Sole Traders & Pensions

Issues to consider for Sole Traders

• A spouse or civil partner employed by the business/ practise is not insurable for PRSI purposes in respect of that remuneration
• The spouse or civil partner in this instance therefore does not build up any state pension contributions from this employment

There are solutions available for the gap in this provision

There are benefits for a sole trader to employing a spouse/ civil partner. These include;

1. Utilise separate USC bands
2. Maximise the income tax credits available
3. Maximise the increased standard rate income tax band
4. Maximise tax relief through targeted pension planning
5. Target a maximum tax free lump sum strategy using revenue guidelines
6. Individualise the standard fund thresholds to maximise benefits

There are constant trade-offs to consider in determining the optimal outcome. Should the spouse/ civil partner become a partner in the business or an employee and what are the implications from a tax, state pension and retirement provision perspective?

Partnership

The textbook definition of a Partnership is as follows:

“two or more people acting jointly in a trade or profession with a view to making a profit”

Important factors to consider in relation to Partnership structures:

• Liabilities are personally owned
• Unlike a company arrangement, there is no separate legal identity
• The Partnership Act of 1890 applies in the event of the absence of a written agreement

In recent years there has been a change in the regulatory structure of legal partnerships whereby partnerships of solicitors may choose to operate as a Limited Liability Partnership [LLP].

Key Question for Partnerships?

What happens in the event of the death of one of the partners?

• A Partnership agreement will usually provide for the accrual of goodwill
• Sharing of profits is limited to the period of time that the members are partners
• A S.785 life assurance policy provides partners with peace of mind with regards to provision for surviving family members in the event of death – Provision for S.785 may be expressly written in to the Partnership arrangement
• Similarly, if the accrual of goodwill prevents the distribution of a payment at the point of retirement, members of the partnership should make suitable retirement provision through a PRSA or Personal pension.
• Tax relief is available on these contributions