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Start business as sole trader

Posted 18/5/2017

Start Business as Sole Trader

In 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.

Conditions include:

  • 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. 

If you would like assistance in any of these areas please contact Frances at  at +353 (0)87 689 6211 or email at info@artisanaccountant.ie

Set up business as a limited company or remain a sole trader?

Posted 3/3/2017

Set up business as a limited company or remain a sole trader?

A frequently asked question is should you set up as a limited company or remain a sole trader. Unfortunately, there is no quick and easy answer to this question. It really depends on your individual circumstances...

Limited company or sole trader?Limited company or sole trader?

In general, it makes sense to begin trading as a sole trader. The costs are lower for establishing this type of legal entity. Any available cash can be spent on getting your business up and running. Further down the road, as you become established and are making more money, it may be beneficial to trade as a limited company.

However, in certain circumstances, as a startup, it can be advantageous to setup as a limited company. Funding or grants may be available to you trading as a limited company that may not be available if you remain a sole trader. Also, if you had (or have) another stream of income, e.g. PAYE employment and you're investing in your business then incorporating may be the best solution to minimising your tax bill.

 

Things to consider if deciding whether to incorporate

In order to determine the best legal entity for you there are a number of questions that you need to ask. The answers to these questions will point to areas, and further questions, that you need to investigate. Identify under each area which specific advantages or disadvantages of setting up business as a limited company or remaining a sole trader are relevant to you.

The questions are grouped into three categories…

1, Are you a startup? If yes, consider the following

  • Current employment status
  • Type of business
  • Investment requirements              

2. How much is your current income?

  • Do you spend it all or can you save more?
  • Maximising tax saving across the family
  • Carrying forward losses

 3. How you can plan to finance your retirement?

  • Pension
  • Extracting profits
  • Capital gains tax

 

Deciding the best legal entity for your business

As a startup it will matter whether you have previously been unemployed, were in PAYE employment, or plan to work full time in the business. Depending on your individual circumstances there may or may not be funding available to you or the opportunity to claim tax relief.

If you’re currently in business as a sole trader you will want to use up any losses carried forward before you incorporate. Otherwise, you could lose the benefit of these losses. If you’re profitable are you minimising your tax liability? There are increased costs associated with becoming a limited company but these may be more than compensated for if you can decrease your tax bill.

The opportunities available to a limited company for pension planning are far more favourable than if you remain a sole trader. This is a big advantage to incorporating - if you have excess profits in your business over and above what you need on a day to day basis.

These are some of the main areas to consider if you are wondering whether you should set up business as a limited company or remain a sole trader. It is an overview and each of these topics will be considered in detail in a series of future posts. Please check back to the blog.

In the meantime, if you would like assistance in any of these areas please contact Frances at  at +353 (0)87 689 6211 or email at info@artisanaccountant.ie