Key Post Sole Trader or Set up a company - other considerations

E

elleirbag

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I am thinking of leaving my current job ( PAYE) and taking on long term contract work (project work in organisations)

Would being a Sole trader or setting up a company be my best option?

Are there any publications I could peruse so I could weigh up the pro's and cons of both options and what the tax implications are for each.

I'd be REALLY grateful for any info you could give

Elleirbag :)
 
Am a sole trader myself for a number of reasons - some that I can't remember off hand!
Best bit of advice I got when I started was to find a good accountant and go through all the options with him\her and make your decision based on that. At the moment I don't have the same amount of admin that I would have if I was a company and it suits the nature of my work better at the moment.

Good luck with it all - its very exciting starting off but finding a good accountant is key!
 
I'm an accountant and the general rule of thumb is only set up a company if you are likely to make more money than you need to live. It may sound simplistic but it's true. Let me know if you need me to expand this more.
 
Hi
I'm a sole trader and I decided on the basis that companies need two directors and audited accounts. Liability is limited with a company.

Two directors means you need someone else as well, they have legal responsibilities and can't sign documents etc etc without reading them. They also can't say they were doing what you told them to do, they make decisions and stand by them.
Audited accounts means you need an accountant... can't do this yourself I don't think...

The fact that liability is unlimited as a sole trader...
Yeah, but if you take every reasonable precaution then you can't really lose everything... only if you're negligent... and you'd have insurance anyway...

Cheers
Joe
 
My rule of thumb - set up a ltd co if you feel you need, well, limited liability above all other business concerns.

In business for yourself, small setup, no employees, no govt tender contracts? Go sole trader.
 
Hi
I would agree with the points made above in general and certainly if you're not sure for how long you may contract (ie. maybe you'll decide to seek PAYE employment again in a couple of years depending on how the contracting works out), then it's not really worth the bother of setting up as a limited company, particularly if you plan to pay yourself the total of the amounts billed for your work.
The only caveat here is that you may find some companies who will not take on contractors who are not either companies or coming in via an agency. This is to protect the company from the possible interpretation from a Revenue perspective, that the contractor is for all intents and purposes an employee of the company rather than self-employed. The default assumption by the revenue is that you would be an employee and for a company in that position, they could find themselves liable to PRSI etc on your behalf.
Note: Putting a phrase into your contract rejecting employee status is not sufficient.
Anyway best of luck
S
 
Much talk of liability (or not, as the case may be) and no mention of the differing tax regimes that apply.

The point made above, about only going Ltd. if you will make more money than you need to live, is an excellent one. Don't forget the low 12.5% tax rate that applies.

D.
 
Don't forget the low 12.5% tax rate that applies
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I would'nt worry about the CT rate unless you are thinking of expanding the business - I am in a position similar to your new situation and would recommend sole trader every time because there is a lot more compliance required for companies. Remember that even at 12.5% tax rate, you still have to pay 47% (top rates) when taking money out of the company, also in general the revenue will allow the same expenses as deductibles for tax purposes for both.
 
One situation where it may pay to set up a company and the company will purchase a property. The 12.5% tax will enable you to make larger mortgage repayments and so contribute to your business survival. There is also the possibility of buying it through a personal pension fund and renting it to the company. If there is no property involved then I do not think it would be worthwhile to set up a company.
 
woods said:
One situation where it may pay to set up a company and the company will purchase a property. The 12.5% tax will enable you to make larger mortgage repayments and so contribute to your business survival. There is also the possibility of buying it through a personal pension fund and renting it to the company. If there is no property involved then I do not think it would be worthwhile to set up a company.
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There have been previous posts on here about buying property through companies and in a lot of cases its a bad idea as you are exposing yourself to a double hit of tax.
 
dam099 said:
There have been previous posts on here about buying property through companies and in a lot of cases its a bad idea as you are exposing yourself to a double hit of tax.
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I think that a lot of people are buying the company (including the property) now because it saves 8% in stamp duty so the double tax issue does not arrise.
There are many cases (and I have experienced them myself) where a business generates enough to pay the mortgage if it is taxed at 12.5% but would have gone under if the tax was at personal rate and I think that even in the double tax situation half a loaf is better than no bread.
 
Do you have to fill in any forms to set the sole trader company up?

Do you just start by sending your invoice to the company you're contracting to and then pay your income tax at the end of the year?

Can you write off expenses when you're a sole trader?

Thanks!

Im just about to start contracting and was going to set myself up as a limited company (because the recruitment agency told me to) until I read the above posts...

Sounds like sole trader is the best option to go with...
 
Is it true that you can only work for the same company for 3 months when operating as a sole trader?
 
Im just about to start contracting and was going to set myself up as a limited company (because the recruitment agency told me to) until I read the above posts...Sounds like sole trader is the best option to go with...
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Quite a few recruitment agencies won't deal with sole traders, they insist you set up as a ltd. company or else become an employee of an umbrella company.
 
Is it true that you can only work for the same company for 3 months when operating as a sole trader
Click to expand...
There are no hard and fast rules - it all depends on revenue applying their rules of thumb - in general for IT it seems that they will accept as you being self-employed, same with the building industry.
To set up, the only thing you may have to do is apply for a vat number - call the revenue and they'll sort you out.
 
Hi Guys

I am in a similar position, except that I fully expect to earn more than I will need. For example If the 'company' brings in say 40k and I intend saving or keeping part of it, would i be better with a company?

From what I can gather its 12.5% for the company, and then the usual tax on myself 42%, and then 47% if i want to take any out - would this mean if the company earnt 500k per annum i would be better taking it all as "salary" if I wanted access to it unresticted etc.

I intend on seeing an accountant but would like to meet them, at least not blind!

D4
 
Don't forget - if you are a Service Company (a professional person supplying your services through a company), in addition to the 12.5% Corporate tax, there is a surcharge on the undistributed income.

This needs to be considered, as it makes the company option more expensive, and a lot of people do not realise that point.
 
Do speak to your accountant, but broadly speaking you can draw down your salary according to your requirements, pay yourself all legitimate expenses, pay whatever pension contributions you agree with your accountant (which will depend on your circumstances and preferences, etc) and only then will the balance be taxed at 12.5%. The pension option is (still at least) a massive tax free funding opportunity for companies.
 
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