# Newbie taxi driver - Ltd company versus sole trader?



## Daffyduck (8 Jan 2008)

Okay.....I am a newbie here and so I have a few questions. Basically I was told not to do things the sole trader road as its dangerous etc...... So I was thinking private limited company but I have 1001 questions. If anyone can help it would be much appriciated! I'll break them up I suppose, into sections.

I am driving a taxi and have been keeping records of my expense and earnings but I have not got a clue about how being self employed works. What exactly needs to be contained in "proper books" can I do these myself? Do I need an accountant???

I have invested about €20,000 in total into things and just need a bit of advice. 

I'll do a rough breakdown..... Car -                 €9250
                                       Plate & licence    €6390
                                       Insurance           €1500
                                       Meter & sign         €800
                                       Tyres etc             €225
                                       Total invest -     €18165

I would like to register a private limited company but I have a few questions. The above spendings are these "expenses" or what? and so can they be deducted from total earnings?

If I am a small time earner say under €30,000 a year, what what does PRSI, VAT and Corporation tax work, other taxes if any?

And claiming for day to day expenses i.e. Diesel, car services etc?

Also what way does a business bank AC work? 

Any help much appriciated.....


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## ClubMan (8 Jan 2008)

I have changed the title of your thread to make it more meaningful. A _Plc _is a very different beast to a regular limited company which is what I presume you mean? Note that there are many existing thread on the "sole trader versus limited company" question that might be worth searching out and reading. Who advised you that sole trader was a bad idea in this context? You should certainly consider talking to a good accountant about many of the issues that you raise above.


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## Daffyduck (8 Jan 2008)

thanks clubman......I do plan on speaking to an accountant but I would like to have a little knowledge before I do. The sole trader thing scares me  after what I have read as you are responsible etc with the limited company its separate and has limited liability.


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## ClubMan (8 Jan 2008)

Some possibly useful links:

*[FONT=Arial, Arial, Helvetica]McGibney.com - A             Guide for New Business Start-ups

[/FONT]**Revenue - Starting a business:*


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## Stifster (8 Jan 2008)

I wouldn't see any point in setting up a limited company if you are the only employee and will "only" be earning €30k. As I understand in the first instance the company will have to pay corporation tax, then any dividend paid, i.e. your salary, will be taxed. There is a double hit.

Even as a limited company if you only have say two directors and given the size of the undertaking, anyone who lends you money would probably look for personal guarantees anyway thereby negating the protection of being a limited liability enterprise.

I can't see how being a sole-trader is particularly "dangerous"?


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## ubiquitous (8 Jan 2008)

Stifster said:


> I wouldn't see any point in setting up a limited company if you are the only employee and will "only" be earning €30k.



I agree.


Stifster said:


> As I understand in the first instance the company will have to pay corporation tax, then any dividend paid, i.e. your salary, will be taxed. There is a double hit.


Fwiw, this isn't correct. Salaries are deductible from company profits for corporation tax purposes. Nobody in their right mind would go to the hassle of actually paying dividends to shareholders in such a small company.


Stifster said:


> Even as a limited company if you only have say two directors and given the size of the undertaking, anyone who lends you money would probably look for personal guarantees anyway thereby negating the protection of being a limited liability enterprise.
> 
> I can't see how being a sole-trader is particularly "dangerous"?


Exactly


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## Stifster (8 Jan 2008)

ubiquitous said:


> Fwiw, this isn't correct. Salaries are deductible from company profits for corporation tax purposes. Nobody in their right mind would go to the hassle of actually paying dividends to shareholders in such a small company.


 
Point taken.

What if at year end there is a profit? or would they have to sit down close to year end to ensure that the final salaries ate up any profit.


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## ubiquitous (8 Jan 2008)

Stifster said:


> What if at year end there is a profit?


remaining profit taxable to corporation tax at 12.5%



Stifster said:


> or would they have to sit down close to year end to ensure that the final salaries ate up any profit.


Usually a good idea.  That said if salaries eat up all profits year-in year-out, you would need to consider is there any point in having a company in the first instance. It certainly seems like a crazy option for a business earning only €30k per year.


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## Daffyduck (8 Jan 2008)

why is it a crazy option


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## ubiquitous (8 Jan 2008)

1. No tax savings at that level of income/turnover
2. Expense & hassle of CRO compliance, fines and audit fees if you fail to comply.
3. Costs of forming & closing down company.


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## Graham_07 (8 Jan 2008)

As a taxi driver I'm sure you know a lot of other taxi drivers. Perhaps you could enquire, of one-man owner drivers, how many of them are operating as limited companies. I think you might find that there are not as many as you might think, mainly for the reasons Ubi has mentioned above.


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## The_Banker (8 Jan 2008)

Daffyduck,
I would say your best bet is to approach other Taxi drivers and see what they are doing. If you are attached to a base then it would be normal practice for most of the cab owners to have the one accountant (thereby gaining a discount).
If your earning just €30k then a sole trader is the route for you and take advise from drivers who are involved in taxi driving for years.
I would also assume the Taxi Drivers Federation would have advise and also be able to recommend an accountant who has worked for many Taxi drivers.


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## Daffyduck (8 Jan 2008)

Okay, thanks....sorry if I am coming across as thick! But I do need to know, say 30,000 for the first year but that could grow afterwards. 

Am I right in saying that as a sole trader I can't claim vat back but I dont have to take it out of my earnings, just pay income tax?

If I have a company, I can lodge everything into a company account, pay myself a wage - minus PRSI and PAYE, and pay 12.5% on the profits but what way does VAT work there?

If a fare is €50, does that mean that because its a company, that 21% of that must be given to the tax man?


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## fintans (8 Jan 2008)

The 21% you are talking about is VAT. When you file your VAT return for fares you can deduct your VAT outgoings such as petrol, car repairs, expenses associated with running your business etc so you don't have to give 21% to the tax man. I would suggest you sit down with an existing sole trader taxi driver and go through all of the financial ins and outs. There's quite a lot involved and you will get a fairly fragmented picture of what is involved from the replies you get to your posts.


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## polly2000 (8 Jan 2008)

I think passenger transport is exempt from VAT so that would include taxis. I would try find somone who has a taxi and have a chat
P




fintans said:


> The 21% you are talking about is VAT. When you file your VAT return for fares you can deduct your VAT outgoings such as petrol, car repairs, expenses associated with running your business etc so you don't have to give 21% to the tax man.


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## Bob_tg (8 Jan 2008)

Polly2000 - you are correct.  Taxi fares are 'exempt' per the Revenue.ie web site: 
*Taxis, Services Of*

Rate: Exempt
Section/Sch: Para(xiv)1st Sc


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## Stifster (9 Jan 2008)

Daffyduck said:


> Okay, thanks....sorry if I am coming across as thick! But I do need to know, say 30,000 for the first year but that could grow afterwards.
> 
> Am I right in saying that as a sole trader I can't claim vat back but I dont have to take it out of my earnings, just pay income tax?
> 
> ...


 
I think I am correct in saying that even if you weren't exempt from charging VAT as a sole trader you can be registered for VAT.


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## Clarkey (9 Jan 2008)

Stifster said:


> I think I am correct in saying that even if you weren't exempt from charging VAT as a sole trader you can be registered for VAT.


 
Exempt means you do not charge VAT on turnover and you cannot claim vat credit on any outgoings. Zero rated businesses charge no vat on turnover but are entitled to claim back any vat paid out


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## Graham_07 (9 Jan 2008)

Stifster said:


> I think I am correct in saying that even if you weren't exempt from charging VAT as a sole trader you can be registered for VAT.


 
In context of part of the OP's VAT question, a sole trader as well as a company may be registered for VAT. What determines registration is whether the trader ( sole-trader or company) is carrying on a VATable activity and is either over the thresholds for registration or elects to register if under the threshold. The type of enterprise, sole-trader or company does not itself have any bearing on the requirement or otherwise for registration for VAT. 

In the case of a taxi operator, being an exempt activity, neither sole-trader nor company would be registering for VAT.


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## Daffyduck (9 Jan 2008)

The Vat thing has interested me there, if it was a company and the taxi end was only part of the income, could one claim vat back??


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## Joe1234 (9 Jan 2008)

fintans said:


> When you file your VAT return for fares you can deduct your VAT outgoings such as petrol, car repairs, expenses associated with running your business etc so you don't have to give 21% to the tax man.



Apparently VAT on petrol is not reclaimable.


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## Daffyduck (10 Jan 2008)

diesel?


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## Joe1234 (10 Jan 2008)

Daffyduck said:


> diesel?



VAT can be reclaimed on diesel.


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## Graham_07 (10 Jan 2008)

Joe1234 said:


> VAT can be reclaimed on diesel.


 
but not in the context of a taxi operator as per the OP which is a VAT exempt activity.


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## Graham_07 (10 Jan 2008)

Daffyduck said:


> The Vat thing has interested me there, if it was a company and the taxi end was only part of the income, could one claim vat back??


 
If a business ( company or otherwise ) is carrying on both exempt and VATable activities then they would have to be registered for VAT if over the relevant thresholds for the VATable business. A good example here would be an undertaker / publican ( of which there would be quite a few around the country ) Undertaking is VAT exempt. If there were items of shared costs, e.g. one ESB bill for the whole premises then the portion relating to the VATable business would be claimed as an input credit. The VAT on the portion relating to the undertaking would not be claimable, as that part of the business is VAT exempt. In both cases of course, the charges for ESB are tax ( income or corporation tax ) deductible. One cannot, and should not, attempt to claim VAT on anything to do with a VAT exempt activity.


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## Joe1234 (10 Jan 2008)

Graham_07 said:


> but not in the context of a taxi operator as per the OP which is a VAT exempt activity.



Of course.  I should have rephrased my previous post.  I was referring to a general situation where vat can be claimed on diesel.


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