In the first blog in our mini-series on starting a business in Ireland, we covered the different legal structures you can choose from and their implications.
As well as defining the legal status of your business and the level of personal liability you will have for its financial affairs, the legal structure you choose also has significant implications for taxation.
Every business has to pay tax one way or another. But the type and amount of tax you pay depends in part on the type of business you are.
Here’s what you need to know about taxes for your business start-up.
Registering with Revenue
Every new business in Ireland must register with Revenue. At this stage, you confirm the legal status of your business for tax purposes. This will impact the taxes you pay as follows:
- Sole trader: Sole traders are classed as self-employed. Net profits from your business are treated the same as income from employment, meaning you pay Income Tax, PRSI and USC. You have to file a self-assessment tax return every year and use your Personal Public Service Number (PPSN) as your Tax Reference Number (TRN).
- Partnership: All partners have to pay Income Tax, PRSI and USC on their share of profits, and this is administered via self-assessment the same as it is for sole traders. Upon registering a partnership with Revenue, the business will also receive a unique TRN which is used for VAT and employment tax purposes (see below.)
- Private Limited Company: The primary mode of taxation for companies is Corporation Tax, which is paid on qualifying company profits. As an owner-director of a private company, you can choose to take remuneration as an employee, in which case the business must also pay employment taxes (see below). Or you can choose to take dividends on shares, in which case the company also falls under the Dividend Withholding Tax regime.
VAT
Value Added Tax or VAT is paid on the purchase of all qualifying goods and services in Ireland and the EU. VAT is a consumer tax, which means it is ultimately paid by the final consumer of a product or service as part of the purchase price. But businesses throughout the supply chain are required to ‘collect’ VAT via sales and then pay it to Revenue. Businesses also claim back VAT they have paid on goods and services. All of this is done via VAT return.
Businesses are only required to register for VAT once their turnover passes a certain limit. You can elect to register for VAT even if your turnover is below the relevant thresholds. The main thresholds for VAT registration are:
- €80,000 for the provision of goods
- €40,000 for the provision of services
- €10,000 if you run a mailorder business selling goods across the EU.
VAT returns and payments must be completed every two months, although businesses with low liabilities may be allowed to file every quarter or six months.
Of all business taxes, VAT can be the trickiest to keep on top of, especially for business start-ups. You’re strongly advised to get professional advice on getting started, and either submitting tax returns via an accountant or using accounting software to automate much of the process.
Find our more about Xeinadin’s VAT services.
Payroll Tax
If your business employs any staff (including if, as the director of a limited company, you choose to take remuneration via a salary), you are responsible for calculating and deducting Income Tax, PRSI, USC and, where applicable, Local Property Tax (LPT) from wages, and then paying these to Revenue every month.
You must also pay the employer’s portion of PRSI. Social insurance payments are due for all employees aged 16 or over.
Read more about Xeinadin’s payroll services.
Speak to an expert
Our dedicated business start-up advisory service team are here to provide advice and guide you on your business journey. Complete the form below and they’ll arrange a meeting with you.