The essential tax tips every new business owner should know

From getting the business structure right to keeping track of deadlines, here are the key steps to take.

By Barry Maxwell Paylesstax.ie

GETTING A BUSINESS off the ground can be challenging, but keeping on top of certain things at the outset will help you in the long run.

Here are the practical steps that all startups should run through, from a tax perspective:

Choose your business structure

Your best bet here is to explore this with a tax consultant. In my experience, people are prone to rushing forwards with the incorporation of a limited company without understanding all the tax and legal consequences that come with it.

We get a lot of people coming to us with new companies that have missed their annual return dates with the Companies Registration Office – this gives rise to a requirement to have their accounts fully audited, which in turn leads to significant costs in professional fees.

These costs are unlikely to be factored in and come as a bit of a shock for people. This situation seems to be particularly the case for people operating in the IT sector.

Don’t be fooled by the cheap set-up costs for company formations, you need to understand the ongoing annual costs as well. Where limited liability is not required, it will work out better for a lot of people starting out in business to operate, at least initially, in their own name as a sole trader.

However when profits grow to a significantly larger amount than what owner-managers need to live on for a year, they could consider incorporating the business at that point.

Also, trading losses made at the outset can be set against any other income the individual has, which can give rise to a good tax saving.

Get your tax registrations sorted

Get on top of this straight away – you don’t want the taxman coming after you for VAT because you didn’t register and were clearly over the registration thresholds, which are €37,500 for services and €75,000 for goods.

If you were previously solely in the PAYE system, you will need to register for self-assessment and, if applicable, get the company registered for corporation tax. If you will have employees or are operating through a company then get registered for payroll taxes.

You will need to understand the payment dates and return filing dates for the different taxes which can all be very different.

Stay on top of your tax deadlines. Missing the deadlines can give rise to penalties, interest and makes you more susceptible to being selected for a Revenue audit – something best avoided, even if all your tax affairs are in order.

Consider tax reliefs

Remember to consider any tax reliefs that could apply to you. Unfortunately the tax reliefs available for startups in Ireland are quite limited in terms of who can benefit, but you might just fit the bill.

Some of the reliefs you should have a look at are the start your own business relief, startup refunds for entrepreneurs, employment and investment incentive, R&D tax credit and relief from corporation tax for startup companies.

Keep good books and records

Don’t slack on record-keeping until tax time. This will help make sure you do not miss out on tax deductions for business expenses you incur during the year.

You should understand in advance which expenses are allowable as deductions for tax purposes and which are not. Make sure you know your entitlements – motor expenses are topical with Revenue and you should be aware of what you can and can’t claim here.

Other areas to bear in mind are pre-trading expenses and tax depreciation – called capital allowances – on business equipment.

A few other brief points to keep in mind:

  • Register your business name
  • Consider separating personal and business bank accounts
  • When employing spouses or other family members in genuine roles you may get a tax advantage, depending on the circumstances
  • Manage preliminary tax by getting an idea of your likely payments well in advance of payment deadlines so you can budget and manage your finances
  • Understand close company rules. These tax rules can be complicated and you will need to how they affect you and what you need to watch out for.

Barry Maxwell is a chartered tax adviser and accountant with Taxsmart.ie and Paylesstax.ie.

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