Startup Questions Answered by Donncha

Relevant Contract Tax - RCT is a withholding tax system in Ireland that applies to certain payments by principal contractors to subcontractors in the construction, forestry and meat-processing industries. It is designed to ensure tax complaince in these sectors. The principal contractor deducts RCT from payments to subcontractors at rates of 0%, 20%, or 35%, as advised by the Irish Revenue Commissioners. All RCT compliance, filing and payments, is conducted online using the Revenue Online Service (ROS).

RCT doesn’t apply to me but there is some great information online:

• If you are the principal contractor, the person or company helping you is the sub-contractor, even if this is only for a few days. You need to get their Tax Reference Number. You notify Revenue of the Contract and they will give you a Site identifier Number (SIN) which you just pass onto the sub-contractor(s). The Revenue will also confirm what rate to apply for RCT either 0%, 20% or 35%.
• Your accountant should be able to manage all this for you along with payroll. It is all done via ROS.
• If you are taken on as a subcontractor, the other party will deduct RCT on your behalf. They will have to notify you of the details of the contract that they submitted to revenue so that the deduction is recorded as your tax paid. Some construction sub contractors view RCT as beneficial as it ensures payment of tax to Revenue for that contract. This is correct. But for me, I would like to know what tax I need to pay and then put that amount in a savings account to earn interest rather than handing it over immediately to Revenue. If you are tax compliant, Revenue may decide to tell the principal contractor to charge 0% for you which I would see as a positive.

https://www.revenue.ie/en/self-assessment-and-self-employment/rct/rct-subcontractors.aspx

And here is another interesting article: https://tra-professional.ie/relevant-contracts-tax-explained/

Yes. The VAT registration thresholds in Ireland are:

• €85,000 for businesses supplying goods
• €42,500 for businesses supplying services only

These new thresholds will come into effect from January 1, 2025, as announced in the 2025 Budget

In late 2024, I reviewed the information available from Revenue relating to VAT in Construction. There is a very informative 11 page pdf entitled 'VAT Treatment of Construction Services' dated March 2024.

I found 4 items of note:

• The vast majority of services in Construction are charged at a reduced rate of 13.5%. This is where RCT applies.
• Construction materials are charged at 23%. The ‘two thirds rule’ applies: If the cost of the goods used in carrying out the work does not exceed two-thirds of the total price, the rate which applies to the service then applies to the entire transaction. So if the labour involved was €100 then as long as the materials are under €66 excluding VAT then the lower rate of 13.5% applies. If the customer is a business they will reclaim the VAT anyways. But they may prefer you to buy the materials, as opposed to buying it themselves, so that they would not be charged as much in VAT and it won’t affect their cash flow as much.
• Supplies of construction services, by a Sub-Contractor to a Principal Contractor, where the operation of RCT is required are dealt with on a reverse charge basis. So if your company is a subcontractor you will issue an issue an invoice with Zero VAT. I generally add a note or line that Reverse Charge VAT applies.
• VAT on construction services that are not subject to RCT are taxed under normal VAT rules. For example, a builder who builds an extension for a private individual charges and accounts for VAT on the supply under the normal rules. So if a private householder engages you directly to add a Roof, you will charge them VAT at 23%. This will be passed on to Revenue at the next return.

  If you are engaged by a main contractor, you will not charge VAT to them, as you are deemed a Subcontractor. They will use the Reverse Charge mechanism to account for the VAT in their return.

  And if you are the principal contractor, and you engage a subcontractor they will not charge you VAT on the invoice  and your accountant will use the Reverse Charge mechanism to account for the VAT in your return adding 13.5% of the value of the subcontract invoice.

This is a follow up to Q.9 How to Pay Yourself as a Sole Trader?

As a sole trader, you must pay income tax every year, one year in arrears. The 12 months runs from January to December with payment the following November. Completing a tax return via ROS is relatively straighforward.

1. You have to input the total amount of revenue earned - this is payments by cash or paid into your bank account over the period.

And

2. You also have to specify expenditure by the business during that period. Revenue has a good webpage on Claiming Deductions for Expenses. Personally I record my expenses in Excel. In 2024 I only had 100 receipts to include in my accounts. I collate them into the following headings:

• Diesel (Circle K card is great with 4c reduction per litre)
• Car Maintenance
• Travel including Hotels, Tolls & Parking + Subsistence*
• Mobile Phone
• Zoom + other software subscriptions
• Office Costs (Paper and other supplies)
• Business Insurance
• Finance (bank charges)
• Sub contract staff (if any)

As I work from home, I allocate a set amount each year for Broadband, Home Insurance, Heating, Electricity and Waste Management being a proportion of the total cost.

If your business has a lot more expenses it is recommended to use online accounting software.

Other businesses will have other expenses such as Rent & Rates and also Accountancy and Marketing - as I explained in this article I don't spend much money on marketing as a freelancer.

Any purchases made by the business solely for use in the business will also be included. This includes purchase of goods for resale or ingredients or parts used as part of the product or service supplied. But if that is a feature of your business - large bills with suppliers - a company structure may be more likely.

Interesting points:

1- * Subsistence
If you're traveling for work and need to buy meals or drinks, these can be claimed as a business expense. You can claim subsistence if the costs are wholly and exclusively for business purposes. The expense typically applies when travelling away from your normal place of business or home for work. Remember to keep all receipts!

This must not include costs for personal or family purposes.

Subsistence must not be excessive. Business entertainment costs are not allowed.

2- Charity & Sports.

There is a misperception amongst local sports clubs that all small businesses to include Sole Traders can write off all contributions made to them against taxation to be paid by the business. This is not always the case. A contribution such as sponsorship of a prize for a raffle for a sports club is not automatically an allowable expense. It can only be included as a marketing/promotion cost if there is a clear commercial gain for the business, that is if it could reasonably lead to increased business or publicity for your business. A local business sponsoring a set of jerseys for a local team would be considered an allowable promotional expense because the local community is the target market of the business.  The sole trader is also free to make 'a small donation' to the local sports team but they cannot then include it as a business expense.

There is tax relief available for donations made under the Tax Relief for Donations to Approved Sports Bodies Scheme. This allows individuals or companies to make donations to approved sports bodies for specific capital projects, such as building or renovating sports facilities. The minimum donation is €250. This tax relief is then included in the Tax Return by the Sole Trader for that tax year (not neccessarily in its accounts).

Contributions to charities as a sole trader are the same as for individuals - the tax relief is claimed by the charity, not the donor.

3- Capital Allowances

If you studied accountancy in secondary school you will be familiar with Depreciation. Businesses write down the value of assets such as vehicles and equipment usually over 8 years to account for wear and tear. But there is no depreciation for Sole traders. Instead there is a system of Capital allowances. So for laptops, vehicles and furniture, instead of deducting depreciation in your accounts, you claim capital allowances as a tax deduction.

For motor vehicles, the cost eligible for allowance for passenger cars is capped at €24,000 regardless of the actual cost. Relief is then provided over 8 years - if the car is used for both business and personal purposes only the business portion if eligible for capital allowances. To claim the allowance input the figure each year in your ROS tax return online.

Each LEO will issue a request for tender (RFQ) on eTenders each year /on a regular basis seeking qualified and experienced mentors and trainers.

Absolutely, yes.

I must declare a vested interest here. I am a regular trainer on the Phase 1 and Phase 2 programmes in several locations across Ireland - ATU Galway, SETU Carlow, MTU Tralee, SETU Waterford, ATU Sligo/Letterkenny - and I have also been engaged over the years by DKIT, LIT, TU Dublin and TUS Athlone.

So it is no wonder that I regularly recommend startups to apply for both Phase 1 and Phase 2 programmes. I meet up to 50 phase 2 participants each year. Their feedback on the programme is extremely positive. Along with the financial benefits, there are significant benefits in terms of personal development, peer networking and of course progress with their businesses.  It can be a gamechanger for the startup business and founder.

Absolutely yes. It can be particularly beneficial to avail of mentoring at the same time.

I think that a person should be thinking about their business and planning to start for several months before they actually start - if this is possible. This allows time to build up some savings. It also allows them to figure out what grants might be available. For sole traders, I definitely recommend availing of Social Welfare and the Short Term Enterprise Allowance if relevant.

Attending a Start your Own Business programme is a great way to create a plan for the business. This plan should answer how they intend to research the market, who the first customers will be, how customers will be acquired as well as how the business will operate. Ideally such a plan will be backed by financial projections. How the business will be funded will also need to be addressed, or indeed if bootstrapping whereby the business is self funded from revenue is a realistic option.

BTW, if you have already started, an SYOB programme can be even more valuable. It will give confidence that a lot has been done and perhaps highlight a few gaps.

For example:

A- I am a Secondary School Teacher. What advice would you give me as I am looking to set up a coaching business?

B- I am a Lorry Driver? What advice would you give me as I am thinking of going out on my own?

C- I recently moved over from the UK. I would like to set up a Dog Grooming business, what should I be aware of?

D- I also am originally from the UK. I am a qualified nurse, but my passion is Dancing. What advice would you give for setting up a business?

E- I would like to set up a Tour business in a West of Ireland tourist location (where I live). I love boats - will this be a good business?

Conversation:

I like to look at the goals of a business across 4 parrallel headings: Product, Market, Finance and Team.

1. Product or Service

Do you have clear idea on what product or service will sell well. What do people want to buy? Focus on solving a genuine need. For a service I think it is important to create a package that is clearly understood in terms of what is and is not included. The easiest way to set boundaries for the solution is to brainstorm and agree pricing. This must be done within context of competitor offerings and prices.

The follow on issue is Operations. What facilities, equipment, stock do you need to deliver on your promise? It is beneficial to create a checklist for your business at an early stage. This can include: Health & Safety, Insurance, and Certification /Compliance.

A- Coaching business - Qualifications of the Coach. Will they be following a particular model or approach to coaching. How many hours are involved and what can customers expect as an outcome?

B- Lorry Driver - have you a vehicle and appropriate licenses and insurance?

C-Dog Groomer - facilities and any specialist services?

D- Dance Instructor - Location and facility. What style of dancing is taught?  Is it part of a larger system of Certification or Competitions. Is there other tangible outputs (like an end of term show)?

E- Boat Tours - very similar to the Lorry Driver. Presume you have access to a new or good 2nd hand boat and an idea of routes for the tours. Are there partner businesses on the tourism routes to explore collaboration opportunities.

This first issue requires an examination of the type of business you want to create. You decide what business you would like and your customers will tell you if they agree with you.

2. Marketing

Is all about how you will secure your first customers. The aim is to build up a customer base over time. There are different types of businesses. While some businesses are sustained by one off customers most rely on regular repeat customers, and/or existing customer referrals to new potential customers. You will need to figure out what drives your customer acquisition model and plan accordingly.

The starting point is to understand the target market with hands-on reserch. This will involve talking to potential customers in the target market. It is also good to talk to other businesses in the locality and other businesses in your sector that you wont be directly competing with.

Eventually, you have to move away from market research to market testing. What is the quickest, easiest and cheapest way to test the concept in order to give yourself confidence that the market can sustain the business. This is tricky as businesses take time to grow.

The overall aim is to learn how to reach potential customers and how to convert enquiries into Sales. This will allow you to create a plan for Marketing & Sales. If you dont have experience in this area, you need to seek assistance in the form of Training, Mentoring and I would personally recommend reading good books to build up your knowledge and confidence. The natural starting point when investing in Marketing is time for Social Media. Whilst each business is different, most will benefit from having a website as soon as possible.

My final suggestion is to check out my One Page Marketing Plan. The key is to establish a budget for marketing. By monitoring what works (leads to sales) a business can optimise the cost of acquiring customers.

3. Finance

The business planning work will reveal if startup funding is required. Generally it is neccessary to buy equipment, stock or to pay overheads associated with the business in advance of generating revenue from activity. How will this shortfall be covered? I have written several blogposts on this funding topic. The easiest option is Savings to include redundancy or taxback from previous employment. It can also involve loans, external investors and possibly some grants.

4. Team & Systems

The final quadrant is Team. Do you intend to hire staff. What personnel do you need? What will they be paid? How will this be funded? For services initally staff costs would ideally be fully covered by customer projects and activity. In due course the staff member's value to the business as measured in revenue needs to be a multiple of their salary in order to cover all the other overheads such as Utilities, Rent, and Insurance plus all those marketing costs.

It is a perfectly valid option to decide to outsource some of this work - it can be a more flexible arrangement and allow retention of specialist expertise - thinking here of Web Design, Photography and Accountancy to name just a few areas.

If you dont intend to hire Staff immediately, it is good to think about a Plan for Key Hires which will identify when the business needs to expand the team.

To sustain and grow the business processes will need to be formulated and systems put in place. Communication and productivity tools and resources include mobile phone, email, shared calendars, document collaboration,  project mangement tools, time tracking, video conferencing, accounting and CRM tools. The website will require a Content Management System and analytics tools.  The aim will be to balance the needs of the business owner in terms of managing their time (efficiency and productivity) with the requirement to meet the expectations of customers in terms of customer service. Cash flow management will be a key systems requirement - ensuring that you get paid on time is a key goal for business sustainability.

A franchise is a business model where one company (the franchisor) gives another party (the franchisee) the rights to use their business name, trademarks, and business system in exchange for fees and royalties. Here's a practical breakdown of SNAP Printing, one of the largest printing and design franchise networks.

• Originally from Australia, SNAP Print Solutions is the franchisor.
• Individual SNAP printing centre owners are franchisees
• They pay SNAP Printing /the Irish Master Franchisor for the right to use the brand name and business processes etc - usually a sign up fee and % annual income.

So whether Franchises are a good idea is a great question for Claude.ai .. if you prompt it as follows: are Franchises a good option for starting a business, it will break down both the advantages and disadvantages. This is your starting point to researching Franchises as a model and specific franchise opportuities.

1. Contacting the franchisor directly for current franchise information
2. Also attend Franchising events to include those organised by the Irish Franchise Association
3. Speaking with existing franchisees about their experience
4. Having a solicitor to review any franchise agreements
5. Thoroughly researching your local market potential
6. Creating financial projections and business plan for the new franchise opportunity. Assess level of support available from the franchisor and if funding can be secured.

On the topic of franchising, I highly recommend Brody Sweeney's 2014 book about O'Brien's Sandwich Bars. It is called 'Making Bread: The Real Way to Start Up & Stay Up in Business'.

The Trading Online Voucher (TOV) is a government grant offered through Local Enterprise Offices (LEOs) in Ireland to help small businesses develop or enhance their online presence. It aims to assist businesses in leveraging e-commerce and online marketing to grow sales and reach new markets.

The grant provides up to €2,500 in funding. It covers 50% of eligible costs, meaning the sole trader or company must co-invest the other 50%.

Eligible Activities:

• Development or improvement of an e-commerce website e.g., enabling online sales, booking systems.
• Search engine optimization (SEO). Up to 30% of the grant funding can be allocated to SEO (Search Engine Optimization) and digital marketing activities including social media and online advertising (e.g., Google Ads, social media ads).
• Training in online trading.
• Video creation can be an eligible activity under the TOV scheme, if it directly supports online trading capabilities or marketing strategy. The video content should be focused on improving your digital presence and driving online sales or bookings.

To qualify your business must:

• Be trading for at least six months.
• Employ 10 or fewer employees.
• Have an annual turnover of less than €2 million.
• Be located and trading in Ireland.

Previous recipients of the TOV can apply for a second voucher, provided they demonstrate how additional support will benefit their online trading.

Steps to Apply for the Trading Online Voucher:

1. Attend an Information Seminar:
It’s mandatory to attend a free LEO seminar about the scheme.
The seminar explains how the voucher works, the application process, and best practices for online trading.

2. Submit an Application:
Provide a detailed proposal outlining the project, costs, and how it will improve your business's online presence.

3. Approval Process:
Your application will be assessed by your LEO, and if approved, you’ll receive the voucher.

4. Complete the Project:
Use the voucher to cover 50% of the costs for eligible activities.
You can work with your choice of web developers, digital marketers, or other service providers.

5. Claim Reimbursement:
Submit invoices and proof of payment to claim reimbursement for your project.

Benefits of the TOV:

• Helps small businesses compete in the digital marketplace.
• Reduces the financial burden of building an online presence.
• Opens opportunities for growth and diversification through e-commerce.

For more details, visit your Local Enterprise Office.

I have come across a lot of startups and SMEs who have struggled with working with a Web Designer. Who is at fault? Most of the time, the responsibility lies between both parties. Creating a website is going to be an important endeavour so it needs time, attention and budget. It is really important to Project Plan a website. A key facet of success will be the relationship that you strike up and maintain with the web designer.

This is a great type of question for ChatGPT. I put in a simple prompt 'what advice would you have for working with a web design agency?' This is a summary of the answer that it provided. I would recommend logging into ChatGPT to ask it something similar to see the longer answer

• Define Your Goals Clearly
• Set a Realistic Budget
• Research and Choose the Right Agency
• Prepare a Comprehensive Brief
• Establish Communication Channels
• Prioritize User Experience (UX)
• Ask About SEO and Performance
• Be Open to Their Expertise
• Plan for Content Creation
• Review Milestones and Deliverables
• Test Before Launch
• Plan for Post-Launch Support
• Get Everything in Writing
• Measure Success

All 14 points that I would wholeheartedly agree with.

In my opinion,

If your funds are limited, and if you have some technical IT skills - actually a willingness to learn how to create a website using the WordPress.org system - then WordPress remains my choice for a promotional website. I watched a number of WordPress training videos on YouTube many years ago. Each were several hours long created by Tyler Moore. They were very practical. This is how I learned WordPress and how I created my website. I changed the Theme of my website to Kadence a few years using the SiteOrigins plugin. WordPress is free, the theme was free and all the plugins were free so the only cost is Hosting and the annual cost of the domain.

Almost all web developers use WordPress so the majority will know how to design a site using WordPress so getting assistance is not a problem. As such you can get an external developer to design and build the site so that later on you can maintain it yourself and keep it up to date.

If I was creating a new website, I really like the Elementor page builder. I have seen some videos from Ferdy Korpershoek which are brilliant for learning how to design and update a WordPress site. In some videos he showcases the Astra theme which includes a library of pre-built templates. Instead of designing a website from scratch you can import Starter Templates with few clicks and customize them in your own way. That should speed up the entire process.

Once you know WordPress, you can add eCommerce functionality. It would be advisable to engage a WordPress eCommerce expert at that stage but you can still do a lot of the work yourself. My big advice is to buy your own domain and hosting, to set up your own WordPress account and pass on these details to your Web Designer. It is important to keep control of your own site.

Other options particularly for eCommerce are Shopify, Wix and Squarespace - these are available for monthly subscriptions. The key is to spend time figuring out how to use your chosen web design (content management) system. You can retain a web design agency for the design and build but it is important to know how to do routine updates.

THINKIFIC - My online training website.

I choose Thinkific as the platform to publish my online training courses. If you know how you can build a full online training system with WordPress using various plugins but Thinkific is just easier all round. It has all the features needed for online training. I quickly learned their system so could concentrate on creating the videos and other content for the online training. There is a monthly subscription once you move beyond the free plan.