When an individual commences a business he / she might consider doing so initially as a sole trader. This may be a preferable option to forming a limited company in many cases. For example the sole trader has less significant set up and ongoing administration costs and closing the business down is more straightforward. Moreover, any tax losses incurred by the sole trader can be utilised against his / her other income (including salary income) at the end of the income tax year or that of the spouse.
A sole trader always has the option to incorporate his / her business and take advantage of the benefits of trading through a company (e.g. the corporation tax rate of 12.5% or limited liability) at a later date. This transfer can be achieved without crystallising a capital gains tax liability under Section 600 Taxes Consolidation Act 1997.
The sole trader must initially register for income tax with the Revenue Commissioners. He should also register for VAT if he expects his turnover to reach certain prescribed threshold limits.
He will register for PAYE / PRSI if he plans to take on any employees. Certain tax benefits may arise from employing his spouse and paying a market value wage commensurate to the actual duties performed.
The sole trader is obliged to submit an income tax return for a particular income tax year by 31 October of the subsequent year. This deadline is extended to the middle of November if the taxpayer files via ROS and pays by ROS direct debit. Failure to submit an income tax return on time will lead to a surcharge of 5% or 10% of the tax payable depending on how late the return is. A penalty and interest for late payment of income tax may also be applicable.
The sole trader is normally expected to discharge the previous year’s income tax liability by this date (31 October) and pay a sufficient instalment of preliminary income tax as a payment on account against the current year’s liability.
It is highly advisable that the sole trader prepares his / her accounts and income tax computation shortly after the year end. This ensures he / she knows what his / her income tax liability will be well in advance of the deadline date of 31 October allowing sufficient time to finance the payment of the income tax and preliminary income tax liabilities. It also means that there is time to take steps to minimise the liability e.g. making a lump sum tax efficient pension contribution.
Clarus Taxation provides the following taxation compliance and accounting services, as standard, for sole traders:
- Preparation and filing VAT returns and payment advice.
- Preparation and filing of PAYE returns in conjunction with a director and employee payroll.
- Preparation of bank reconciliations.
- Preparation of end of year trading accounts.
- Preparation and filing of income tax return (Form 11).
- Advice on payment of the balance of income tax owed and the correct preliminary income tax payment to be made on account.
If you contact us for a fee quotation we can offer all or some of the tax and accounting services above that you need during the tax year as one package with one price.