Sole Trader: turnover-costs=profit taxed at 20%?

W

Winifred

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I'm a sole trader in my second year of business, and this may seem shockingly ignorant but I understand that my turnover minus costs = profit, but is all the profit taxed at 20% ie my income tax rate?

I assumed that only the money I pay myself as a salary from my company would be taxed as income, I have separate personal & business accounts, credit cards etc.

Cheers!
 
As a sole-trader the profit ( as adjusted for tax purposes to take account of any non tax allowable items) is what is deemed to be your income from the business, not what you actually take from it. The rate of tax in total will depend on the income. If your income is less than your standard rate cut-off point then you will pay 20% tax, less your tax credits and then add PRSI at 3% and possibly the 2% levy if you exceed the threshold for that. Any part of the income in excess of your standard rate cut-off point is taxed at 41%.
 
You mention you are a sole trader, but you also mention company? Can you clarify whether you actually have a company or you are trading personally?
 
Hi guys,

Thanks for the swift reply.

I am a sole trader, when I say company it was technically incorrect but I always think of my business as a company.

That's bloody awful! I understand the idea behind it but I hardly want to take all (or most) of the money in my business account out and transfer it to my personal account as what happens if my business needs the money?

I think I'll have made about 60k profit (fingers & toes firmly crossed) by the end of the year so I'll be paying something like 13k tax? Even if I (personally) never touch it but it stays in my business account?

Thank you all again!
 
Have you thought of settig up as a company instead?

Not sure of the differences but the differences may be to your advantage?
Worth investigating the differences at least.
 
Winifred said:
I think I'll have made about 60k profit (fingers & toes firmly crossed) by the end of the year so I'll be paying something like 13k tax? Even if I (personally) never touch it but it stays in my business account?
Click to expand...

The tax/prsi will depend on your tax credits/cut-off point.

Example1 :-
Profit €60,000 ( assuming this is the tax adjusted amount)
Drawings €20,000
Retained in business €40,000 ( in cash/debtors/paid stock or whatever)
Tax based on €60,000

Example 2 :-
Profit €20,000
Drawings €60,000
Deficit €40,000 ( funded by say overdraft, unpaid creditors etc.)
Tax based on €20,000

There may be tax saving mechanisms you could put in place before your year end to minimise the effect of taxation. Your tax advisor would help there.
 
zxcvbnm said:
Have you thought of settig up as a company instead?

Not sure of the differences but the differences may be to your advantage?
Worth investigating the differences at least.
Click to expand...

Company taxation and personal taxation have different computations and rates. There are also different legal implications of trading as a company and as a sole-trader. One should take appropriate professional advice before considering setting up a company.
 
Apologies for not responding sooner.

I just wanted to say thank you for your very helpful advice!

Best,
Winifred
 
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