Working in self employment whilst drawing ARF annual distributions

S

Secondincommand

Registered User
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18

Not sure if I should have jumped in to the​

Selling Sole Trader Business to Spouse but I didn't want to hijack the OP's thread.​

Anyway , kind of a related issue . I am a part time sole trader with a moderate gross annual income of €15-€25k ,it varies up and down from year to year. (2019-€25k 2020-€35k , 2021=€30k , 2022- €25k ,2023-projected €19k)

In a previous company director self employment I built up a substantial ARF of €1.4 million. I am 61 next year so I am obliged to draw a mandatory 4% of this sum annually as per Company pension rules. If these values hold up , his would give me a 2023 ARF distribution income of €56,000 before tax , PRSI and USC leaving me with a nett income of approximately €40k ( correct me if I am wrong)

If I continue in my self employment gig from 1/1/23 am I right in saying I will pay 52% (tax, PRSI and USC) on everything I earn as a sole trader, even after already paying €16k deductions on my ARF mandatory distribution?

My wife currently helps in the business for free ( realistically , I won't exaggerate it for effect , she does about 10% of the work ( adminstration etc.).

Question is should I set up a partnership with her for her starting 1st January '23 ( or take her on as an employee) and do I have to pay her in proportion to the input she has in the business ( ideally of course I become the unpaid partner and she takes all the earnings but with the benefit of using up the increased tax credits and tax cut off thresholds.

If this is possible /an option is it acceptable to Revenue that I become an "unpaid " partner and my wife takes all future earnings , even though I do 90% of the work , or what would be an acceptable breakdown ?

Thanks in advance

Secondincommand
 
Who was it that said : “ there’s only two things certain in life and that’s death and taxes.?
You’re probably focussing in too much on the fact that you are paying the major tax and deductions on the self employment element.
Flip it on its head Look at it the other way . If your tax credits and cut off points are allocated to your self employment , the income from your part time business is virtually tax free and your ARF is your little bonus top up now In your latter years.
It has grown tax free for you for years and now you’ll have to pay a little bit of tax on it now .Thats a 1st world problem you’ve got there. Sorry if that sounds harsh but most people would love to be in your priveliged position.
 
Happy Christmas Stuffed. I do know , yes that this a comfortable position I am in , a position I don't take for granted. But I can assure you that the ARF I have built up is as a result of 35 years of hard graft up to 2018 , late nights away working from what was then a young family, years I won't get back with them.. I enjoyed my work , but it came with sacrifices nonetheless. All I want to do now is to get bang for my buck going forward and hopefully maybe help out my 4 adult kids with house deposits , wedding costs etc without having too dig deeper into the ARF at 52% taxation. Thank you for your input though.
 
No problem. I’m sure your wealth was hard earned. I didn’t intend to make little of your efforts. Happy Christmas to you too.
 
HI Secondincommand. What about forming a limited company , employ your spouse as an employee and pay her a decent wage. You then , as a director , don't take a wage out of the business , you hear this all the time especially with newly formed companies. The only drawback I can think of is the cost of setting up the company as your average turnover is quite low ( you mention that it is part time only) . Worth a think about though.
 
CRO.ie has all the info you might need. A lot of paperwork involved if you decide to liquidate down the road with respect , thinking of your age and small enough income , might not be worth the hassle. Have you done the sums , and considered early retirement. You'll have another €260 per week in 5 years time by way of the old age pension. If you retire you live a little off your investment income. From the sound of it your kids have grown up and fled the nest so you should be able to afford it , especially if you are mortgage free.
 
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