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DIRECTOR’S (LACK OF) COMMENTARY

As a director of a business of any size, whether a co-director or a single director you will likely play a vital role in the day to day running of the company. The role of a director is a crucial one which cannot be overlooked as they will be responsible for outlining the overall goals and strategies of the company as well as for overseeing the business and putting into place procedures to ensure the continuing success of the company. The director is also the individual who will be faced with the toughest decisions should the company begin to show signs of failure. Even so-called “passive” co-directors who may be director only in name and not in actions need to be aware of the weight carried by the title as they can be brought to the fore should issues arise, as evidenced in last year’s case featuring model and presenter Glenda Gilson in which she was ‘deceived’ by her co-director brother about the poor handling of company matters.

 

More recently A&L Goodbody have written about a case “Murphy V O’Flynn wherein a liquidator sought a court order restricting directors William and Deirdre O’Flynn from acting as directors of their company following a repeated failure to file the appropriate accounts. This was deemed a severe failure and a breach of obligation by the company directors. Whilst Mr. O’Flynn made no objection to the order against him, Mrs O’Flynn claimed that she had been deceived by her husband in regards to the company affairs offering forgeries of her signature as evidence. As the judge in this case was satisfied with her testimony, she was not restricted by the high court.

 

The importance of cases like these cannot be overstated as it highlights an Act which all prospective directors should be aware of. Section 819 of the Companies Act replaced section 150 of the same Act. This stipulates that a director must establish that he/she has acted honestly and responsibly in relation to company affairs before or after insolvency, as well as having co-operated with winding up and liquidation proceedings as much as possible.

 

These cases showcase the importance not only of directors, but of active directors. As a partial or full director of any company it is your responsibility to ensure that you keep abreast of company dealings as even ‘passive’ directors have a responsibility to their company and clients/creditors.

 

Should you have any queries or require any advice or guidance on your own company and financial matters please don’t hesitate to contact us here at DCA Accountants where we will be happy to help.

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DCA PARTNERSDECLAN DOLAN & EAMONN GARVEY

DCA Q&A – SHOULD I MOVE FROM SOLE TRADER TO COMPANY?

Q:I’ve been in business as a sole trader for five years now. As things have picked up in the past six months, a few people have advised me to look at establishing a limited company. The problem is, I don’t know what advantages or disadvantages there are to this set-up, or how to go about the process. Can you help me out?

 

A: The first and most obvious advantage is hinted at in the name. As a sole trader, you’re personally liable for any debts accrued by the business. However, if you are the owner of a limited company, your personal liability is limited to a set amount – so, even if things go wrong and you have to shut down the business, you won’t be hounded to pay debts that are beyond your means. Moreover, once your business’s earnings pass a certain threshold, it’s tax-efficient to keep the funds within your company, and possibly re-invest them. Indeed, there are a few schemes that actively incentivise research and development of new products or services. This is why the limited company form is favoured by businesses who have to buy large quantities of stock on credit, or research-intensive businesses.

 

The downside to setting up as a limited company is that you need to file more paperwork on a regular basis with the Companies Registration Office (CRO). If you’re used to simply sending in your tax returns and availing of user-friendly VAT payment services, then having to file annual accounts as well as forms when you change directors, premises or business names will come as a shock. The burden of red tape increases when you establish yourself as a limited company. While the costs of setting up with the CRO and filing paperwork aren’t prohibitive, they are higher. As a general rule, we advise traders to seriously consider the limited company form once they’re paying themselves a salary that they’re comfortable with. It then makes life easier from the point of view of hiring staff, securing credit, and tapping investment if you need to.

 

The CRO process is relatively straightforward – you submit the Form A1, along with your memorandum and articles of association. While some highly experienced entrepreneurs will know what form of limited company they want, and be able to draft articles of association in your sleep, those without an in-depth knowledge should really invest in professional advice at this stage. Aside from making sure that everything is legally watertight, you can also get a more tax-efficient structure in place for your business as you grow. If you like, just contact us to set up an initial, no-obligation meeting where we can run through your options in more detail.

 

Declan Dolan

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

DCA Q&A: CAN I AVAIL OF STATE SUPPORT?

Q: I’ve been slogging away for some time now as a sole trader. Since January, a couple of major clients have gone out of business and I’m left with just a few hundred Euro at the end of each month. Because I’ve been self-employed for most of my working life, I won’t be able to just pack it in and claim Jobseeker’s Benefit. However, are there other supports that could help me in this situation?

 

A: You may well be entitled to Jobseeker’s Allowance , but the process of claiming is a bit more complicated because of your status. This payment is given based on your means rather than your PRSI contributions.

 

Jobseeker’s Allowance pays €188 a week, plus €124.80 for each adult dependant and €29.80 for each child. However, any money you make from self-employment is subtracted from this. So, if you’re married with a child, you might be entitled to  €332.60 per week. If you or your spouse is making €100 a week from self-employment, however, this would fall to €232.60 per week. Aside from your self-employed income, investments or property that you own (besides your own residence) will be considered as means.

 

As you can imagine, much depends on how the social welfare office assesses your means. When you apply, you will have to meet with a social welfare inspector to find out about your business. The inspector will be looking to assess the income you may reasonably be expected to get from your business over the next 12 months. Usually, the income from your past 12 months in business will be taken as a guide. However, if you can demonstrate that circumstances have changed – if, for example, your former clients have made concrete moves to shut up shop – this will be taken into account. You will be asked for your receipts and payments or audited accounts for the current and previous year – so, if you’re applying in July, you’ll have to supply details to cover the year to date and 2013. In some cases, you may have to show your audited accounts going back even further.

 

Because estimating your means is so complex, it may take some time to process your claim. However, you can also apply for Supplementary Welfare Allowance to cover any immediate needs you have. To get started, you can download the formhere and make an application. If it turns out that you qualify for Jobseeker’s Allowance, you can also apply for supplementary supports such as Rent Supplement, a Medical Card, and Back to School Clothing and Footwear Allowance.

 

At this point, you may well be evaluating the future of your business – is this something that you can revive? Do you have the energy and motivation to do so? There is no shame in shutting down your business if it isn’t working, or taking it in another direction. When you (hopefully) get the immediate financial crush addressed through Jobseeker’s Allowance, you should devote some time to considering the next step in your career.

 

Declan Dolan

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

DCA Q&A: HOW DO I REPORT MY CONCERN?

Q: I have been working at my employer for a few years, and recently got promoted to a position where I see the company accounts on a month-to month basis. What I’ve seen has me very concerned.

I’m not an expert, but it appears that there is income coming in to the company that is not reported – in the most recently-filed accounts, I’ve identified several discrepancies. Now, I’m worried that my employer is engaging in tax evasion, and quite stumped as to what I do next.

Do I have a legal obligation to report this matter? Could I face prosecution if, having failed to report the issue, it subsequently comes to light? What should my next move be?

 

A: You’re right to be anxious, and to seek advice – the wrong move at this point could be damaging for you. To answer your first question, the legal obligations on reporting evasion fall largely on accountants and tax advisers. If you’re not in this role at your employer, then the situation is a little less clear, and any prosecution for sitting on your hands is less likely.

 

However, if you are a Director in the business, you could face restriction from acting as a Director in another firm if this comes to light and the company collapses – quite apart from the impact on your career and reputation. That’s even before you consider the moral imperative not to let tax evasion stand unchallenged.

 

There is one caveat, however: as you say, you’re not an expert, and this could be a simple misunderstanding on your part. Is there a person in the organisation who you trust, who also has access to the accounts and a level of expertise to understand them? If you can, ask them if everything is kosher. This may call for some subtlety, and there is a risk of your employer lashing out against you – for that reason, be careful not to share information with anyone who shouldn’t officially have access to it, as that could form a pretext for disciplinary action or dismissal. If your employer does look to get rid of you, having evidence that you dealt with the perceived problem internally and through proper channels will be important.

 

If you are not getting satisfactory answers – or if your employer goes on the defensive, then you can of course report the matter to Revenue. You can find contact details here for the Investigations and Prosecutions Division to pass on your concerns.

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

AVOIDING THE AUDIT

No company wants to be selected for a Revenue Audit, but how can you keep your firm chugging along without the taxman’s intrusion?

 

Even firms that do everything meticulously by the book find Revenue audits a pain: aside from the risk of uncovering liabilities (with added interest), audits take up a huge chunk of valuable management time. Fortunately, the Revenue Commissioners don’t look to put compliant firms through the wringer. In fact, they adopt certain procedures designed to target companies with a heightened risk of intentional or unintentional non-compliance. If your business can avoid raising Revenue’s red flags, you can minimise your risk of an audit and all the hassle that goes with it.

 

Be Timely

One of the easiest ways to show up on Revenue’s radar is a late filing, or a late payment. Delays in paying and filing present two possible scenarios – a business that is struggling, or a business that isn’t as organised as it should be. Either instance increases the risk, in Revenue’s eyes, that a company is deliberately or accidentally making inaccurate returns. For that reason, it’s important to make sure that any required documents are submitted in a timely manner, and that you pay liabilities when they are due. If, for whatever reason, you are unable to do so, you should make contact with Revenue to explain the situation rather than having them chase you – if you can’t be on time, be pro-active at least.

 

File Correct Paperwork

Similarly, a company making mistakes in its paperwork raises certain red flags: a businessperson who submits the wrong form is more likely, in Revenue’s eyes, to misreport their income or fail to keep correct records. So, when you are making any filing to Revenue or the CRO, check the paperwork exhaustively. And, when you’re sick of the sight of a document, check it again.

 

Keep Overheads Proportionate

Revenue know all the tricks there are to reduce liabilities: claiming 100% business use for a vehicle, inflated home-office costs, and claiming personal leisure as a business expense. Unfortunately, because some people abuse the system to write off their personal expenses and reduce their tax bill, it puts the onus on honest businesspeople to prove that their listed business expenses are legitimate.

If your overheads are significantly larger than the average for your industry, you are running a heightened risk of an audit. Unfortunately, Revenue don’t have a way of discriminating between honest businessperson working with high costs and someone abusing the system without taking a look at the books. If you can’t do anything to control your overhead costs, make an extra effort to ensure that every expense is documented properly.

 

Even if you follow all these steps, your business can still be selected for an audit. However, having all your paperwork in order and keeping records will make the process far simpler, and also make officials look on any honest errors that the process uncovers more sympathetically. At DCA, we advise many companies seeking to prepare for a Revenue audit or, better yet, to avoid one by having all their paperwork in order. To see how we can help, just contact us for an initial, no-obligation meeting.

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.