Sole Trader Vs Limited Company Tax Question

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socofbus

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I'm currently in the position of setting up a retail busines. However, I don't know if I should set up as a sole trader or a limited company as I understand that if I'm a sole trader, I'm personally liable for things if they go wrong, and that's fair enough.

In theory as a retail business, I think it would be more beneficial if we were a Ltd company, however, my wife wants to be a part of it as either company Director or company secretary but what I'm trying to work out as she is currently working full and we could not afford her to leave this job at the moment, in terms of tax if she did come on board as a company director or company secretary, how will this impact her if we went down this route, from a tax point of view, will she pay a higher tax etc....?

Any information would be greatly appreciate
 
Unfortunately not from what I can see, as most are explaining the difference and not specificly about tax for someone already working
 
socofbus said:
In theory as a retail business, I think it would be more beneficial if we were a Ltd company, however, my wife wants to be a part of it as either company Director or company secretary but what I'm trying to work out as she is currently working full and we could not afford her to leave this job at the moment, in terms of tax if she did come on board as a company director or company secretary, how will this impact her if we went down this route, from a tax point of view, will she pay a higher tax etc....?
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Your wife can come on board as a company director or as the company secretary without working full-time in the role, and without being paid much (or anything). So her tax situation need not be affected.

Being a company director does have responsibilities, though, and your wife shouldn't come on board unless she (and you) intend that she will be fully informed and fully involved in making decisions about the business. Even if she's not paid and is working full-time in an unrelated job, she may have to spend a good deal of her free time keeping abreast of what is going on in the business and participating in decisions that need to be made.
 
You need proper professional advice.

I heard a wise man counsel a few months back that in these startup situations it's normally better to start as a sole trader and switch later to a limited company if it all works out and the new venture survives. But there are not enough details here for any of us to know whether this is a viable idea here.
 
T McGibney said:
it's normally better to start as a sole trader and switch later to a limited company if it all works out
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I've heard this too. Firstly to avoid the costs and obligations of a limited company, and secondly it can be easier to get finance for a sole trader starting out (banks don't want limited liability stopping them getting repayment from a business with no track record).
 
From one of the search results deemed irrelevant by the original poster:
Brendan Burgess said:
In summary

Start as a self-employed person.

Change to a limited company when any of the following happens
  • You take on more than two employees
  • You become very profitable and want to stuff your pension fund
  • Your main customer insists on it
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Interested in this discussion.

If someone was considering setting up a chauffeur/tour guiding business (when retired) as an individual (not employing other people) would the limited company option not provide them significant more protection in the event of a claim taken against the (for example in the case of a road accident).

A sole trader would be much easier and less costly to establish and would be the preferred option.

Unsure what most small taxi drivers do as they would face similar issues

Insurance company does not have a preference.

Any input appreciated.
 
MG Midget said:
If someone was considering setting up a chauffeur/tour guiding business (when retired) as an individual (not employing other people) would the limited company option not provide them significant more protection in the event of a claim taken against the (for example in the case of a road accident).
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You've provided a strong clue to to the answer of your own question here.
MG Midget said:
Insurance company does not have a preference.
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It seems such a costly exercise to set up a limited company to establish what will effectively be a one man band (car/business card and 6-8 tours a year with 2/3 people in the car for each tour). Definitely a lifestyle business rather than one designed to make large profits.

Based upon knowledge/experience - would taxi drivers typically sole traders or would they all have established limited companies?
 
MG Midget said:
It seems such a costly exercise to set up a limited company to establish what will effectively be a one man band (car/business card and 6-8 tours a year with 2/3 people in the car for each tour). Definitely a lifestyle business rather than one designed to make large profits.
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T McGibney said:
I heard a wise man counsel a few months back that in these startup situations it's normally better to start as a sole trader and switch later to a limited company if it all works out and the new venture survives.
Click to expand...
 
The cost to set up an LTD is often touted as a reason not to do it, however the cost is very rarely stated and it’s actually not expensive. €50 to register on the CRO, same again for a seal and off you go. You can be director and wife the secretary and you have far more protection if things go wrong. Whether a sole trader or Ltd you probably need an accountant to file annually so that’s a wash.

The problem I have with starting as a sole trader is people will invariably end up staying as one for far too long. Remember all your assets are on the line as a sole trader the comment above of the banks liking them says it all.
 
FANTANA said:
The cost to set up an LTD is often touted as a reason not to do it, however the cost is very rarely stated and it’s actually not expensive. €50 to register on the CRO, same again for a seal and off you go.
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What about the total cost of ownership - e.g. ongoing tax filing, compliance and other issues pertaining to the operation of a limited company?
www.coffeyandco.ie

Sole Trader vs Limited Company in Ireland | Coffey & Co Accountants

Choosing the proper business structure is a critical decision for entrepreneurs in Ireland. The two most common types are a sole trader and a limited company.
www.coffeyandco.ie www.coffeyandco.ie
 
Also the hassle of winding down a company post incorporation is a pain, even if it never really traded. I would say people incorporate too fast in Ireland and then may regret at their leisure. We do have fast incorporating processes which is a good story for Ireland Inc. but thereafter there's a good bit of overhead required.
 
socofbus said:
I'm currently in the position of setting up a retail business. However, I don't know if I should set up as a sole trader or a limited company as I understand that if I'm a sole trader, I'm personally liable for things if they go wrong, and that's fair enough.

In theory as a retail business, I think it would be more beneficial if we were a Ltd company, however, my wife wants to be a part of it as either company Director or company secretary but what I'm trying to work out as she is currently working full and we could not afford her to leave this job at the moment, in terms of tax if she did come on board as a company director or company secretary, how will this impact her if we went down this route, from a tax point of view, will she pay a higher tax etc....?
Click to expand...

Brendan & others expounded on the preference of starting as a sole trader. My own views are much the same.

For the tax advantages of your wife being actively involved in this retail venture or not, I think you really have to go to an accountant near you with a wide range of small to medium business clients. Ask around among local businesspeople for accountants with this profile and don't just phone them up from their Google ads and select one because he says yes, he does do some small businesses. When you find one, explain the general plan and let the accountant do calculations based on various scenarios via-à-vis your wife's income, work-time division, pension contributions, etc.

The decision as to whether to change to a Ltd company or not - this can be made down the road. You mention tax advantages of the Ltd structure. Perhaps you might also want to consider the fact that many small retail business people remain as sole traders because they want to use the profits to buy residential or commercial property. Were they to buy properties as a Ltd company, they'd be done twice over for CGT when the time comes to sell or dissolve the business. So, your plans for profits (we hope are substantial :)) come into play too when choosing the way you incorporate your business after it has found its feet.

But the main thing is to get advice from a suitably experienced financial professional on all this rather than going from Billy to Jack among those who, although knowing what's right for their own case, may know little or nothing about the pros and cons of sole trading vs Ltd Co for your individual situation.
 
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