This has long been a topic that has sparked a whole lot of interest among prospective business owners, as the need to apply knowledge within the scope of ‘compliance’ is extremely important when operating a business. As such, many have felt it pertinent to ask relevant questions such as; what kind or type of taxes is a sole trader obligated to pay? What does it means to register as a company limited? What tax benefits do I get from operating as a sole trader and not a company? The list goes on. Thus, I have seen it essential to shed some knowledge and light on the subject.
How does a Sole Trader operate vs a Company Limited?
Simply put; a Sole Trader is classified as a business that is owned and operated by an individual who will essentially bear all profits and losses of the business. Meanwhile, a company limited is an entity that is owned and operated by shareholders who share profits and losses based on their respective investments, which sheds light on why the term ‘Limited’ is added. It is important to understand the two as you can see that one person ultimately owns a business using the Sole Trader model while an infinite number of shareholders can own a business under the Company Limited model. In addition, the profits and loss of both are treated differently. As such, the registration process for both approached in a different manner.
How do I register either a Sole Trader or Company Limited? What does the process entail?
The registration process for both sole trader and company limited is conducted through the ORC or Companies Office of Jamaica. Both will require you to supply ‘unique business names’ that are used by another entity. Hence, it is always great to do a name search or reservation at the companies’ office before actually starting the process of populating a BRF form with the needed information for registering. A BRF form will show all details necessary to register your business as either a sole trader or company limited. Importantly you will need copies of your government issued IDs and TRN. You will encounter one difference when registering as a company limited; that is you will require a Form 1A along with a schedule 1. This form shows details on the ownership of the company in light of Shares. It is important to also note that a Company limited will need someone to fill the capacity of secretary as the law mandates this. However, the information provided in this instance does not have to be permanent as there are various forms that handle amendment if needed. These forms are available in instances where you need to change share ownership, add a director, dispose shares, change company secretary, change share type etc. It can therefore be deduced that operating a company limited may be more complex given the need to maintain these records. Whilst in the instance of operating as a sole trader the only thing you might need to do is to change your business name or address. With the added notion that you will only need to renew every three years as opposed to a company, which is required to file a company, return yearly.
All of which we can do for you here at BIZcare.
What about taxes and Indebtedness?
Many questions arise when this subject comes to forefront, as we all know that encounters with taxes and indebtedness are always possibilities that we must deal with when operating our businesses. As the term states ‘Sole Trader’, this simply means that you are responsible for all facets of the business, including that of taxes and Indebtedness. Therefore, you will at times hear the term ‘trade as’ being mentioned beside your name before your actual business name is called or mentioned. Which further sheds light on why a branch number is added to your own TRN (E.g. 111-333-111/0001) that specifically distinguishes your TCC, business account and tax account at the tax office. However, Company Limited is issued its own TRN separate from that of any individual. This therefore raises the notion that all obligations whether tax or indebtedness belongs to the company and not the owners. Hence, in legal terms if taxes or monies are owing a sole trader will get a notice in his or her name, while a company limited will get a notice in the company’s name. A great shift in carrying the burden of legality, is it not? Especially as it relates to tax audits, of which we do not want to be on the wrong end of.
What are the various aspects of filing my taxes and what are the benefits for each respect model?
Firstly, it is important to remember that once you are an owner of a business, you will be categorized ‘self- employed’. As such, both businesses will require the owners to submit a SO4/SO4A Form(s) yearly. However, the major difference is highlighted in how revenue and expenses are treated as you will be required and obligated to declare all as a sole trader, whilst a shareholder will only need to show dividends and/or a director fee or salary if this is apart of their shareholder compensation. Both however will receive the income tax threshold that of $1.5M. This shows the flip side of having a business and still being employed to your own business as a company or at another organization. It is important to note that all salaries must be declared also via populating the necessary sections (P24/P45 will be required) on the SO4/SO4A Form(s). Tax Filing for a company limited is done via the submitting of an ITO2/ITO7 Form(s) after eighteen months of operating.
That is a sigh of relief, right?
Additionally one must also remember that both businesses are entitled to the same portion or percentage of capital allowances on assets owned. It is important to note that as it relates to vehicles and property a company is mandated to ensure that the said assets are in the company’s name. Especially in the case of audits or when applying for a loan.
Other instances, such as accessing a TCC upon registration that is accessible as a company upon receiving its certificate and articles of association should also be noted. However, your registration type should ultimately be based on how far you see yourself going in terms of longevity, growth and business ownership. A common mistake that is made by many persons is that they open multiple sole proprietorships under the same TRN. Which ultimately means that your TRN will be attached or affiliated which three or four branches in terms of 0001, 0002, 0003 or even 0004. If you see yourself going in this direction, the safer thing to do is land or open for yourself a group of companies or holding company that will own or hold each of the said business names under one umbrella. This is a far better way of placing any legal or tax burden that may arise on the holding company instead of on your name or TRN.
If you need help or further information, please feel free to contact us at 1 (876) 902-7259 | 545-6928 or email us at BIZcareConsultationAcct@Gmail.com to arrange your consultation session. Do remember at BIZcare “Your Business is our Priority”. We offer the services of:
- Business Registration
- Tax Filing
- GCT Filing
- Payroll Services
- Consultation Services
- TCC Services
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Written by: Kmar Henry [ CEO |BIZcare Consultation & Accounting Firm Limited ]
Edited by: Anothonio James [ CEO | I Am Skilled ]