FORMING A NEW COMPANY
For many people setting up a new business can evolve over time. You may be a sole trader (having a registered business name) but have not formed a company. Or you may have a new business idea and decide to set up a company immediately.
A limited company is the most common form of company in Ireland. It is a separate legal entity to the owner(s) of the business. The company structure offers limited liability which is a huge positive feature for many deciding on whether to operate as a sole trader or form a company.
If unsure what is best for you, talk it over with an advisor. Be clear on the advantages and disadvantages of both.
The points below are for anyone who has decided to go the Company route. Some guidance notes*.
Feel free to share this with others that may be considering setting up a new company in the coming months.
What to do and where to start…
1 Register your Company with the Companies Registration Office (CRO).
You must have a unique name for your company. Various business owners can register the same business name however, not the same company name. You can check with an agent or accountant if you think a company name will be available on CRO or have a few alternative names suggested on the company formation application. To set up a new company costs on average a few hundred euro (plus VAT 23%).
2 Set up a separate bank account
Next step is to set up a new bank account in the name of the company as soon as you have the formation documents (from your agent). The banks will request to see these, as well as your personal identification. Keep your business and personal money separate. Be clear on what is a business expense and what is personal (further discussed below).
3 Register with Revenue
When your company begins to trade, you must register for taxes with Revenue. The Revenue’s website has recently been updated and is very helpful. Reading the following link is a good, short guide to get you on your way. https://www.revenue.ie/en/starting-a-business/starting-a-business/index.aspx
4 What you must have on a sales VAT invoice
If your business is registered for VAT there is certain information your invoices must show. Again the link from revenue is a great one
Check over this list to ensure your sales invoices comply.
5 VAT – Why you might and when you must, register
Whether you decide to register for VAT will depend on the type of business you are starting. You could wait until you reach the threshold revenue have set before you register. Then you must charge VAT and can then claim back VAT on expenses incurred for business purposes. In certain circumstances it might be beneficial to register for VAT from day one, to allow you to claim back the VAT on your business expenses. Discuss which option is best for you with your advisor early, as you can only reclaim VAT from the date you register with Revenue.
6 Business versus personal expenses
Once you begin trading, you will incur costs for the business. These are the expenses that should go through the business bank account. On occasion, it may be that an expense was business and yet had a personal aspect to it. If unsure how to treat these items, always ask your accountant. The business expenses and VAT reclaims should be made up of everything that is 100% for business purposes.
7 Keeping your invoices and receipts
When engaging an accountant to help do your year-end financial accounts and tax returns, you may be aware most will charge by the hour. In order to reduce the costs at year end, keep a tidy record of your receipts in a folder or, if you keep more detailed records on excel or a basic accounting package, this should help minimise your compliance costs at the year end. Hopefully then allowing the time spent with your accountant to be more of an advisory role, discussing financial goals and targets to help you achieve your personal financial freedom goals. This will be much more valuable time spent.
8 Paying your Taxes
PAYE returns (for payroll taxes) are generally done on a monthly basis. The PAYE for a month will be due on the 23rd of the following month (if returned and paid through the revenue online system ‘ROS’). In certain circumstances, companies have to file quarterly returns (only 4 a year). The advantage of paying monthly, is good cash control. As revenue is paid the following month, if watching cashflow, you are more aware of what is in the bank as working capital (funds for the business) and not holding months of money due to revenue.
VAT returns are generally every two months. Again due the 23rd of the following month (if done on ROS).
Corporation tax filing (the tax on your year-end profit) is due within 8 months and 23 days of your year end (example 31 December year end – due by 23 September the following year). With corporation tax, you have to file preliminary tax a month before your year end. Therefore a December year end company may have a tax bill on 23 of September of a year and then on the 23 of November (2 months later), may have further tax to pay. Ensure you know your deadlines for cashflow purposes or ask your accountant to let you know well in advance of deadlines of any taxes that may be due (especially if you face cashflow issues).
There may be other taxes specific to your type of business. I haven’t dealt with a complete list above.
9 Filing a personal tax return
As a director of a limited company (if you own more than 20% of the share capital), you now have an obligation to file a personal tax return each year with revenue. If your only income is from the company and you’ve paid PAYE throughout the year, there may not be any tax due. Regardless of whether there is tax due or not, you must file a tax return within the timelines specified by revenue.
10 Managing invoicing, cashflow and the financial side
Many business owners are so busy doing the work, they don’t priorities doing the admin or looking after the bookkeeping / accounting side of the new business.
Getting invoices out to customers in a timely manner is key to getting paid also in a timely manner. If it’s possible, put in place terms with your customers (the basis on which you expect to be paid), especially if your work takes place over a period of time. Look to invoice all work done in the month by the month end.
TALK – Don’t put off talking about terms. Having signed terms with clients if things go wrong (should someone refuse to pay you) is the key to getting paid.
I’m sure there’s plenty more that could have been listed above. This is only meant as a guidance note (not a complete definitive guide). Be sure to run everything by your accountant if you are unsure if your taxes are being done correctly or not.
If you would like to discuss anything above please feel free to contact me email@example.com
*This article is not written in a legal format. For full information on your own business or structure of your company and any tax advice, please seek professional advice specific to your own needs. The article above is only a guide note. The writer has no legal responsibility to any reader for specific actions taken on the advice of the above. The tax information above is for guidance purposes only. Always take tax advice in relation to your specific situation.