Sole Trader & Tax advice

C

Carol29

Guest
I set up a small jewellery making business from home earlier this year, I have a website and have been getting in orders steadily, so far mounting to €4,000 approx. I'm just breaking even at the moment but will be in profit in the next few months. My husband is the main bread winner and we are jointly assessed. He has been reluctant for me to set up the business with Tax registration initially as he thought it was just a hobbie but now that I'm getting orders in he's worried it might affect our tax situation and he thinks I'll be heavily taxed on any profit. We are currently taxed at 42%.

As this is a very small venture and I'll probably only make a few thousand profit each year, could registering as a sole trader and registering for tax make much of a difference? If I take a salary and claim for some of our heat, phone line etc there won't be much profit to declare therefore not much tax to pay?

Our accounts are submitted by an accountant and she is away at the moment so I'd value your imput.
 
You need to register for self employed income if you are making a profit - that's not a choice, you just have to do it. Actually, you probably have to register anyway if you have *income*, even if you don't have a profit.

You can claim business expenses as normal for the self employed. You should be careful what home-related expenses you claim for as that could have CGT consequences for your principal private residence if part of it is being used for a business. I don't know exactly where the line is for that - certainly you can claim for phone call expenses - not sure about heat.

Your reference to "taking a salary" would only be applicable if you set up an actual company (which is neither setting up as a "sole trader" or "registering for tax"). There are lots of threads about the benefits/burdens of setting up a company as opposed to operating as a sole trader - myself, I wouldn't bother setting up a company for what you describe, it's a lot of extra hassle with not much benefit.

If your husband is in the 41% bracket and you are jointly assessed, then in effect, your profits will be taxed at 41% but it won't "affect" your tax situation in any way - you'll still be jointly assessed, just earning more (and paying tax at the higher rate on those earnings). Good luck with your business - it's really great that you have made a hobby into an actual money-making enterprise - few folks can claim that.

Sprite
 
WaterSprite said:
... Actually, you probably have to register anyway if you have *income*, even if you don't have a profit. ...
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Correct and no "probably" about it, unfortunately.
WaterSprite said:
... You should be careful what home-related expenses you claim for as that could have CGT consequences for your principal private residence if part of it is being used for a business. ...
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And the implications need to be explored with your tax-advisor (costs allowable against tax).
AFAIK, this is not correct as once you register as self-employed, you will be assessed for PRSI contributions, and you will lose your PAYE tax credit so the house-hold tax-bill increases immediately, albeit by a relatively small amount.

You need professional advice. Produce a business plan and assess what the cut-off point will be as to when the new venture begins to make a positive contribution to the family's wealth.

Good luck with it.
 
mathepac said:
AFAIK, this is not correct as once you register as self-employed, you will be assessed for PRSI contributions, and you will lose your PAYE tax credit so the house-hold tax-bill increases immediately, albeit by a relatively small amount.
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Would the husband have access to two PAYE credits if OP wasn't working at all? Take your point about PRSI.

Sprite
 
WaterSprite said:
Would the husband have access to two PAYE credits if OP wasn't working at all? Take your point about PRSI. ...
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Sorry, I didn't read OP properly. It looks like only one PAYE tax-credit is available now. Thanks for the correction.
 
I suppose the bottom line for OP is then to either register for tax or stop the hobby altogether - or give pieces away as presents rather than sell them. I'm biased, but I think that OP should definitely continue her hobby, even if it costs money TBH (most hobbies do and it's great that OP is even near actually making money/profit from it). It appears that there will be minimal affect on OP/husband's actual tax/PRSI outlay as a result of continuing the hobby as a business. There will be some additional admin work on the tax side.

Sprite
 

Thanks both of you for your replies, and to you Sprite for the vote of confidence. I know I have to registered the business but needed those questions answered first, partly to keep "himself" happy! I understand I'll have to pay 41% tax on profits but wonder then, how do I personally benefit if I cannot take a salary?
 
Carol29 said:
...I understand I'll have to pay 41% tax on profits but wonder then, how do I personally benefit if I cannot take a salary?
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As a sole-trader, the "profit", or excess of income over expenditure and after all taxes, is your salary. If you choose to use it to to go holiday, buy a car or whatever, you are free to do so as tax has been paid.
 
Cheers,

Thanks for all the advice, a lot has been cleared up for me and I'm ready to go legit!
 
But what if your are both currently jointly assessed? If we currently pay 41% I understood from previous replies that all my profit would aslo be taxed at 41% ?
 
Carol29 said:
But what if your are both currently jointly assessed? If we currently pay 41% I understood from previous replies that all my profit would aslo be taxed at 41% ?
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Under joint assessment and individualisation for 2008 the standard rate cut-off points ( the amount up to which you can earn and pay 20% tax) are as follows :-

Single/widowed person €35,400
Married income €44,400
Married both spouses with incomes €70,800 subject to maximum of €44,400 for any one spouse.

Therefore in the case of a couple where husband earns €50,000 and the wife earns €10,000, the husband will pay 41% on the excess over €44,400 and the wife will pay 20% on her €10,000.

Essentially once a 2nd income starts for the other spouse they can earn up to €26,400 at the standard rate.
 
Thanks for clearing that up for me. I will be speaking to an accountant in a couple of weeks when she returns from holiday...but it's good to have this information so I don't look like a complete fool!

Cheers
 
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