Company Accounts Disaster...Help!

S

Skidoo

Guest
A year ago I was advised by a financial consultant that I should incorporate a Limited Company to handle income I was making from a small computer consultancy side-line I had started. Its turned out to be a complete mess now and I need some impartial advice on what I should do.

The income in the last 12 months was only around 13K. The adviser told me that he could arrange things such that I would pay very little tax. Essentially he was recommending putting any income I couldn't 'write off' into a personal pension vehicle called an S60 (?).

I am already in a pension scheme in my main job so I could not take out a PRSA, and I didn't actually know what he meant by an 'S60', but it sounded good!

I went ahead and paid to form the company. 500 euro.
I also had to pay his fee. 360 euro.
I also had to pay an accountant (his partner) to make the annual return. 1300 euro.

At the end of the day this accountant told me I have a tax bill of 4000 euro.

It turns out that my financial adviser and accountant never discussed my arrangements, and nothing was done about setting up my S60 plan...hence the large tax bill...and they told me this is my fault, not theirs. They are washing their hands of all responsibility.

The total cost of all this is actually slightly more than I would have paid if I'd just paid straight income tax on the 13K income!

I've now been told by a friend that I shouldn't have set up a Ltd Company in the first place given the small size of my project...and that a cheaper option would have been a 'sole trader' arrangement.

Meantime the accountant demanded I set up a Direct Debit to pay them 150 euro per month. I understand this is to pay for my accounts for next year...I get nothing else from them in the meantime.

My friend told me I'm mad, and to cancel this DD and close the company and set up as a sole trader.

I contacted the accountant and told them this is what I want to do. They replied that I have to de-register for tax and get tax clearance from the Revenue, and place a 200 euro advertisment in a daily paper!

I also have some items purchased for the running of the company (a computer and a projector) and since they are 'company property' I'm not sure how I'll be affected taxwise over these when I close it.

This has become a nightmare and I'm not at all happy I'm getting (or ever got) good advice from these people.

If anyone has any advice to give I'd appreciate it very much!
 
I have moved this to the business forum where you may get more responses.
 
tax

With income of 13k per annum, operating as a sole trader from the outset would have been the wiser option. With a company with taxable income of 13k for 2003, the corporation tax bill would be E1,625 (13k*12.5%). However, you would also have to take this money from the company (salary/dividend) and also pay income tax in full on it at your marginal rate.

I would definitely stop paying your "accountant" by direct debit, especially as it is for a service that has not yet been provided.

If it was me also, I would get the company stuck off the register of companies (this obviously depends on future income levels etc). The costs of complying with companies office obligations/tax obligations in the future will outweigh any costs involved in getting rid of the company. I would also get a difference accountant/adviser to do this.
 
Re: tax

You should certainly seek advice from another accountant (possibly one recommended by friends or family) who is totally independent from the guys who messed you around. In the circumstances I would have nothing further to do with these guys. You appear to have been misadvised from the very outset. Any decent accountant should be glad to help you out and to sort out the mess (as best they can) for you.

I hope that it works out for you.
 
Re: tax

Hi,
I have the name of a good accountant who can sort you out - depending on where you are situated. This accountant works in Dublin (City Centre) & Drogheda and is very relaible and will give good sound advice for a reasonable rate. Let me know if you want his number
 
Tax

Thanks for those replies everyone.
Curious...I was going to get it struck off, but is it an option to just 'leave it dormant'? I noticed an article in the news lately that said the CRO had 'struck off' numerous companies lately which had not been making returns. Suppose I just did the same? Would I save the cost of closing it that way?

Tommy, I know you are a financial advisor. Let me ask you this...if you told a client that you could save them X ammount of tax by doing A,B, and C, would you then regard it as part of your job to remind him in a timely fashion to get the process underway or do you think it is OK to say...I was waiting on the client to ask me to do it... and then allow the tax return deadline to pass without taking any action at all, not even discussing things with the accountant you had referred him to?
I can't believe this is right or professional!

Bertha, I have an old acquaintance in the tax/accountancy field whom I've contacted and she is willing to help sort me out...but I'm obviously going to have to pay her for her services. More expense is going to be incurred.
If I can get the original accountant and tax 'adviser' to close this up for me (as I feel they should) I can go ahead and set up a sole trader arrangement myself for little money.

The only matter outstanding is these company assetts. I don't know how to handle them for tax purposes. Any ideas?
 
Re: Tax

Tommy, I know you are a financial advisor. Let me ask you this...if you told a client that you could save them X ammount of tax by doing A,B, and C, would you then regard it as part of your job to remind him in a timely fashion to get the process underway or do you think it is OK to say...I was waiting on the client to ask me to do it... and then allow the tax return deadline to pass without taking any action at all, not even discussing things with the accountant you had referred him to?
Click to expand...

No offence but I reckon it's irrelevant and unfair to drag Tommy and his likely approach to such things into this discussion.
 
Re: Tax

Hi Skidoo

I dont want to comment publicly on any particular case, but in general I would be very reluctant to advise someone to form a company unless (1) they know exactly what they are taking on in so doing (2) they actually need to form the company (3) I am confident that they are sufficiently informed and organised to ensure that deadlines are met.

One other thing...you should always be very, very wary of tax advice received from people other than accountants or specialised tax advisors - especially where the so-called "advisor" is in a position to gain financially if you are steered in a particular direction.
 
Re: Tax

I don't think it's such a good idea to allow the company to be struck off.

I am not sure of the consequences, but if you phone the Companies Registration Office (804 5200) they will tell you. The staff there are very helpful.

If you look at the CRO website, it tells you exactly what to do to have your company voluntarily struck-off.

The cheapest place where to place the ad. is in the Examiner.

If you need any more help, pse back.

Bubbles
 
cro

Yes the CRO website is a good informative source of information. By leaving the company dormant and not sending in any returns etc to the CRO, I think you would be liable for penalties etc that are likely to be imposed in today's environment.
 
Strike Off

Thanks for all those replies folks. I've discovered another twist that seems to ruleout closing the company.
I've been told by an accountant that because my line of business is based on teaching or instructional work I cannot operate through a 'sole trader' arrangement! The
Revenue do not allow it apparently.

This just gets crazier by the day!
 
Re: Strike Off

because my line of business is based on teaching or instructional work I cannot operate through a 'sole trader' arrangement!
Click to expand...
Ask why? What legislation or revenue policy specifically prevents this?
 
Ask..

I will rainyday...I'm calling the Revenue tomorrow. I'll get back to the thread with whatever they tell me.
 
Re: Ask..

I've been told by an accountant that because my line of business is based on teaching or instructional work I cannot operate through a 'sole trader' arrangement! The
Revenue do not allow it apparently.
Click to expand...

Forgive me for being blunt, but this is a load of codswallop. If this were true, how on earth do Revenue accept self-assessment tax disclosures from teachers who do part-time grinds work? Ditto for the many sole traders you will find in the phone book who work in the training industry (eg health & safety trainers, fitness and sports coaches, driving instructors etc).

Be careful that the source you are using for advice is reputable. Use your common sense if you suspect that someone is taking you for a ride.
 
Sole Trader

Tommy I just spoke to the Revenue advice line and they tell me they've never heard of any such rule barring teachers or trainers from being sole traders, and in fact they oferred to send me out the relevant form to set it up!

I've called the accountant again to hear his view on this, no response to my call yet. I'll let you know.

Thanks for the advice.
 
Revenue

OK I talked to the accountant again.
He says that the Revenue do have a ban on Sole Trader operations by Instructors/Teachers/Lecturers etc. He quoted the following item on the Revenue website:

[broken link removed]

Taxation of Part-Time Lecturers / Teachers / Trainers

Introduction

The question at to whether part-time lecturers/teachers/trainers are engaged under contracts of service (employees) or under contracts for service (self-employed) arises regularly.

Revenue Position

Revenue’s view is that part-time lecturers/teachers/trainers are employees. Payments are to be made to these individuals net of statutory deductions for PAYE and PRSI.

Case Law

Revenue’s position is founded on a number of precedents, which can be summarised as follows:

Irish Cases

·&nbsp &nbsp &nbsp &nbsp In the Circuit Court, in 1992, it was held that part-time lecturers employed in a school were engaged under a contract of service (employee).

·&nbsp &nbsp &nbsp &nbsp In the High Court, in 1986, Mr Justice Murphy held in the case of Stephen Barcroft v Minister for Health and Social Welfare and James Agnew (Social Welfare Appeals Officer), that the teachers engaged by him performed their work under a contract of service and that the employments were insurable.

·&nbsp &nbsp &nbsp &nbsp A Social Welfare Appeals Officer, in 1996, upheld a Deciding Officers decision that individuals engaged as part-time lecturers, in a teaching establishment, were insurable under the Social Welfare Acts.

UK Cases

·&nbsp &nbsp &nbsp &nbsp Fuge v McClelland (High Court Chancery Division, 22 June 1956).This case involved a full-time teacher who also taught adult evening courses. It was held that the night work also came under Schedule E, just as much as the day-time activities.

·&nbsp &nbsp &nbsp &nbsp Mitchell & Eden v Ross (House of Lords, May/July 1961)In this case it was held that part-time specialists (hospital consultants) engaged under the Health Act 1946 were assessable under Schedule E.

·&nbsp &nbsp &nbsp &nbsp Sidey v Phillips (Chancery Division 5 December 1986)In this case it was held that a non practising barrister was properly assessable under Schedule E in respect of his part-time lecturing fees.

·&nbsp &nbsp &nbsp &nbsp Walls v Sinnett (Chancery Division)This case upheld a decision that a professional singer who lectured in music at a technical college for 4 days each week was assessable under Schedule E.

Exceptions

Revenue accepts that the above position need not apply in situations where the lecturers/teachers/trainers give “once off” lectures. Lecturers/teachers/trainers in these positions will generally only give lectures once or twice a year for the same body. Such lecture fees must, of course, be returned by the individuals concerned under the self-assessment rules.
It would not be accepted, however, that lecturers/teachers/trainers who give a series of “once off” or guest lectures for the same body are outside the scope ofPAYE /PRSI.

Any cases of doubt under this heading can be clarified by contacting the relevant tax office.
Click to expand...

This appears to say you must be taxed at source...OR you can form a Limited Company...I don't see a specific ban on Sole Trading, but he tells me that this is implied in this ruling.

Any opinions?
 
Re: Revenue

You're getting into very technical detail here and I'm not sure if this is really appropriate for discussion on a public forum such as this, particularly if you are proposing to refer the matter to the Revenue for adjudication. All I will say is that Revenue do accept self-employment sole trader tax returns from people engaged in training, teaching (eg grinds) and various forms of coaching and instructional work. However I don't want to secondguess your accountant or to have my opinion "played off" against his or her judgement, especially as I am not aware of all the facts of your case.

BTW if you use a limited company as a 'front' for this sort of work, any income you receive from the company will be taxed under PAYE so you will, at best, be back where you started...
 
Tax

Tommy, yes its technical.
But isn't everything these days.

Thats why I hired an accountant.

I'm not trying to get you to second guess them by the way, just gain some clarity. This is an evolving situation that I feel obliged to keep other readers up to speed on...rather than just posting a question and then disappearing without further comment on the final resolution (as happens with many of the threads on the Board).

The 'technical twist' is that, because I do not do my teaching on a compleyely freelance basis (I am 'hired in' from time to time as I'm needed) this puts me in a different situation as far as the Revenue are concerned. They want me to be 'employed' by the contractor and do not accept Sole Trader status in such circumstances.

I am quite sure that (technical though it may be) there are many other 'teachers' out there who perform the same kind of work, and who may be unaware of the fact that they (as Sole Traders) might 'technically' be in breach of this Revenue ruling! (I was told the Revenue are not 'currently' strictly enforcing this rule).

Finally, yes I understand some tax would be payable even in a Ltd Company arrangement (I've just paid mine!) but there are certain writeoffs available under that option which could minimise the tax...thats the whole point of bothering to do it.
 
Re: Tax

there are many other 'teachers' out there who perform the same kind of work, and who may be unaware of the fact that they (as Sole Traders) might 'technically' be in breach of this Revenue ruling!
Click to expand...
Actually it is the "employer" (ie the entity that hires the individual to do teaching work), not the person actually doing the work, that is in breach of the ruling. That is a basic principle of the our tax system: in situations where there is any sort of master/servant, contractor/subcontractor or employer/employee relationship, it is the "employer" who is responsible for relevant tax deductions and related administration.

Finally, yes I understand some tax would be payable even in a Ltd Company arrangement (I've just paid mine!) but there are certain writeoffs available under that option which could minimise the tax...thats the whole point of bothering to do it.
Click to expand...
I'm puzzled.

Last week you told us that your strategy "turned out to be a complete mess" and that you now have "a tax bill of 4000 euro...actually slightly more than I would have paid if I'd just paid straight income tax on the 13K income!"

...and now you seem to be defending it and telling us that you saved money! Makes me wonder why you felt it necessary to post at all...
 
Tax

No Tommy, you're getting impatient and abrupt now. Calm down.

I'm informed by my accountant that I did save some tax because I was able to write off a few expenses, but the failure to set up a company pension scheme meant the savings were far below what could have been made.

The tax bill I ended up with (even after a few deductions for expenses) roughly equated to what I'd have paid on a PAYE system.

Its simple enough to grasp surely. I'm not trying to be smart with you. I was advised to take a certain path and it has saved me no money...opened a whole other can of worms...and caused me a lot more grief than just a simple PAYE method.
 
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