Income Tax/Form P45
When your employment ceases, your employer will give you a form P45 showing your total pay and tax deducted for the period from the start of the tax year to the date of cessation.

Your employer will have deducted income tax from your salary and, assuming that your certificate of tax credits was correct, the correct tax should have been deducted. Any unused personal allowances/tax credits that you have will be available to reduce the tax due on your income from your business. If you do not have any taxable income in the short-term, you may be entitled to a repayment of income tax if you have unused allowances/tax credits. In order to claim this refund, you need to submit a personal tax return to the Revenue Commissioners.

Social Security
As a permanent employee, you will have paid employee's PRSI contributions and your employer will have paid employer’s PRSI contributions on your behalf. These contributions (known as Class A contributions) entitle you to the maximum range of social welfare benefits. Once you set up in business, either as a sole-trader or a proprietary director, you will be liable to pay Class S contributions. Class S contributions do not entitle you to the same range of social welfare benefits and, for this reason, you may wish to take out income protection insurance (which will provide you with an income if you are unable to work due to long term illness) and/or medical insurance.

Setting up in Business
Once you decide to start out in business you will need to consider whether to set up as a sole-trader, in partnership or to incorporate a company. This articles assumes that you will set up a limited company and the steps involved are outlined below.

Forming a Limited Company
There are several ways in which a company can be formed. The most common routes are through a company registration agent or through an accountant or lawyer. If you have time on your side, you can normally choose your own name and specify the objects of the company. The company will then be created to your own requirements within about two to three weeks. (See also the Formalities section of this website.

Every company must have two directors and one company secretary. At least one director must be resident in Ireland. If you are going into business on your own, you will be the first director and company secretary and you will need to appoint another individual as the second director. If, however, you have some business partners, you would generally all be directors of the company and you need to decide between you how the shares are to be held.

Once your company is formed, you will receive the following documents:

1. Certificate of Incorporation: The "birth certificate" of the company, setting out where and when it was incorporated, and its registered number."
2. Memorandum and Articles of Association: The constitution" of the company, setting out the objects for which the company is formed and any restrictions on the conduct of its day to day business.

Registering your Company for Taxes
To register your company for taxes, you will need to complete a Revenue form TR2. The form asks for details of your company and your business – including the company name, business address, registration number. You must also provide the Revenue with details of the all directors, including your RSI numbers.

You will need to register your company for corporation tax. If you will be drawing a salary from your company or taking on any employees, you will need to register your company as an employer for PAYE/PRSI.

Registering your company for VAT
You will need advice on your requirements to register for VAT and it is beyond the scope of this article to go into this in detail. Broadly speaking, if you are making a taxable supply, you will need to register your company for VAT if you expect the turnover to exceed €25,395 in the first 12 months.

Once you have registered your company for VAT, you must charge VAT at the appropriate rate on all invoices.

PAYE/PRSI
Even though you are in business, as a director you will be taxed as an employee, which means that your employer (ie your company) will have to deduct tax and social security from your salary and pay this over to the Revenue under the PAYE system.

The payroll taxes must be paid monthly and you can either submit the payroll returns, together with a cheque to pay the payroll taxes, to the Collector-General on a monthly basis or pay the payroll taxes monthly by direct debit. To pay by direct debit, you estimate what the company’s liability is likely to be for the tax year and pay 1/12 of this each month. Paying by direct debit means that you do not have to submit the payroll return and your cheque to the Revenue each month and you only have to file one payroll return (form P35) at the end of the tax year. However, there may well be more tax to pay at the end of the year as the amount paid by direct debit will only be an estimate until the final liability is known. Even though the amount paid by direct debit is an estimate of the total annual liability, it needs to be calculated as accurately as possible as the Collector-General will charge interest if the balance due at the end of the year is 10% or more of the final annual liability.

Revenue Filing Requirements
You will need to submit a return of profits, chargeable gains and other particulars to the Revenue not later than 9 months from the end of the accounting period to which the return relates.

Where a company’s return is not submitted before the filing date, the tax liability for that period is increased by a surcharge on the amount of the tax assessed. The rate of surcharge is as follows:

• 5% of the amount of tax subject to a maximum of £10,000, where the return is submitted before the expiry of two months after the specified date
• 10% of the amount of tax subject to a maximum of £50,000 where the return is not submitted within two months after the specified date.

Certain reliefs and allowances will also be restricted if the return is not submitted to the Revenue on time.

Basis of Assessment/Payment of Corporation Tax
Your company will be liable to pay Corporation Tax on its profits. Corporation Tax is charged by reference to the profits shown in the accounts for the accounting period. The accounting period will be the period for which the accounts are prepared and will generally be the first 12 months of trading and annually thereafter – so that if your company starts trading on 01 April 2002 the first set of accounts would be prepared to 31 March 2003. From 01 January 2001, the standard rate of corporation tax is 20%. However, a reduced rate of 12.5% applies if the trading income does not exceed €253,950.

In the event that there is a Corporation Tax liability, preliminary tax must be paid within 5 months and 28 days after the end of the accounting period.

In order to avoid any possible interest charges, a company must pay at least 90% of its ultimate liability by the due date. Where adequate preliminary tax has been paid on time, the balance of tax due, if any, must be paid within one month of the date of the assessment raised by the Revenue.

Obligations under the Companies Acts
As a director and/or secretary of a limited company, you have certain obligations under the Companies Acts in relation to the filing of documents at the Companies Registration Office (CRO). The main obligations/requirements are:

• The company’s annual return must be submitted to the CRO within 60 days of the date of the annual general meeting. If the return is not submitted on time, the CRO will charge a late filing penalty.
• Details of changes in the situation of the company’s registered office must be submitted within 14 days. The penalty for late notification is €635.
• Details of any allotments of shares must be notified to the CRO within one month. Again, the penalty for late notification is €635.
• Details of any changes in the directors or secretary of a company must be lodged with the CRO within 14 days of the change. The penalty for late notification is €1,270.
• Details of charges on company property or assets must be submitted within 21 days. The penalty for late notification is €635.

As you can see, there are a lot of statutory requirements to be met and it is always best to have everything sorted out at the outset. You will also need to put in place procedures on an ongoing basis to make sure that your taxes are paid on time and all returns are filed on time. In this way, you will be able to get on with growing your business with the peace of mind of knowing that all administration is being dealt with.

If you need any further information or assistance in relation to the above article, please contact Imelda Prendergast, Partner OSK Small Business Support on T: 01 439 4200 or E: prendergasti@osk.ie. OSK Small Business Support specialises in providing a comprehensive business service comprising of audit, taxation and general business advice to small businesses across all industries.