Tax implications of starting a business whilst working as a permanent PAYE employee

A

alfista

Guest
Hello all, only found this forum today but what I've seen of it so far it is excellent! I hope someone here can either answer my question or point me in the right direction of who I need to be talking to.

I am working as a permanent PAYE employee but have an idea for a business; I estimate that it's going to take about a year of part time work to do the R&D required and I don't want to give up my job until I'm sure that the business idea really is worth pursuing. In the meantime I am planning to set up as a sole trader whilst continuing to work for my current employer (there is no conflict of interest between my business idea and their business); as there is a lot of R&D involved, there will be expenditure for at least a year before there is any real income: the business will be losing money. Can this loss be offset against the income tax I am paying on my permanent employment? Are there any tax traps I should be wary of? Is there a better way of arranging things bearing in mind that I don't really want to get into the complexities of running a limited company before I know that I have a viable idea.

Thanks in advance for your help
 
hi there alfista,

i did almost exactly the same thing last year as you are doing now, except i was only earning a small amount as a sole trader whilst trying to step away from being an employee. i suggest you talk to an accountant (better still, GET an accountant because you're gonna need one!). my a/c said in very concise terms NOT to set up as a ltd company unless you really, really have to. there are a lot of legalities to do with ltd co. a/cs and if you miss filing them at all, i believe the revenue come down on you hard. i can't over-estimate the importance of having a good accountant you can trust.

anyway, to answer your question, i'm not 100% sure you can write off your losses. if you were a sole trader i'd say you can. there's a good post somewhere on these boards from an accountant that advises against ltd. companies. if you set up as sole trader/partnership, all you have to do is submit bi-monthly vat3 returns and end of year income tax and that's it.

good luck and don't let anyone get in your way!!!
 
Re: Tax implications of starting a business whilst working as a permanent PAYE employ

Thanks OCD, glad to hear that it's not a stupid idea! I have a couple of friends that use accountants regularly so I will enquire.

Thanks again
 
You can not write off business expenses against PAYE tax but you can carry forward losses to offset against income in future years.
 
BrenG said:
You can not write off business expenses against PAYE tax but you can carry forward losses to offset against income in future years.
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Case I/II losses CAN be offset against other income in the year they occur
 
Agreed, and any unused losses or losses not so claimed may be carried forward to future years (to be set only against income arising from the same trade)
 
Re: Tax implications of starting a business whilst working as a permanent PAYE employ

Clarkey said:
Case I/II losses CAN be offset against other income in the year they occur
Click to expand...

Thanks, that seems to tally with what I have been told informally from "other sources" and helps make the investment costs a bit easier to swallow. If I am understanding correctly, if I make a €1000 loss in a year, that effectively reduces my taxable income (not the amount I am taxed) by €1000 for that year; as I pay 40% income tax, that means that I would get a tax refund at the end of the year of €400 ..?
 
Re: Tax implications of starting a business whilst working as a permanent PAYE employ

Domo said:
Agreed, and any unused losses or losses not so claimed may be carried forward to future years (to be set only against income arising from the same trade)
Click to expand...

Thanks for your help Domo
 
Re: Tax implications of starting a business whilst working as a permanent PAYE employ

Thanks to everyone who has replied and shared their knowledge with me; it is greatly appreciated.
 
Re: Tax implications of starting a business whilst working as a permanent PAYE employ

alfista said:
Thanks, that seems to tally with what I have been told informally from "other sources" and helps make the investment costs a bit easier to swallow. If I am understanding correctly, if I make a €1000 loss in a year, that effectively reduces my taxable income (not the amount I am taxed) by €1000 for that year; as I pay 40% income tax, that means that I would get a tax refund at the end of the year of €400 ..?
Click to expand...

Yes that is correct
 
Re: Tax implications of starting a business whilst working as a permanent PAYE employ

alfista said:
Thanks, that seems to tally with what I have been told informally from "other sources" and helps make the investment costs a bit easier to swallow. If I am understanding correctly, if I make a €1000 loss in a year, that effectively reduces my taxable income (not the amount I am taxed) by €1000 for that year; as I pay 40% income tax, that means that I would get a tax refund at the end of the year of €400 ..?
Click to expand...

Perhaps I am being stupid here, but am I correct in thinking that in the example above alfista will only get 400 euro tax back from tax paid on the income generated from the non-PAYE job? In other words, none of the income tax paid from the PAYE job can be reclaimed as a result of a "loss" incurred by the self-employed/non-PAYE job?
 
No, he gets a refund of the PAYE paid.
No tax should have been paid on his self-employment income at this point.
 
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