Banking, VAT, Tax, Accounts for Education Institute

[The LCI]

Hi everyone

The Learning Curve Institute is currently in the process of becoming a registered FETAC provider and hopes to begin giving FETAC accredited courses in January 2010.

Can anyone explain about registering for VAT and Tax?

Does it make sense to put most of the income into the business bank account due to the lower rate of tax on corporations at 12%?

When we are paying ourselves from the business account are we automatically charged at the higher tax rate or is it only if the business has a certain level of income?

Is there a certain threshold the business is allowed to make before being subject to tax?

Any help would be greatly appreciated.

 

[mathepac]

You need a qualified accountant / business advisor.

Attempting to rectify what seem like a significant knowledge deficits via an anonymous internet forum is unlikely to prove satisfactory. With only 5 months to your start date and apparently not even the bones of a business plan in place, you need to address this urgently.

 

[The LCI]

Thanks for the reply.

We have a qualified account and solicitor and a business plan has been in place for a long time. I am merely trying to ask some general questions for personal knowledge and seek some practical advice in regard to banking, tax and VAT.

Everytime we seek the services of our accountant we are charged so I am just trying to have a discussion to find out some of the general info in laymans terms before I talk to him.

I appreciate your comments but I would also encourage anyone with any helpful information to post so we can start a discussion.

 

[mathepac]

The information you requested at one level is bread and butter to the book-keeper / administrator who will run that part of the business on a day-to-day basis; as you've discovered, using your accountant is expensive.

At another level, it is the detailed critically important part of any business plan worthy of the name, the cash-flow statements and analyses. These show week by week where money comes from and where it goes to, where deficits exist and how they are funded and where surpluses (if any) can be utilised. In particular it shows payments to and credits (if any) due from the Revenue, these include PAYE, PRSI, VAT, corporation tax, etc.

As it sounds like you will be operating in the education and training arena, these activities are generally VAT exempt. That means you will be unable to charge VAT for your training and education services, but will need to pay VAT on your inputs (supplies, consumables, services), leaving you in a net VAT outflow situation different to companies operating in other sectors. Hence the importance in your particular case of the cash-flow analysis.

As you state the business plans are in place it might not be any harm to review them and see how these matters are dealt with.

... Does it make sense to put most of the income into the business bank account due to the lower rate of tax on corporations at 12%? ...

I'm not sure I understand. Trading profits are taxed at the appropriate corporation tax rate; income and profits are not the same thing, but where else would you put company income apart from the company's business bank?

... When we are paying ourselves from the business account are we automatically charged at the higher tax rate or is it only if the business has a certain level of income? ...

Your income will be taxed at whatever rate your personal taxation circumstances dictate; the "income" of the business is irrelevant

... Is there a certain threshold the business is allowed to make before being subject to tax? ...

Again, there appears to be confusion between "income" and "profit". In general PAYE workers are taxed on income (hence income tax), but corporate entities pay corporation tax on profits (or record tax credits against future profits on current losses).

 

[The LCI]

Hi

Thanks you very much for such a detailed reply. It is greatly appreciated and it does clear up some things for me.

If we, the company directors, are working for The Learning Curve Institute on a part time basis (ie giving lectures) and are also still working in another job full time will our rate of income tax be subject to the accumulation of both sets of income?

As Company Directors we are in effect the owners of all company assets and bank balances of the business bank account, does this mean we can use the money in the business bank account to buy things for our own personal use or must money coming out of the business bank account be only used for business related expenses?

It is my understanding from your last post that the business is subject to corporation tax on profits. Is there a threshold of profits a company is allowed to generate every year before being liable for tax? Or is it the case that all profits, regardless of how big or small, are charged at 12% tax?

 

[mathepac]

... If we, the company directors, are working for The Learning Curve Institute on a part time basis (ie giving lectures) and are also still working in another job full time will our rate of income tax be subject to the accumulation of both sets of income? ...

If you own 15% or greater of the shares in LCI, you become a proprietary director and automatically get classified as "self-employed". You lose your PAYE tax-credit, must register as self-employed, move to class "S" PRSI rates (and lose some benefits), and you must submit your own self assessment tax each year on Form 11.

... As Company Directors we are in effect the owners of all company assets and bank balances of the business bank account, does this mean we can use the money in the business bank account to buy things for our own personal use or must money coming out of the business bank account be only used for business related expenses? ...

You need to adjust your thinking. Company assets and money belong to the company, and are not the personal possessions of the directors, or the share-holders for that matter, despite recent well publicised behaviour that would seem contrary to this principle.

Any money or other asset withdrawn from the company unless properly vouched and approved for legitimate business expenses, pay or dividends is being stolen.

... is it the case that all profits, regardless of how big or small, are charged at 12% tax?

Yes.

I believe signing up for a "start your own business" course or buying leaving cert level "business organisation & methods" (whatever its called these days) text books would be a good idea for you.

I'm not an accountant and all the above information is already contained on the site in existing threads.

FWIW.

 

[DB74]

If you own 15% or greater of the shares in LCI, you become a proprietary director and automatically get classified as "self-employed". You lose your PAYE tax-credit, must register as self-employed, move to class "S" PRSI rates (and lose some benefits), and you must submit your own self assessment tax each year on Form 11.

While this is true if the income from the company where you are a company director is your only source of income, you will NOT lose your PAYE tax credit if you have other Sch E income from an employment where you are not a proprietary director.

 

[The LCI]

Hi everyone

Thanks for the information. Its good to know these things. In case Im really coming across badly here I would like to say I have a first class honours degree in Business and Languages from 2007 but I majored in Marketing and we did very little in Accounting, Tax or Finance. This internet forum is by no means an exhaustive search for information simply a place I can ask a few general questions to people who know about it without having to pay excessive fees. Again, thanks to those who have contributed. Your help is greatly appreciated.

Could you please explain this a bit further - especially the bit about "Sch E Income"

..you will NOT lose your PAYE tax credit if you have other Sch E income from an employment where you are not a proprietary director.

If anyone else has anything to comment please let us know.

 

[DB74]

Sch E income is basically income from an employment.

Everybody in the tax system in Ireland gets a single tax credit which is worth €1,830.

In addition to this, people who are in employment will also receive a PAYE credit, again worth an extra €1,830.

However if your only employment relates to a company where you are a proprietary director, you will NOT receive this PAYE credit

In a case where somebody has 2 employments (such as yours, as far as I can gather), one where they are a prop director and one where they are not, they will still receive the PAYE credit (it may be restricted depending on your income from non-prop director employment)