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Setting up as a Self Employed Person

Setting up as a Self Employed Person. Joe Harrington JF Harrington & Co Certified Public Accountants. Introduction. The purpose of the Discussion is to explore the way in which a person can become registered as self employed with the Revenue and the Companies Office.

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Setting up as a Self Employed Person

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  1. Setting up as a Self Employed Person • Joe Harrington • JF Harrington & Co • Certified Public Accountants JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  2. Introduction • The purpose of the Discussion is to explore the way in which a person can become registered as self employed with the Revenue and the Companies Office. • My name is Joe Harrington and I run a small accountancy practice at Main Street Moate Co. Westmeath. I have been doing that for the last 19 years JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  3. Topics for Discussion • Sole Trader V Limited Company • Partnership • Registering your Business • Revenue • CRO • Accounting Records to Be Mainatained • Audit Exemption for Limited Companies • What Can I Claim Against My Tax • Transferring from Sole Trader to Co • Filing Obligations with Revenue & CRO • Tax Rates & Bands JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  4. Topics for Discussion • PRSI & USC Rates • Revenue Audit Consequences • Implications of Employing Staff • Retiring from The Business • Appendices • Questions & Answers JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  5. Sole Trader V Limited Company • Tax Issues • Limited Liability • To Have a Company you must have 2 people • Getting Money out of Company • Your Information is on Public File • Additional Fees With Company JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  6. Sole Trader V Limited Company • If a company commences trading there will be no corporation tax for the first 3 years • Corporation Tax is paid on Profits after Directors Drawings at 12.5% • In Sole Trader Situation the tax is on profits before drawings • 25% Corporation tax on Rental income & Investment Income JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  7. Partnership • Very Similar to a Sole Trader • You also need to have 2 people to set a partnership up • You need to register the Partnership with the CRO and Revenue as soon as possible • You also should have a partnership agreement drawn up as soon as possible and have it done by a solicitor JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  8. Registering Your Business • Sole Trader or Company you must register your business with the Revenue at the outset • In a sole trader situation you complete a form TR1 to register for all Taxes • The same Form is used for a partnership • In a Limited company situation you complete a Form TR2 to register for all taxes • If a sole trader or partnership is trading or trades under a business name you must JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  9. Registering Your Business • Register it with the CRO by a completing a Form RBN1 • Limted Company you must register with the CRO • Once you decide on a name and it is available nobody else can use that name • In a company you must have 2 people to set up. • You can own 100% of the shares therefore a single member company JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  10. Registering Your Business • With a Limited Company you complete a Form A1 • The Memondum & Articles of Association will then be issued • Certifiacte of Incorporation • Company Seal JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  11. Transferring from a Sole Trader to a Company • Most Common for a business after trading for a few years • Possible Tax Implications for the sole trader • If property involved normally a lease drawn up between company and sole trader • All other assets transferred at tax written down value and set up in the companies accounts as a directors loan JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  12. What can I Claim Against Tax • Any expense wholly & exclusive necessary for your business • In a limited Company situation you can claim travel & subsistence based on civil service rates • You can only claim the above in the course of your duties and not from home • Sole Trader/Partnership do your claim based on invoices paid JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  13. What Can I Claim Against my Tax • Medical Expenses that you incur and they are allowed at 20% • Contributions to a Personal Pension are deductible but are restricted dependant on your age • In a company situation you can set up a executive pension which is much more generous to what you can put into it JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  14. What Can I Claim Against My Tax • Also it is a good way of getting money out of your company tax free • Tuition Fees paid to Third Level Colleges allowable at 20% up to a maximum of €2,500 for a full time course and €1,250 for a part time one • Contributions for PHI are deductible against tax JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  15. Accounting Records to be Maintained • Basic Records that need to be maintained are as follows: • Cash Book/Sales Book • Cheque Payments Book • Purchases Listing • Debtors/Creditors Ledger • Records can be maintained manually or on computer JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  16. Accounting Records to be Maintained • They can be maintained on excel spreadsheet • Various Tailored Made Accounts Package such as Sage Line 50 big red book etc • Records must be maintained for a period of 6 years JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  17. Audit Exemption • A Significant Relief for Companies • If you qualify you don’t have to get your accounts audited by a independent auditor • Significant saving on Fees • To Qualify you have to satisfy the following conditions: • Turnover less than €8.8m JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  18. Audit Exemption • Balance Sheet less than €4.4m • Less Than 50 people Employed • Accounts & Filing Requirements up to date • Not available to Companies Limited by guarantee • Not Available to Group Companies JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  19. Filing Obligations with Revenue & CRO • As a sole trader or partnership no filing requirements with CRO • As a sole Trader you have to file your tax return by the 31st October each year • You must pay the balance ofyour tax for the current year and pay preliminary tax for the next year at that date also JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  20. Filing Obligations with Revenue & CRO • With a Company you must file your CT1 with the revenue 8 months and 23 days after year end • Preliminary Tax due at the end of month 11 of your accounting period • Company Accounts and B1 has to be filed with CRO 9 months after year end JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  21. Filing Obligations with Revenue & CRO • In a commencement situation the company has to file a B1 6 months after incorporartion • Vat Returns have to be filed every 2 months • PAYE/PRSI returns every month JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  22. Tax Rates & Bands • Cut off Point The amount you can earn before you pay 41% tax • €32,800 for a Single Person • €41,800 for a Married Couple With One Income • The €41,800 can be increased by a further €23,800 if both are working JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  23. Tax Rates & Bands • Single Tax Credit €1,650 • Married Tax Credit €3,300 • PAYE Credit €1,650 • Self Employed People Not Entitled to PAYE Credit • There is Marginal Releif and Single PAYE Worker can earn €18,000 before pay Tax • Married PAYE €36.000 JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  24. Tax Credit & Bands • Self Employed these figures are halved • 2 Tax Rates 20% & 41% JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  25. PRSI & USC Rates • Self Employed Pay an S Stamp which is 4% on their income less Capital Allowances • There is a minimum contribution of €500 if your income is more than €5,000 • This stamp doesn’t entitle you to anything other than a contributory pension JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  26. PRSI & USC Rates • If Income less than €10,036 no USC payable • 2% on the first €10,036 • 4% on the next €5,980 • 7% on Balance • If you earn over €100,000 you pay 10% • Calculated on Income less capital allowances JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  27. Revenue Audit & Consequences • When self employed you maybe subject to a revenue audit • Revenue come & Inspect your books and if not happy they will look for additional tax • As well as additional tax they will charged interest and penalties • Penalties can vary from 10% to 100% depending on the seriousness of the error JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  28. Revenue Audit & Consequences • If Settlement Exceeds €33,000 to include interest and penalties it will be published in the papers • Before audit commences if you make a voluntary disclosure you will save on penalties and non publication • If not happy with Revenue you can appeal their decision to appeal commissioner and circuit court etc. JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  29. Employing Staff • You must register as employer • You will have to register each employee as working for your company • Liable to pay ER PRSI on their gross wages which varies. Gross Wage up €356 is 4.25% and thereafter 10.75% • Pay them for All Public Holidays JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  30. Employing Staff • Pay them all their Holiday Entitlements • Once they are more than 2 years working they are covered by the unfair dismissal act • Once they are with you 2 years they are entitled to Redundancy which is now fully payable by employer; up to 2012 there was a rebate of 15% and prior to that it was 60% • Once you take on someone ensure that you get a Terms & Conditions Employment Contract signed asap JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  31. Retiring from the Business • Any Property or Goodwill will be liable for capital gains tax due at 33% • However if you are in business for 10 years and you are over 55 you can claim retirement relief up to the value of €750,000 between the age of 55 to 66 outside the family • This reduced to €500,000 for over 66 • If you dispose or transfer to your family member there is no limit on the amount provided between the age of 55 to 66 and the family member must work in the business for the previous 5 years JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  32. Retiring from Business • If you sell or transfer to family after 66 there is a limit set at €3,000,000 JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  33. Appendices • TR1 Tax Registiration Form for Sole Trader • TR2 Tax Registration for Company • Flate Rates Expenses • RBN1 to Register Business Name for Sole Trader • Form A1 to Incorporate Company • Travel & Subsistence • Tax Rates & Bands JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

  34. Questions & Answers • Any Questions? JF Harrington & Co Certified Public Accountants & Registered Auditors 090 6481906 email jfharrington@eircom.net

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