Starting a business means that you will have to be up to date on many things, profit margins, suppliers, fitting your office or your new store. One of the least exciting but extremely necessary parts of running a business is your tax returns. Unfortunately, as the old saying goes, there is nothing surer. Sifting through all of the regulation around setting up a business can be mind numbing and that’s before you even start to run your business. That is why Big Red Cloud has put together a simple guide to taxes for start ups. Read below to find out what you need to know to start being compliant.
1. Legal Entity
One of the more important decisions around taxes will actually be made well in advance of ever submitting a tax return. Your choice of legal entity for your new organisation will affect how you run your taxes going forward. In other words, whether or not you choose to register as a sole trader or as a company. Setting up your start up as a sole trader will mean that you will be taxed according to the self-assessment system. If you choose to set up your operation as a company then you will be subject to corporation tax. Corporation tax rates vary depending upon a certain set of circumstances.
- 12.5% for trading income
- 25% for non trading income
- 12.5% for small and medium sized enterprises where trading income does not exceed €253,948 (provision for marginal relief where income does not exceed €317,435).
The decision regarding what entity you should establish your start up as should not solely be based around tax issues, but you should at least be aware and give some consideration to the differences depending on what type of organisation your start up will do business as.
2. Tax Registration
Make sure that you register for all of the correct taxes that you will have to pay. This will save you time and a headache further down the road going back through records and liaising with Revenue.
Income Tax
Income tax is to be paid in all circumstances by either sole traders or companies. This can be registered for through filing the forms TR1 or TR2 respectively.
VAT
VAT is applicable to businesses when their sales exceed certain thresholds within a 12 month period. The threshold for service providers is €37,500 while for those organisations who will provide goods the threshold rises to €75,000. You should register for VAT if you believe that your sales in a 12 month period will exceed those marks. VAT can be charged at a number of different rates (0%, 13.5%, 21%) depending upon the goods and services that are sold.
PAYE/PRSI
Businesses are obliged to pay these taxes when they become employers, i.e. when they hire an employee. The decision whether or not to hire an employee should of course be made primarily on whether or not the work load within the company needs another pair of hands. However, entrepreneurs and small business owners have to be aware of the tax ramifications when making this decision. Employer’s PRSI must be paid at 10.75% of an employee’s gross wages or at 8.5% where the employee earns less than €356 per week in gross wages. Employers also act as the agent that processes PAYE deductions through payroll for their employees.
3. Deadlines
If you’re going to stay on the right side of the taxman and save yourself some worry as a business owner then you need to know your tax deadlines.
Monthly PRSI/PAYE returns are to be submitted by the 14th of the following month. Therefore returns from January 2014 would have been due by 14th February, Valentine’s Day, charming. Bi-monthly
VAT returns are due on the 19th of the month following. In this case VAT returns for January and February 2014 would be due on March 19th
Income tax returns for the previous year are due by 31st October of the following year, i.e. returns for 2013 will be due on 31st of October 2014 for paper filing. The deadline for the electronic pay and file submission is currently 16th November.
We hope that this simple guide to taxes for start ups has helped give you a clearer picture of how to become compliant as a start up. We would always advise that a registered accountant be consulted if you need financial advice for your small business or start up. If you would like to test drive an accounting software solution that makes running your business accounts quick and easy along with free access for your accountant, try a 30 day free trial of Big Red Book right here.
