# Is there any minimum turnover/profit for a LTD. co.?



## RichInSpirit (22 Sep 2014)

Looking into starting a small sideline business,  alongside PAYE job.
Just conservatively estimating profit at €5000 to €10000 per annum. Turnover perhaps being double profit figures.
Would this level of profit /turnover be too small to set up as Limited company?


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## amgd28 (23 Sep 2014)

No, many ltd companies have zero turnover


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## mandelbrot (23 Sep 2014)

I'm assuming the OP means from a practicality point of view rather than legally.

And the answer is - It depends.

Firstly on whether you see yourself wanting to extract some, much, or all of the profits in the short / medium term, or retain it in the company to perhaps grow it...

If you don't want or need the money, and if it's going to generate 10k profit, then by having the business in a company you'd pay €1,250 in corporation tax, compared to potentially paying €5,200 in taxes as a sole trader. 

But then having a company will mean additional administration and costs, but not €4k worth annually.

If it's the type of business where limited liability might be of benefit, this might factor in your decision, or it may be the case that your customers would have a preference for dealing with a company or a sole trader...


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## RichInSpirit (23 Sep 2014)

Thanks for very informative reply Mandelbrot  and amgd28.


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## elacsaplau (23 Sep 2014)

Hi Mandlebrot

Just wondering what type of business do you have in mind in which customers would have a preference for dealing with a limited company?


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## mandelbrot (23 Sep 2014)

elacsaplau said:


> Hi Mandlebrot
> 
> Just wondering what type of business do you have in mind in which customers would have a preference for dealing with a limited company?



For starters, one involving a service, where dealing with an individual could give rise to a question as to whether there is actually a PAYE employer/employee relationship.


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## Brendan Burgess (23 Sep 2014)

Under no circumstances should you set up a company for small profits like this. 

The admin burden and the penalties and costs for failing to meet deadlines are way outside any tax benefit, which is illusory anyway. 

You may pay only 12.5% tax on the profits in the company, but you pay the full income tax at your marginal rate when you take the profits out.

There are some key posts on the topic.

Brendan


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## T McGibney (23 Sep 2014)

brendan burgess said:


> under no circumstances should you set up a company for small profits like this.
> 
> The admin burden and the penalties and costs for failing to meet deadlines are way outside any tax benefit, which is illusory anyway.
> 
> You may pay only 12.5% tax on the profits in the company, but you pay the full income tax at your marginal rate when you take the profits out.



+1


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## elacsaplau (23 Sep 2014)

Thanks Mandelbrot 

As you invariably have a point - I wasn't able to figure out by myself what situations you were referring to! 

Out of curiosity, when you say for starters, do you have other examples in mind?


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## mandelbrot (23 Sep 2014)

Interesting to see you both so adamantly opposed, regardless of circumstances... Where would you see the threshold level of profitability for it to be worthwhile, for a person who has PAYE income pushing them into a 52% marginal income tax rate?

I'd have thought that if the profitability is likely to be there at a minimum level, with potential for some growth in the medium/long term, there would be circumstances where it would make sense to incorporate early, if not immediately.

Such as, where there is a non-earning spouse who can be paid a directors fee suffering 24 - 28% tax, PRSI & USC, to reduce the taxable profit to nil. There's also potential for tax efficient pension provision, which may / may not be better than what would be available as a sole trader.

If the profit before directors fees is 10k, then the incremental cost of administering the company in excess of that of a sole trade would have to be upwards of 2k p.a. to render it a poor choice.

If it's: 
1. a service business, 
2. the turnover is such that a VAT reg isn't required, 
3. the volume of transactions is relatively small, and
4. the business owner is capable of maintaining a reasonable set of books

then a non-audit set of accounts shouldn't cost more than 1k - it's a job for a trainee.

The cost of the Form 11 isn't relevant since it's a requirement either way.

In general, one shouldn't incorporate with an expectation of modest profits, but I'm not sure that you could say never under any circumstances.


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## T McGibney (23 Sep 2014)

Sorry M, it's madness to incorporate a tiny or marginally business. If someone wants to do it for vanity or some other personal reasons let them off, but caveat emptor. Brendan's advice is spot on.

Btw "a non-audit set of accounts shouldn't cost more than 1k - it's a job for a trainee." Are you mad?


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## mandelbrot (23 Sep 2014)

elacsaplau said:


> Thanks Mandelbrot
> 
> As you invariably have a point - I wasn't able to figure out by myself what situations you were referring to!
> 
> Out of curiosity, when you say for starters, do you have other examples in mind?


 
Not in particular from the top of my head, but I'm sure I've heard of instances where some big organisations just don't like to deal with sole trader suppliers for some types of goods / services. (Maybe I dreamt it! )


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## elacsaplau (23 Sep 2014)

Thanks Mandelbrot for your candour!

I fully accept your point re contractors........maybe I posted too early in the morning?!


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## Brendan Burgess (23 Sep 2014)

Some large companies will take on contractors only if they have a limited company, so that might be an exception.  However, the admin cost of setting up, running and winding up the company, would not justify it.  If you have a choice, stay self-employed. 

If you have such a small income, and the client will work only through a limited company, then use one of the [broken link removed]


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## RichInSpirit (27 Jan 2015)

Thanks for all the replies here, only getting back to looking at these things now.


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