DEALING WITH TAXATION

In our tenth series on starting your own business our attention turns to taxation and advice on all you need to know about tax for your new start-up.

TAXATION - STARTING TO TRADE

All you need to know about starting your new company and taxation, explains Linda Pearson

The due date for return of P35’s is this month, when each registered employer in Ireland is obliged by law to account for the PAYE/PRSI deducted from his or her employees. All computer payroll users must now return the P35 via Revenue Online Service or submit a completed P35 Declaration together with the employee details on computer disk. If you have decided to bite the bullet and start up your own business, you will need to know about a P35 and many other aspects of taxation. It may seem complicated but it need not be if you take it step by step.

REGISTERING FOR TAX

The first thing you need to do when you start up your own business is register for tax. It is your obligation to notify the Revenue Commissioners through your local tax office of the establishment of your business and to provide them with the information required to register your business for the relevant taxes. When registering for tax you must complete one of three forms, Form STR, Form TR2 or Form TR1, depending on your circumstances. Each of these forms gets you registered for all applicable taxes. These forms are available from any Revenue office, and can be used to register for income Tax, employer’s PAYE/PRSI, and Value Added Tax.

Shortly after registration you may receive a visit or you may request a visit from a Revenue official to assist you in operating the tax system. Any difficulties or queries will be dealt with and general assistance will be given to help you comply with your tax obligations.

You must also register with the Companies Registration Office. Business name registration involves an individual partnership or company disclosing that they are carrying on business under a name which does not consist of the individuals name or the names of all partners or the corporate name.

DETAILS TO BE PROVIDED

The company secretary of a new company has to supply certain information to the Revenue Commissioners. Failure to comply can lead to the company being struck off and penalties can be imposed both on the company and the company secretary.

In general, this information must be submitted within 30 days of the company commencing to trade. In addition, the Revenue Commissioners must be informed of any major change in the information previously provided within 30 days of such a change The information that must be provided includes the name of the company, address of both the company’s registered office and its trading address, and the name and address of the company secretary. The date of commencement of the company’s trade, profession or business must also be given along with the nature of the business. The date to which accounts will be made up also needs to be disclosed. In practice, the above information is provided by the company in a Form TR2 when registering for tax purposes.

HOW IS A COMPANY TAXED?

Kieran Kennelly tax director of Parfrey Murphy, chartered accountants specialising in providing tax, accounting and business advice to new and owner-managed businesses, explains what taxes new start-ups are liaible for. “If an individual commences business as a sole trader he or she will be liable to income tax on profits arising from the business. Income tax is imposed on the tax adjusted profit from the business which is turnover less tax deductible expenses and allowances.”

“Income tax is levied in respect of each tax year, which corresponds to the calendar year. The amount of profit liable to income tax at the lower rate of 20% and the higher rate of 41% normally changes from year to year and depends on various factors like whether or not the sole trader is married,” says Kennelly.

Companies also pay Corporation Tax. This tax is charged on the company’s profits which include both income and chargeable gains. A company’s income for tax purposes is calculated in accordance with income tax rules. Chargeable gains are calculated in accordance with capital gains tax rules. Kennelly explains further the details of corporation tax. “A new company with a corporation tax liability of €150,000 or less in the first accounting period is not required to pay preliminary corporation tax by that date. Instead it can settle the corporation tax liability when submitting the corporation tax return nine months following the accounting year end.”

VAT and PAYE / PRSI

You must register for VAT if you are a taxable person and your annual turnover exceeds or is likely to exceed the annual limits of €55,000 in respect of the supply of goods or exceeds €27,500 in respect of the supply of services. You may also be obliged to register for VAT if you receive taxable services from abroad or if you are a foreign trader doing business in the State.

Currently a sole trader or a company is obliged to make bimonthly VAT Returns and either bi monthly or quarterly PAYE / PRSI returns accompanied by payment of the relevant tax liability. However it is possible to simply pay the VAT and PAYE / PRSI liabilities by monthly direct debit and do one return under each tax head at the year end. This is often preferred by small businesses as it reduces the administrative burden.

Kennelly explains that, "VAT obligations of small businesses will become easier from 1 July 2007. Businesses with an annual VAT liability of €3,000 or less will have the option of filing on a half yearly basis as opposed to the current bi-monthly basis and businesses with an annual VAT liability of between €3,001 and €14,400 will have the option of filing returns every four months.”

KEEPING BOOKS AND RECORDS

You must keep full and accurate records of your business from the start. You need to do this whether you send in a simple summary of your profit/loss, prepare the accounts yourself, or have an accountant do it. It is important to remember that the figures which are contained in your accounts or your tax returns must be correct. The records you keep must be sufficient to enable you to make a proper return of income for tax purposes.

You should also bear in mind that you may need to keep accounts for reasons unconnected with tax. For example, your bank may want to see your accounts when considering an application for a business loan. You must keep your records for a period of six years unless your Inspector of Taxes advises you otherwise.

KEEP THINGS SIMPLE

The Revenue Online Service (ROS) is the Irish Revenue’s interactive facility which also keeps things simple by allowing businesses and individuals a quick, secure and cost effective method to manage their tax affairs online. ROS enables you to view your own, or your client’s, current position with Revenue for various taxes and levies, file tax returns and forms, and make payments for these taxes online in a variety of methods. ROS customers receive instant acknowledgment of returns and have on-line access to tax information 24 hours a day. Payments, such as the P35 due this month, can also be made electronically via ROS.