Is your small business tax compliant?

With the growing popularity of social media over recent years, a new platform for selling has emerged.  Many individuals and small businesses are now using Facebook as a means of connecting with customers and selling their goods online.  As the costs involved in doing this are significantly lower than those involved in building an e-commerce website, it gives people the opportunity to reach their customer base with very little outlay.

However what may have started out as selling one or two small items online can quickly develop into a proper business, and quite often an individual can find themselves in a situation where they are trading without actually being tax compliant.

If you are in this situation, the first thing to do would be to contact Revenue and register as self-employed.  This is simply a registration for Income Tax, and can be done on a Form TR1 which is available on the Revenue website.  You should indicate your commencement date as the date that you actually started trading rather than the date that you complete the form.  If you started trading in a prior year you would need to register from that date.  This could mean that you will need to file Income Tax Returns for prior years, and potentially you could be liable to a late filing surcharge and interest if you have a tax liability.

In addition you should be aware of the level of sales that you are making, as you may unknowingly have crossed over the VAT threshold.  If you sell goods and your sales exceed €75,000 you should be vat registered.  Similarly if you provide a service and your sales exceed €37,500 you would need to register for VAT.  If you fail to register at the correct time, Revenue can backdate the registration to the date that you exceeded the threshold and ask you to pay VAT on your sales from that date.

A phrase often heard is ‘surely I couldn’t have a tax liability as I hardly make anything on this’.  However if you or your spouse have any other form of income such as PAYE, it’s quite likely that you will be using up your tax credits on that income.  Therefore any additional income that you have, no matter how small will likely have an income tax liability.  Another factor to consider is that Revenue does not know how much your income is unless you file a tax return.  As far as they are concerned you could have an additional income of €50,000 when in fact you may just have a few hundred euros.  Not filing a return leaves your income open to estimates being applied by Revenue, and those estimates may not be in your favour.  In addition if you have made a loss from your business you need to record this on your tax return so that it can be carried forward to use in future years or off-set against other income that you may have.  This could actually lead to a tax refund if you’ve been paying PAYE during the year.

If you are advertising yourself online or if you have a public profile that is easily accessible, the chances of staying off Revenue’s radar are very slim.  It would be naïve to believe that promoting yourself in these ways and also in traditional ways such as exhibiting at craft and food fairs, would only make you visible to your customer base.  It has been known for Revenue representatives to attend these fairs and check whether the vendors are registered for self-employment.

Considering that Revenue can investigate potential untaxed income going back a number a years, for your own peace of mind you should ensure that you are fully tax compliant.