Changing from Sole Trader To Limited Company In Ireland
If you decided to transfer your business from sole trader to Limited company these are the steps you should take.
- Incorporate a Limited Company
First, you need to choose a company name and the appropriate limited company type. You may wish to re-register the same business name you were previously trading as, however the rules on limited company names are a lot stricter and your first choice may not be available.
An application to form a new company will need to be made with the Companies Registration Office (CRO). You will need at least two different members in the company: director and a secretary. The company’s details and accounts will be held on public record, as well as information about the director(s), secretary and shareholders.
The quickest and most efficient way to incorporate a limited company is through Accountant or Company Formation Agent. We are here to help you and ensure that the process is done correctly.
- Cease operating as a Sole Trader
Once your company has been set up and you have your company number, it’s time to cease operating as a Sole Trader. The following day after cessation can be the day that you re-commence trading under the limited company. It is advisable to contact the Revenue to inform them of this.
- Value your sole trade
Simply put value sole trade means value the assets, goodwill and liabilities of your business. Assets such as plant/machinery and fixtures/fittings will transfer to the company at their current values. If you transfer stock, you’ll need to have it valued.
When transferring assets, the market value of the assets transferred, less their original cost, will be subject to Capital Gains Tax (CGT) at 33%.
At this point the process of transferring your business from sole trader to limited company can get tricky and you may need an accountant to help.
- Sort out your bank accounts
After forming the company, you will need to open a bank account in the name of the company. To open the account, you will need the certificate of incorporation as well as ID and proof of address of directors.
If you have a business account for your Sole Trader business, you’ll need to close this account, transfer the assets and redirect existing standing orders to your company account. From this moment all income and payments should be made only from this account.
- Register for relevant taxes
Most companies will register for Corporation Tax, VAT and PAYE/PRSI. This can be done online through ROS or through your accountant. The process takes up to 2-5 working days for most taxes, but VAT registration can take up to a few weeks due to Revenue Commissioners checks on the new company. Register as an employer (to pay owner’s salary).
As you are no longer a sole trader, you will generally be an employee of your new company. The company should register as an employer (PAYE/PRSI) and complete payroll on behalf of the paid directors and other employees. P30 returns are required to be submitted to Revenue Commissioners. These returns can be monthly, quarterly or annually depending on levels of liabilities. The returns consist of the PAYE, PRSI and USC details for each employee.
- Prepare and file annual returns
Corporation Tax: An Annual Corporation tax return is submitted to Revenue and is due on or before 23rd day the 9th month after the accounting year end. This is generally prepared as part of the accounts for the year by your accountant and tax adviser.
Directors Income Tax: Directors who own more than 15% of the shares of the company must register for IT and submit an income tax return separate from the company’s own tax return. So, even if you intend to pay yourself through the PAYE system you should be aware of this.
Annual Return: You will be required to prepare and file annual return to the Companies Registration Office (CRO) within 28 days of the Annual Return Date (ARD), which can be up to 9 months after the accounting year end. A from B1 is also required to be filed at the same time.
We are ready to guide you through this process from start to end. Contact us for assistance and more information.