BACK IN MARCH, I wrote an article with some tax advice for new business owners. The following contains some further practical tax instructions for either sole traders or startup companies.
So you’ve started a business as a sole trader, what about tax?
The first thing to do is to get your tax registrations sorted – this means registering for income tax and, if appropriate, VAT and payroll taxes.
It is very important to check whether you need to be registered for VAT from day one. Are you providing services or goods that are subject to VAT and are you over the registration thresholds?
Some service-providers are exempt from VAT, such as doctors and certain other healthcare professionals, so these people do not need to worry about registering for VAT.
If you are not within any of the VAT exempt categories, then you need to think about the registration thresholds, which are €37,500 for service providers and €75,000 for suppliers of goods.
You need to think about whether your turnover will be going over these numbers for the next 12 months.
Next steps are to establish what VAT rate you need to charge – the standard rate is 23%, but there are other lower rates for some transactions.
You also need to understand how the rates are affected when you provide services to customers located outside Ireland – and get a handle on when your VAT returns are due.
VAT returns are generally due to be submitted to Revenue every two months, and you need to keep a detailed track of your sales and expenses during each two-month period to work out your VAT payment or refund position.
The VAT return is due to be filed online through the Revenue Online Service by the 23rd day of the month following the two-month VAT period – for example by 23 July for the VAT period covering May and June.
An annual summary return called a VAT ‘return of trading details’ also needs to be submitted once a year.
Along with understanding your VAT position, getting on top of your payroll tax obligations straight away is a must in a situation where you have employees.
You will likely need to get specialist assistance on VAT and payroll taxes, but if you are in the very early stages of your business then you might prefer to look after your VAT and payroll returns yourself after a tax consultant gets you started.
Your annual income tax return is due by mid-November of the year following the one in which you start off in business. For example, if you start trading in July 2017, then your income tax return for 2017 is due to be submitted to Revenue by mid-November 2018.
You report details of your business income and expenses on your income tax return and pay income tax on your business profits.
Keep a good track of all the business expenses you incur throughout the year so that you will make sure you are claiming for everything that you should be.
You should also consider whether you can claim any income tax reliefs such as start-your-own-business relief.
So you’ve set up a company and started trading – what about tax?
You need to get the company registered for corporation tax, payroll taxes and, if appropriate, VAT.
The comments above regarding VAT apply here as well – the same rules and thresholds apply regardless of whether you are operating as a sole trader or through a company.
You need to register for payroll taxes even if the company initially has no employees other than you as the sole director and owner.
Keep an eye on the corporation tax return deadlines – your accounting year-end date determines the filing and payment deadlines.
The majority of companies have an accounting year-end of 31 December and the corporation tax return will be due by the following 23 September.
It is also very important that you keep a close eye on the filing deadlines for the annual returns with the Companies Registration Office (CRO). These are completely separate from the tax returns submitted to Revenue.
The first annual return is due for sending into the CRO six months after incorporation and the second return is due 12 months after that.
The late filing penalties for missing the CRO deadlines can be severe and costly for small, startup companies. To add insult to injury, you need to get your accounts audited if you miss the deadlines, which leads to high professional fees.
We are regularly contacted by IT professionals who have set up their own company but missed the CRO deadlines and have large late filing penalties and audit requirements.
It is very easy to get a company set up these days and its exciting starting off, but please remember that it is also a serious business and you have to be fully aware of your statutory requirements.
If you do not like paperwork and are not a numbers person, then contact a tax consultant for assistance as early as possible.
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