n the beginning, a startup owner may consider whether to start business as sole trader or a limited company. Generally, a startup business begins small and scales up in size over time. Initially, it may be better to set up business as a sole trader and save on the costs of incorporating. Apart from these costs there are also other reasons why starting a business as a sole trader is more beneficial.
A closer look at your individual situation will help you decide which legal entity is better for your startup.
First of all, are you currently working or unemployed? If you are unemployed and getting social security benefits you may be entitled to financial support…
The Short-Term Enterprise Allowance (STEA)
Financial support if you want to start a business and have lost your job.
- You must be in receipt of jobseekers benefit
- You can be claiming for any length of time. No minimum time period for which you must have been claiming (unlike 9 months for Back to Work Enterprise Allowance).
The Short-Term Enterprise Allowance is paid instead of jobseekers benefit for a maximum of 9 months. It is taxable, i.e. subject to income tax but not USC or PRSI.
The Back to Work Enterprise Allowance (BTWEA) scheme
If you’re unemployed and have been getting jobseekers benefit or jobseekers allowance for at least 9 months you may be entitled to the Back to Work Enterprise Allowance scheme (BTWEA).
You can also qualify if you are in receipt of other social welfare payments, e.g. carer’s allowance. You will be allowed to keep 100% of your social welfare payment for the first year and 75% for the second year. You may keep your extra benefits too such as a medical card.
Make sure you get approved for the scheme by the Department of Social Protection before you set up business as self-employed. The Back to Work Enterprise Allowance is not taxable; income tax, USC or PRSI.
Enterprise Support Grant (ESG)
If you have been approved for the Back to Work Enterprise Allowance or the Short-Term Enterprise Allowance, you can also get the Enterprise Support Grant (ESG).
This provides financial support for the cost of setting up your business. The costs include business equipment, office supplies and accountancy services. The ESG can pay a total of €2,500 in any 24 month period and this amount is paid pro-rata for the STEA. So if you get the STEA for 6 months you will receive up to €650.
Start Your Own Business Relief
Furthermore, if you were entitled to the Back to Work Enterprise Allowance scheme (unemployed for at least 12 months and in receipt of specific social security payments) then you may also qualify for Start Your Own Business Relief. You must have set up your business between 25 October 2013 and 31 December 2018.
Start Your Own Business Relief provides a two-year exemption from income tax up to a maximum of €40,000 each year. You do not have to pay income tax but will be liable to PRSI and USC. You do not have to be pre-approved and can apply for the relief when you complete your tax return Form 11.
Both the Back to Work Enterprise Allowance AND the Start Your Own Business Relief can be received together.
Legal entity status
In summary, if you’re unemployed and receiving the specified benefits you can avail of these allowances and reliefs. BTWEA and STEA support a sole trader or a limited company. However, you will need to remain a sole trader to qualify for Start Your Own Business Relief . You cannot claim this if you are a limited company.