COVID-19 has changed the working landscape for many people. While some are re-opening their businesses and returning to work, others may be considering starting a new business or becoming self-employed for the first time.
If you are thinking of taking the leap and starting out on your own, there are supports available to you. One such support is the Back to Work Enterprise Allowance, which allows you to keep 100% of your social welfare payment for the first year, and 75% for the second year. While you would normally have to be receiving a social welfare payment for 9 months to qualify for this, those in receipt of the Pandemic Unemployment Payment may also qualify by transferring to a jobseeker’s payment. If you qualify for the Back to Work Enterprise Allowance, then you may also be able to avail of the Enterprise Support Grant. This can provide up to €2,500 of funding over a 24-month period to help with costs such as buying tools, advertising, insurance, training etc.
If you are starting out, the first thing to consider is what business structure you should choose to trade as. A limited company has a lower rate of tax than a sole trader, but it also has more compliance work and its accountancy costs tend to be higher. As a limited company is a separate entity, once it’s set up it exists in its own right. If you choose to stop trading at any point, there is a process that needs to be followed in order to close it. In comparison a sole trader can register and de-register very quickly should the business not be viable. Another option is a partnership, which is basically two sole traders working together. If you are starting as a sole trader and have a spouse that will also work in the business, it may be more beneficial to operate as a partnership so that the taxable profits are split between two people rather than one.
A common question we hear is should I be registered for vat. Vat registration is only required if your turnover exceeds set thresholds, but you can opt to register before this. Generally if most of your customers are vat registered and your costs or purchases include vat, then there is no real disadvantage to being registered. However if you sell mainly to the public, registering for vat is something you should avoid for as long as you can as it will only serve to increase the prices that you charge. If the goods or services that you supply are zero rated, then being registered would allow you to reclaim the vat that you pay on your purchases whilst charging no vat to your customers. In this situation it would be beneficial to be registered. If you do decide to register then it’s important to do this before making any significant expenditure, as in most circumstances you can’t reclaim vat on items purchased before your registration date.
If you are considering taking on employees, then you should be operating a payroll system so that you can calculate and deduct tax from their pay. Revenue will require you to file a return every time you run the payroll, and this will let them know how much tax is owed. A common pitfall for employers is agreeing the net take home pay that the employee will receive. When employees are paid net wages, the employer is not taking in to account the tax credits and cut off points that the employee is entitled to, often assuming that they are entitled to the standard rates. However, if for some reason an employee is not entitled to full credits, or they have transferred them to their spouse, their employer will have effectively overpaid them. Unfortunately, in this situation the employer will end up bearing the cost of the extra taxes.
With lots of things to consider, starting a new business may seem daunting at first. However approaching things in a logical and step-by-step way will get you up on the right path from the very start.