PAYE worker setting up a side business

RoboRat

Any help or advice would be most appreciated.

I'm a full time employee but I am working on setting up a business with 2 club mates. I have no intention of quitting my job at the moment as my role in the company can be done after hours and I am not willing to take the risk of going full time at it.

I am completely in the dark about whether this will effect my status as a PAYE employee. If I lost my job would I be entitled to benefits as I have heard that if you are self employed, you are not entitled to jobseekers etc.

To summarise the situation, the company will be a retail company that sells specific sportswear and this revolves around my input and designs and other skills, but I need their contacts and they will also look after labour side. They will also be fronting the start up capital, so we have agreed that they will get their cash stake paid off before we split the earnings. Would it be better to take a dividend at the end of the year rather than a salary?

We are going 100% legit and paying tax even though we could probably get away with just selling online so I am just looking at what is the best way to go.

If anyone has any experience or advice I would really appreciate it.

srsly78

You will be fine as you are still making normal prsi contributions. It's only if you are properly self-employed and only pay class S that you lose some entitlements.

RoboRat

Thanks a mill srsly78, that's really good news, keep the wife happy!

Would anybody have any views or advice about taking a dividend rather and a monthly wage?

I was thinking that we could take the money earned and keep it in the business without paying wages and using it to buy stock and pay the business expenses. Then at the end of the year we could take a percentage of the profit and split it but ensuring there is enough capital in the business to keep expanding.

Would we get crucified with tax on a big dividend or would it be better than taking monthly payments?

Also, if the lads invested money to start up the company, can the company pay that back to them without paying tax on top of it or the lads having to pay tax on the repayment they get? I really don't want a situation whereby they invest €5k and we end up having to pay this plus tax back or having to pay more to them as they are getting taxed on what they are getting back.

As I said, this is all new ground to me so any advice will be most appreciated.

Glenbhoy

First thing you need to do is to sort out what the structure will be, partnership or a company.

Both have pros and cons, but at this stage I'd be inclined to keep it simple and run the entity as a partnership, as there's a helluva lot of hassle and expense with keeping company returns up to date.

The next thing to do is draw up a REALISTIC business plan.

I think in your situation, it would probably be wise to seek professional advice both legal and accounting as there are a number of things that must be done - registering the business, registering for tax and VAT, determining the optimal structure, bookkeeping procedures, bank accounts, signatories etc etc etc..

It's best to thrash everything out legally as things (even amongst mates) have a habit of coming back to haunt you if not. In all honesty, the amount of times I've seen mates at each others throats and end up in the courts over this type of thing is incredible. If it's all set out in writing at the start, it lets everybody know where they stand, remember as well, losses have to be shared the same as profits!!!

One final thing, you don't have to pay tax on any monies taken out which represent previous investment, there are accounting methods of keeping track of these monies. partnership accounts, directors loans etc.

Good luck.

RoboRat

Thanks a mill Glenbhoy, we were always going to set it up properly with a solicitor and contracts - like you, I have seen a lot of mates fall out because they never did it right at the start.

I think the partnership might be the way to go, if it gets big enough, we can always change the setup. I think it might be best to talk to an accountant and see what they think is the best way of proceeding.

losses have to be shared the same as profits!!!

The first topic I broached was this, personally I am not investing capital and they know that, what I am investing is a significant amount of my time and expertise. I generally charge around €100 per hour for consultations so I will be losing the time I have to do these. They are happy to take the risk as long as their initial stake is paid off before we split the profits which is fine by me.

Once again, thanks a mill for the advice. It has helped clarify it a bit in my head and I feel thats its definitely a runner.