As the preliminary income tax deadline for the 2018 year approaches, many business owners operating as sole traders may be facing large or increasing income tax liabilities. With a view to managing this liability, one possible solution could be to establish a company.

Reduced Tax Rate of 12.5% on Profits
The main attraction for business owners is the lower rate of corporation tax, 12.5%, compared to the 20% – 40% income tax rate applicable to sole trade profits. An important consideration is how much profit is excess to your current spend requirements to remain in the business for reinvestment or future funding.

Where a sole trader is already employing staff and running a payroll process, to operate as a company does not bring significant administration. The business owners would be remunerated through payroll under the PAYE system.

Movable Assets
If you own assets used in your business they can be transferred into a company, and the costs of transferring title or loans that are financing these assets also need to be taken into account. New finance for funding growth may not be as readily available to a newly established company with a short trading history, but this can be overcome with putting Director guarantees in place.

Companies Registration Office Reporting
Along with the additional administration and associated costs of reporting required for a company, the financial statements to the CRO company information becomes publicly available. Financial details disclosed include the level of company’s assets, liabilities and directors’ remuneration.

Directors’ Responsibilities
There is an increase in the responsibilities by which any Director of a company should be aware of and adhere to. Business Owners should read through these carefully, and a notable obligation is in relation to loans from the company, requiring at times a mind set change that the company funds are not those of the Directors/Owners to access for personal use, outside a 10% of net asset limit. Operating your business within a company will bring benefits to some, but may not the solution for all. There can be a tax planning opportunity in relation to timing when ceasing to operate as a sole trader that should also be considered if you do decide to incorporate.

To discuss your business operations and current financials contact: