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Corporation tax confusion (am Sole Trader)

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  • 23-10-2015 11:34am
    #1
    eladnova
    Registered Users Posts: 116 ✭✭


    Guys

    My accountant is advising me to change from my current setup (Sole Trader) to a Limited Company. His main reasons were the usual which I can find in abundance on Google (limited liability, better pension options, corporate tax rate of 12%).

    I'm not clear on the practicalities and banking where corporate tax is concerned. I know this is a basic question and I "should ask my Accountant". I will - but wanted to ask a wider pool first.

    This is also more of a banking structure question.

    As a sole trader I get taxed around
    * 20% (up to €32,800)
    * 41% (for remainder)

    Keeping things simple, imagine my business invoiced 10K every month (Lets ignore VAT for the moment).

    Once that 10K hits my business account, I set 40% aside in a separate "tax" account which is ring-fenced. The remainder I consider mine.

    It's a system that works very well for me and come Oct 31, generally the amount in my tax account is exactly what I owe the Revenue. My business expenses would have been accounted for too.

    Confusion!
    Having relied on this banking and tax structure for so long, I have trouble figuring out how it might work under a Ltd company. IE What should my bank accounts be set up as . How many do I need.

    Lets imagine in Jan 01 2016 that I am a Ltd company and still invoicing 10K per month.

    When that 10K hits my business account, is it automatically subject to 12% Corp.Tax. Or is that only on whats left in my account at the end of the tax year?

    As an employee of the company, do my wages come out of that account and only the remainder is subject to 12% at EoY?

    If at the end of the year, I had 5K remaining in the business account, can I transfer it to myself? What is that called (a dividened?) and how is it taxed?

    As you can tell - no clear idea how this works! Thanks in advance for the help.


Comments

  • Options
    #2
    pedronomix
    Closed Accounts Posts: 997 ✭✭✭pedronomix


    If you need to retain cash in the business to fund it, Ltd/CT facilitates this with only CT deducted anually. However when you draw this money out you will pay tax again at your normal rates on top of the CT already paid. So as usual, the answer is: it depends on the full situation with you and your business.....


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