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Should I do business as a self-employed person or would a limited company be better?

Self-Employed Taxation:
What expenses can be deducted from income for tax purposes?

Irish Companies, Non-Resident:
What is the attraction of an Irish company for a non-resident person?

Current Irish Rates of Taxation

Should I do business as a self-employed person or would a limited company be better?

The advantages and disadvantages of a company include the following:

Advantages of a limited liability company

The main advantage of a limited company is that the liability of its owners in the event of insolvency is limited to the share capital issued, in other words the other assets of the shareholders are safe from the creditors of the company.

Usually banks will ask for personal guarantees from the directors/owners of a small company before lending money, so that limited liability will not protect against their claim, but it will be effective against other creditors, such as the Revenue Commissioners. This protection is lost if the directors have been trading recklessly or fraudulently or if proper books of account have not been kept.

Rates of Corporation Tax at 32% (and for profits of up to IR 50,000, 25% ) are lower than the highest personal income tax rates, but when the profits are taken out as salary or dividend they are taxed at personal rates.

There can be a certain perceived substance in trading through a company which can have significance in some areas of business activity..

A company is allowed to make contributions to a pension scheme for a director to a level greater than is permitted a self-employed person. A business operated through a company can be more flexible in terms of dividing ownership.

Disadvantages of a limited company

A limited company must have its Accounts audited, which means that the Accountants must express an opinion as to whether the accounts present a true and fair view of its trading results and balance sheet. This involves them in a great deal of work not required of a non-audit case and therefore necessitates a larger fee.

A better level of bookkeeping and records is expected of a company. A limited company must file an annual return with the Companies Office to which abridged accounts must be attached. These accounts are open to public scrutiny, but they contain limited disclosures, a Balance Sheet, Audit Report and Notes to the Accounts, but no Profit and Loss Account or Salaries figure.

Self-Employed Taxation

What expenses can be claimed against income?

The general rule is that the expense should be "wholly, exclusively and necessarily" incurred in the course of the trade or profession.

For a typical self-employed computer programmer or translator working from home, the expenses allowable would include stationery, postage, maintenance and repairs of equipment, telephone (where a telephone is used for both business and personal purposes the cost is apportioned between the two), motor costs (also apportioned between business and personal use), accountancy, bank interest and charges, professional subscriptions, relevant educational courses, etc.

A self-employed person working from home can claim use of home as office which involves offsetting against income a proportion of home light, heat and insurance, on the basis of the proportion of the house or flat used for business purposes.

Entertaining business clients is not a deductible expense, but when a person is working away from base for a number of hours, the cost of a meal is deductible as subsistence or the cost of an overnight stay necessary for business purposes may be claimed. Certain records must be kept.

The cost of equipment or of a car is written off over a period of years, rather than allowed in the year of purchase.

Irish Companies, Resident and Non-Resident

A company can be registered in Ireland which is not resident in Ireland for Irish tax purposes.

A company's residence for Irish tax purposes is determined by the place where it is managed and controlled. This can be indicated by the place where the significant management meetings occur. If the company does not trade in Ireland and is managed and controlled abroad, it is not required to submit any returns to the Irish Inspector of Taxes.

The company does need to make returns to the Irish Companies Office which must include "Abridged" Accounts. For a small company these accounts include a Balance Sheet, Audit Report and some Notes on the Accounts, but not a Profit & Loss Account or a figure for Directors Remuneration.

An Irish company needs two Directors, and a Secretary, usually one of the Directors. The Directors do not have to be resident in Ireland.

Principal Irish Rates of Taxation

The following table shows the Corporation Tax Rates for 1998/9

The following table shows Personal Tax Rates for April 1998 to April 1999