When you start a business, you need to know whether you are a sole trader, a partnership or a company. This is necessary to decide what Tax Reference Number you use and what taxes you register for.

McGowan Accountancy Services can guide you through the process of setting up your own business, and are always on hand to offer friendly advice.

What is a business?

A business is either a profession or a trade which supplies goods, services or both. Your own circumstances will decide whether you operate your business as either a sole trader, a partnership or as a company. You will find a brief description of each of these terms below.

Sole trader

If you are a sole trader, all business decisions are made by you. You will not have any partners in your business, but you may have employees. You are responsible for keeping records of your business.

To set up a business as a sole trader, you must register as a self employed person with Revenue if your net income is above €5,000. You will have to pay Income Tax (IT), Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) on your net business profits.

You will also have to pay any employee Pay As You Earn (PAYE), employer PRSI, Value Added Tax (VAT) and Relevant Contracts Tax (RCT) due.

Use Revenue Online Service (ROS) to submit your annual tax return, which is called a Form 11. Any salaries that you pay to employees are paid through the PAYE system.

Partnership

A partnership is where you run your business with one or more people. The person who is responsible for keeping records of the business is called the ‘Precedent Partner’.

Each partner must pay IT, PRSI and USC on their share of business profits. You include your share of the business profits in your own personal tax return. The partnership must pay any employee PAYE, employer PRSI, VAT and RCT due.

You may also have employees. The employees’ salaries are paid through the PAYE system.

A partnership’s annual return is the Form 1 (Firms). The Precedent Partner must complete this form.

When you register the partnership, Revenue will issue a Tax Reference Number (TRN) for the partnership. This number is used to register for employer PAYE, employer PRSI, VAT and RCT. Your personal tax matters will be dealt with under your PPSN.

Company

A company is a legal form of business organisation. It is a separate legal entity from those who run it. If you are trading as a company, you are not self employed.

The company must pay Corporation Tax (CT) on its business profits. The company’s annual return is the Form CT1. This must be submitted through ROS. The company will have to pay any PAYE, VAT and RCT due. All directors’ salaries and fees are paid through the PAYE system.

Revenue will issue a separate TRN for the company. Your personal taxes will be dealt with under your PPSN.