How I set up a company in Ireland (and probably got it wrong)
The title says it all so if you have landed here looking for advice you are in the wrong place. I have no idea what I am doing but I am doing it anyway. Why am I doing this myself? Would it not be better to pay a professional to set up a company in Ireland for me? Because I’m cheap, stubborn and pig-headed and I will probably pay the price for this later.
Now that the disclaimer that I am an idiot is out of the way, I want to get my thoughts written down about:
- why I set up a company in Ireland
- how I set up a company in Ireland
- What I plan to do with it.
But first, let me say that I have been a director of a company once before.
Ah yes, a dark time a few years ago, my boss set up a “sister” company and offered me the responsibility of being one of the directors and the manager.
Not fully understanding the implications (see a pattern here?) I said yes. Before long, I realised my mistake. I hated every single minute of being in charge of a company. The experience forced me out of my comfort zone and into a world I didn’t fully understand. There were so many things to consider and I even just deciding what to do with my time lead to analysis paralysis.
No surprises here, I have terrible social anxiety. The thoughts of doing sales pitches and client meetings makes my skin crawl. I am much more used to back-end type of work in small project teams where you rarely have to interact with customers or take the lead.
I lasted a few months before the anxiety got the better of me. After an honest conversation with the boss, I resigned my position as director and went back to he comfort, safety and happiness of my old job.
Back then, I was a director of a company and I had no idea what I was doing. But the fact is, that hasn’t changed. I am no wiser. So what am I doing now? Why am I setting up a company in Ireland?
Why did I set up a company in Ireland?
That’s not me in the pic, I am older, balder and much uglier. Anyway, I’ve been listening to a lot of podcasts about personal finance and early retirement over the last two years. A number of those podcasts discuss the reasons that people want to set up their own company.
For example, a common reason is freedom. Some people are natural entrepreneurs, they enjoy the challenge and want the freedom to be their own boss. That’s not me, I am not the confident go-getter type. The reason I set up a company in Ireland is to achieve more tax efficiency with a section of my income.
My employment situation is somewhat different to the norm. I have two part-time jobs, both of these jobs are part-time permanent – one of them is in the public sector and one is in the private sector.
The private sector job represents about one-third of my annual income. However, since 2018, I reduced my spending and built up a passive income streams via rent-a-room. This income goes a long way to replacing my private sector job income, thus making that job more and more optional. The demand from my private employer is steady, even during financial crashes and global pandemics. They are always asking me to work more than my contracted hours.
Tax Credits Can Motivate You
All my tax credits are assigned to my public sector job. So every payslip I get from my private sector job is cut in half by tax. I know I can divide out my tax credits but this is actually a good thing. Why? because it clearly highlighted this for me: half of my time in this job is spent working for the tax man.
So, becoming a contractor for that job makes more sense from a tax perspective and this is reason I want to set up a company. My plan goes as follows :
- Set up a company
- Invoice for the hours/projects I do
- My company pays a lower corporation tax rate on its income than I would as PAYE worker. (this varies if the service provided is on Revenue’s professional services list)
- I choose the projects I want to work on and when I want to work on them.
- I can use the company to fund a pension and pay for some of my expenses. This also allows me to withdraw the money from the company in the form of a salary at a later date if I decide to do that.
- I can grow the business by taking on other clients.
But at what cost? If you give up your employment (your PAYE job) you are also giving up a lot of rights and benefits such as sick leave, parental leave, employer PRSI contributions, etc. It also makes getting a mortgage much harder.
In my case, I still have enough of a safety net from my other job. If I cannot make this company be a more tax efficient way to earn my wage, I still have another permanent part-time PAYE job. So that’s my “why” – I set up a company to start being more tax efficient with my contracted hours.
The Problem of Inexperience
So my first experience of being a director was awful because I didn’t like the role. But worse than that is the fact that I never learned anything about setting up that company. I just signed the documents the boss put in front of me and then fumbled onward.
This time, I want to set up a company and be a director for an entirely different reason. But I still don’t know how to do that; and I will probably make mistakes. But… feck it. I’m going to try anyway. I’ve already failed once as a director so I know I can do that again – I am an experience failure. CV material there.
How did I set up a company in Ireland?
Pig-headed enough to think you can DIY your way through anything? Ready to have people laugh at you for being so naive? Hell yeah.
But I also understand something about myself; I learn best by doing – and making mistakes. I know that I will consult a professional soon but I’m going to see how far I get on my own. Remember, this is not a guide, its a record of the steps I took (and probably the mistakes I made that will bite me in the ass soon enough.)
I read up on how to start a company in Ireland
Back at the start of January 2020 I was all “new-year-new-me-gym-zero-booze-zero-waste-get-shit-done” notions. So I came to the conclusion that I should set up a company and start paying less tax.
I started with the CRO website and read about the process. I found that blog articles on accountancy firm websites proved to be a good resource too. Generally because they are written in less formal language and from the individual’s perspective – they cover more common questions.
This company has a blog and some guides that I read through – I also signed up for one of their free webinars. In the webinar, they discussed all the basic information and then addressed a lot of questions too. (Note, I am not associated with that company, nor have I worked with them, but I have benefited from their efforts – as such I will consider them in the future if I do need help.)
I decided on a company structure
I decided to go with a Private Company Limited by Shares (LTD company). The reason for this is a limited company protects your personal assets if your company gets into serious trouble. A limited company is seen as a separate legal entity. I believe they cost more to set up and shut down but, for me, this was the best option.
A sole trader is quicker, cheaper and easier to set up but you don’t have the same legal protections. A partnership wasn’t for me either because I don’t have a business partner.
I picked a company name
The company name you pick has to be unique. So I searched through the CRO company database and made sure the name I wanted was available.
It wasn’t.
So I just changed it a bit. Does the company name matter? Not to me. I know some business people talk about getting the branding and the marketing message just right. You know what? Just get on with it! Just pick a generic name, get started, get a client – get paid. Then worry about defining your market and building a brand. In my case, I already have clients so it’s not important.
I won’t be sharing the name of the company I set up here because the registered company address is my home address (yes, you can do that – you don’t need an office) and that information is publicly available on the CRO.
I registered for CORE
CORE stands for Companies Online Registration Environment. It is the CRO’s online system which you use to set up your company and submit your documents. The registration process is simple and straight-forward. After you set up your company, you will come back to CORE again to do things like file returns (yeah, I don’t know what filing a return is yet…getting there).
I filled in the A1 Form to set up a company in Ireland
I filled in an A1 Form which is available as a writable PDF (you can type directly into it). Most of the sections seem straight forward enough but some left me baffled with questions. There were some sections that I literally copied and pasted into Google to figure out. The part of the form that I am still unsure about was the class of issued shares – I went with “cash” but have no idea if that was the right thing to do.
I convinced my brother to be secretary and paid the €50 fee
I got my brother to sign as a secretary. He took some convincing because he felt the same as me – he was afraid to do something he didn’t understand. He has probably already forgotten about it by now but just be aware; the secretary of a company has legal obligations. These include co-signing the annual return with a company director and certifying that the financial statements to the annual return are true copies of the originals.
This is the reason why most sane people will opt to set up a company in Ireland through a solicitor/accountant. Your accountant will be your secretary (for a small fee).
Anyway, I paid the fee of €50, crossed my fingers and posted the signed forms to the CRO.
Success, I think?
I got a notification back from the CRO telling me that my company had been officially formed at the start of January 2020. They also sent a digitally signed Certificate of Incorporation which includes the company number. So, I believe I set up a company in Ireland.
And then came the spam
One thing I wasn’t expecting is how many solicitors and accountants keep an eye on new company registrations. As a result, I started receiving letters from various firms I had never heard of congratulating me on my new company. Oh, and offering me their services too. Maybe I will regret recycling all of those letters someday soon.
Great! So I set up a business in Ireland. What next?
Ok, I managed to get this far. I am still not clear lots of business related things and I have no idea how to manage my accounts. Crucially though, I have not started “contracting” yet. I am still a PAYE worker for my private job. Why? Well, there is a very good reason for this which I will discuss in another article soon.
But my business is technically in operation. At this point, I have had my first customer, issued my first invoice, got paid and even bought some equipment for the business.
Here are some other related points:
Registering a company for tax
After I set up a company in Ireland I had to register it for tax. I registered the company for income tax with revenue and got a PPS number for my company. Because I was the named director, Revenue automatically registered me for income tax too.
This bit confused me at first because in my head I had decided that the company would not be paying me a salary. However, if you are a director of a company, the company can pay you. So this is why revenue automatically registered me for income tax. When the time comes at the end of this year, I will file a “zero” in that box on my tax return form because I don’t plan to take a salary from the company. This quote from revenue explains it in their terms:
A proprietary director is a director who can control, either directly or indirectly, more than 15% of the share capital of a company. All proprietary directors are ‘chargeable persons’ and must be set up on computer record for the issue of a self-assessment return.
I also did the sensible thing and registered for ROS.
Business Bank Account
I don’t have a business bank account. Yet. But I do have a “spare” personal account for the moment. From what I have read, your business is not required to have its own business bank account. But it is recommend that you keep it separate from your personal finances because this will make the accounting easier.
So, for now, I am using this spare personal current account as my business account. I am sure that violates some sort of term/condition. But I do remember setting up a business banking account with my boss when he made me director of that company. It was a pain – so much paperwork and hassle. Things might have changed since then but I doubt it.
Free cloud-based accounting software
I am using this free account software called Bullet. It seems pretty intuitive so far and it connects with my bank account so I started learning what “reconciling a bank account” means. The guy behind it actually runs a great blog and gives insights into the company foundation. It gets dramatic at certain points when directors and founders go their separate ways but its very plainly written and really worth the read if you’re trying to understand more about the world of business.
Submitting Returns
From my research, I know that I have to submit my first return to the CRO by July (within 6 months of the date of incorporation). There is no payment to be made at this point though. So I better start figuring that out. I believe the Bullet software will help me generate the reports if I can figure everything out correctly.
The first invoice and first expense
In January, I landed my first official job for a client that paid €1,300. I designed a logo and setup a basic website for a business. Once I was done with the job, I sent the invoice and got paid. So since then, my company has started paying for some expenses.
I understand that the company can pay for one third of my electricity and gas. I figured that it occupies one third of my three bedroom house. It also pays 20 per month for my phone and half my WiFi. I even got to charge mileage for a client meeting and used it as an opportunity to visit a friend in Limerick. In the last week, I have purchased equipment and materials that will allow me to do other jobs.
These legitimate business expenses are have already reduced my own personal expenses. Before, I would have paid €650 tax on that €1,300 invoice but not I can deduct the expenses before the company pays any tax. When I do hire and accountant, the company will pay for that too.
Figuring out what it does
At the time of writing this article, I am still figuring this all out. I am reading things like Revenue’s Guidelines on Determining Employment or Self-Employment Status of Individuals and talking to anyone I know with experience of this kind of thing.
In summary, so far I have:
- set up a company through the CRO
- registered my company for income tax and set up a ROS account
- started learning about basic accounting and set up Bullet
- secured three clients, issued invoices and got paid
- Charged some expenses to the company
I have not:
- pulled the trigger on quitting my private sector job and becoming a contractor (there is a very good reason for this right now and it’s not related to the 2020 apocalypse)
- learned enough about how accounts work or the legalities around operating a business. (look, people have babies before they read a parenting book, at least I read something and I can only hurt myself)
My next steps
- identify a suitable professional to go crying to when everything goes tits up and try not to laugh when I inevitably think about that scene in the Simpsons where homer gets audited by the IRS for tax – “an older boy told me to do it”
- find an answers to vague lines of questioning such as: “Does it matter what a company does? Can a company change what it does at any point in the year? Can I operate a Youtube channel as a business and depreciate the items to buy to make content for the videos while also selling gardening products and designing websites?
- Start working out what insurance I need to get if I do any work beyond basic web and print design.
- Prepare annual returns and figure out how to get an audit exemption. Apparently this is easy to get if you are a new, small company.
Any advice appreciated.
You will get one email a month with a summary of posts from that month so you can keep up-to-date with my progress and failures. Grand job!