject to VAT should it exceed €37.5k.

The way it's normally works is that you add a VAT charge on to your invoice and pay this VAT amount to the Revenue. Your company should see no deduction in its income as the VAT normally becomes an addititional amount payable by the company.

Most of the time the company paying you the amount usually don't mind the VAT charge, because they're normally in a position to claim this back from the Revenue Commissioners.

ligerdub

Toblerone1978 wrote: »

To answer your question, yes, the rate would become subject to VAT should it exceed €37.5k.

The way it's normally works is that you add a VAT charge on to your invoice and pay this VAT amount to the Revenue. Your company should see no deduction in its income as the VAT normally becomes an addititional amount payable by the company.

Most of the time the company paying you the amount usually don't mind the VAT charge, because they're normally in a position to claim this back from the Revenue Commissioners.

Thanks for your reply, much appreciated.

So hypothetically, were I to invoice another party €2,500 for my services they would just give me that amount?

Were I to increase my rates to say €3,400 per month (€40,800 pa) they would have to pay me €3,400 + 21% (or whatever the rate is) coming out at roughly €4,000 per month?

Having said that they could clawback a significant amount of the VAT on that invoice? Does that tie in to what you believe?

TheCostumeShop.ie: Ronan

Higher VAT rate is 23% now, not 21%. Services are 13.5%. Yes VAT registered Businesses claim back all VAT on expenses, however if your selling to non business customers or just non Vat registered customers, they do not claim back the VAT. It's worth keeping this in mind if you are B2C selling, customers will not like a surprise 13.5% or 23% hike once you have set the value of your service or product in their minds.

ligerdub

TheCostumeShop.ie: Ronan wrote: »

Higher VAT rate is 23% now, not 21%. Services are 13.5%. Yes VAT registered Businesses claim back all VAT on expenses, however if your selling to non business customers or just non Vat registered customers, they do not claim back the VAT. It's worth keeping this in mind if you are B2C selling, customers will not like a surprise 13.5% or 23% hike once you have set the value of your service or product in their minds.

Oh I see, that's a relief.

I'll be an entirely B2B provider I should imagine, and unlikely to be dealing with small businesses for a while. Thanks for providing the info, it certainly makes things a lot less cloudy for me.

When you say services are 13.5% does that apply to all services? I will be providing research services in my offering, there will be no exchange of physical goods?

TheCostumeShop.ie: Ronan

It depends on what specifically you do, but generally services are at the reduced rate. Full break down is here:

http://www.revenue.ie/en/tax/vat/rates/index.jsp

ligerdub

TheCostumeShop.ie: Ronan wrote: »

It depends on what specifically you do, but generally services are at the reduced rate. Full break down is here:

http://www.revenue.ie/en/tax/vat/rates/index.jsp

Thanks for that.

I think given the information has been provided to me that I will decide to register for VAT. There seems to be only a minor inconvenience caused to the businesses I'll be offering services to, whereas I can see a benefit from claiming back some VAT on purchases I'd be making in relation to the business.

Toblerone1978

ligerdub wrote: »

I think given the information has been provided to me that I will decide to register for VAT. There seems to be only a minor inconvenience caused to the businesses I'll be offering services to, whereas I can see a benefit from claiming back some VAT on purchases I'd be making in relation to the business.

That's a very good analogy, particularly if you are going to incur capital costs such as equipment, laptops etc.

You really should only stay unregistered if you believe you won't have much cost and / or you are supplying to non VAT registered persons (such as your average private consumer on the street).