Setting up a new company

[gnf_ireland]

As an IT Consultant I have worked via the umbrella company/management company structure for the last 7 years. Prior to this I had my own limited company.

I am thinking of going back to the limited company structure again. I would also hope to keep my home address private - so use some sort of virtual address.

I would also be looking for an accountant to do the company returns and both tax returns, but would probably handle the day to day invoicing, VAT submissions myself.

Anyone got experience of the companies working in this space, and any advice on what pit-falls to be wary of?

Thanks

 

[osheamanning]

Gnf_Ireland

If you previously had a company, you are probably well up to date of the reporting requirements with CRO and the Revenue.

However, we have found the biggest change for IT Consultancy Clients, is the massive change to the ability to claim Mileage & Subsistence.
Revenue have really cracked down on this and the rules can be tricky enough.
Be careful not to fall into the trap of your Subsistence begin classified as salary by Revenue.

Have a look at the Tax Institute's news on this [broken link removed]

If you have any specific questions, just shout.

 

[gnf_ireland]

However, we have found the biggest change for IT Consultancy Clients, is the massive change to the ability to claim Mileage & Subsistence.

Thanks - I am fully aware of the National Contractor project ! Thankfully I did not fall foul of the interpretation of the rules. This is one of the benefits of a strong Management/Umbrella company in my view. I heard some really strange cases out of this, and to be fair most of the extreme ones were taking the p1$$ without doubt - the guy putting his honeymoon down as an company expense stands out !

I see 'Francois Fillon' may also have fallen foul of the Revenue's interpretation of payments to spouses and family members

 

[T McGibney]

I see 'Francois Fillon' may also have fallen foul of the Revenue's interpretation of payments to spouses and family members

Just on this point, there's no particular difficulty with a trading company paying salaries to spouses and family members, but there will be difficulties in claiming these as a trading expense for corporation tax purposes, unless they can be shown to be incurred as part of the trade and represent actual work done.

However, with corporation tax at 12.5% that shouldn't be a massive drawback so its an option that shouldn't necessarily be ruled out at the outset.

 

[gnf_ireland]

they can be shown to be incurred as part of the trade and represent actual work done.

Exactly - my point with Mr Fillon is it appears it was not for actual work done according to various media reports, and it appears it occurred for a considerable length of time.
I know people who will complain where politicians hire spouses/children, but then go and pay salaries to same where no work is done

However, with corporation tax at 12.5% that shouldn't be a massive drawback so its an option that shouldn't necessarily be ruled out at the outset.

Correct, as long as the salary paid is reasonable for the work being done.
And in the event the spouse is a marginal tax payer already it makes absolutely no sense at all (obviously)


@T McGibney You may be able to answer this one for me. In the event a spouse is a company director and shareholder (for example) but is not employed by the entity and gets paid no salary, can that director avail of the 500 euro small benefits exemption? Getting conflicting opinion on this from people and was curious...

 

[T McGibney]

Correct, as long as the salary paid is reasonable for the work being done.

I think you've misread my point.

And in the event the spouse is a marginal tax payer already it makes absolutely no sense at all (obviously)

Hmmm...

You may be able to answer this one for me. In the event a spouse is a company director and shareholder (for example) but is not employed by the entity and gets paid no salary, can that director avail of the 500 euro small benefits exemption? Getting conflicting opinion on this from people and was curious...

If the small benefits exemption legislation refers to office holders, yes. Otherwise, no. An unpaid director is an office holder but not an employee.

 

[gnf_ireland]

I think you've misread my point.

Sorry, maybe I have. My point was that it was unrealistic to pay someone 20k a year for a role you can pay 2k for on the open market. I accept that the 12.5% CT bill should not be a 'major concern', but it is likely that this would be deemed income for the other party.
Maybe I am wrong here, but in the event there is a personal company and the spouse is going the accounts and admin - paying the spouse 20k a year to maximise the 20% threshold would not be permitted - irrespective of the CT impacts

Hmmm...

Not sure what is meant here - but let me try and clarify what I meant. If both parties are paying 40% tax, then it makes little sense to pay someone 2k for admin rather than just pay yourself an extra 2k. You may save 2.5% on USC, but would question if it is worth it. Maybe I am missing something here

If the small benefits exemption legislation refers to office holders, yes. Otherwise, no. An unpaid director is an office holder but not an employee.

Just went digging on the revenue site

Where an employer provides an employee/director with a small benefit* (that is, a benefit with a value not exceeding €500 (€250 up to 21 October 2015), PAYE, USC and PRSI need not be applied to that benefit. This treatment does not apply to cash payments, which are taxable in full. No more than one such benefit given to an employee in a tax year will qualify for such treatment. Where a benefit exceeds €500 (€250 up to 21 October 2015) in value the full value of the benefit is to be subjected to PAYE, USC and PRSI.

* A small benefit that is treated as a distribution of a close company is not within the scope of this exemption.

All references in this guide to 'employees' include references to directors unless otherwise stated.

[broken link removed]

 

[T McGibney]

Maybe I am wrong here, but in the event there is a personal company and the spouse is going the accounts and admin - paying the spouse 20k a year to maximise the 20% threshold would not be permitted - irrespective of the CT impacts

Would not be permitted by whom? There's no Companies Act impediment to the setting of salaries by a board of directors.

Not sure what is meant here - but let me try and clarify what I meant. If both parties are paying 40% tax, then it makes little sense to pay someone 2k for admin rather than just pay yourself an extra 2k. You may save 2.5% on USC, but would question if it is worth it. Maybe I am missing something here

It may well make sense in particular situations.

Just went digging on the revenue site

Where an employer provides an employee/director with a small benefit* ...

All references in this guide to 'employees' include references to directors unless otherwise stated.

[broken link removed]

Thanks. I'd recommend double-checking against the legislation too, just to be sure.

 

[gnf_ireland]

Would not be permitted by whom? There's no Companies Act impediment to the setting of salaries by a board of directors.

Was this not one of the major 'outcomes' of the National Contractor Project? I know 2 people who were penalised for 'over' paying their spouses for work within their companies to maximise taxation at standard rate and had to back-pay taxes, interest and penalties on this?

I agree there is nothing in the Companies Act, but its more regarding the revenue treatment of such behaviour.

That said, this is not something that impacts myself personally.

 

[T McGibney]

Was this not one of the major 'outcomes' of the National Contractor Project? I know 2 people who were penalised for 'over' paying their spouses for work within their companies to maximise taxation at standard rate and had to back-pay taxes, interest and penalties on this?

I agree there is nothing in the Companies Act, but its more regarding the revenue treatment of such behaviour.

I've already addressed that above. Revenue can't stop a solvent company paying an agreed wage to any director. Lots of celebrity non-executive directors receive tasty sums for little or no work.

 

[gnf_ireland]

I'd recommend double-checking against the legislation too, just to be sure.

I completely understand what you are saying and this has come up a number of times in other threads, especially ones I was looking at on the National Contractors Project.

Should Joe/Jane Bloggs be required or expected to check detailed taxation legislation before they act on information provided to them by the Revenue or a professional (Tax Adviser or Accountant)? Surely in my case above, the fact the official Revenue Site on this exact topic states small business exemption applies to both employees and directors is sufficient. Should a non-trained person be expected to go further and go to detailed legislation to validate what the Revenue site says - I would say probably not, and chances are most people who not understand it anyway

Similarly, if a trained professional advises someone of x and they state it is legal and above board, how far should someone go to validate this? You are paying the professional for a service and they are providing one. Maybe I am wrong here, but where does the 'duty of care' reside?

Probably a discussion for another day, but I do think normal people should not be required to check legislation under normal scenarios. But that is just my opinion

 

[T McGibney]

I completely understand what you are saying and this has come up a number of times in other threads, especially ones I was looking at on the National Contractors Project.

Should Joe/Jane Bloggs be required or expected to check detailed taxation legislation before they act on information provided to them by the Revenue or a professional (Tax Adviser or Accountant)? Surely in my case above, the fact the official Revenue Site on this exact topic states small business exemption applies to both employees and directors is sufficient. Should a non-trained person be expected to go further and go to detailed legislation to validate what the Revenue site says - I would say probably not, and chances are most people who not understand it anyway

Similarly, if a trained professional advises someone of x and they state it is legal and above board, how far should someone go to validate this? You are paying the professional for a service and they are providing one. Maybe I am wrong here, but where does the 'duty of care' reside?

Probably a discussion for another day, but I do think normal people should not be required to check legislation under normal scenarios. But that is just my opinion

You asked me for my opinion. I told you that you should check the legislation to be sure, as Revenue often disclaim advice on leaflets etc. If you don't want to, or can't, that's okay too. Caveat emptor.

 

[gnf_ireland]

@T McGibney Completely agree with the above. I was only asking for an opinion. All advice given online surely has 'caveat emptor' implied as standard !

Revenue can't stop a solvent company paying an agreed wage to any director. Lots of celebrity non-executive directors receive tasty sums for little or no work.

Noted and good example provided !