Tax planning for business

Getting started

If you are thinking of starting a business, you should think about some of these: what sort of business, who are the customers, the state of the economy, do you need a bank loan / leasing, your break-even point ( how much sales before you get to zero profit, zero losses ), the possible profit, the possibilities to grow the business, the impact of being the business owner on all areas of your life and the degree of risk involved.

Business plan

You should prepare a business plan that will address such planning matters as: the source of your business capital, including your start-up requirements as well as your working capital funding (tax -efficiency is an important factor here), whether it should be VAT registered and the business structure that will best meet your needs - sole trader / sole practitioner, partnership, limited liability partnership or limited company.

Most people use SatNav to aid navigation - in fact many would suggest that this is the most important car accessory. Likewise, a business plan is to help you navigate the direction of the business. We can help you through the planning and decision making process - and with the necessary tax registrations.

Business Structure

There are both advantages and disadvantages for each trading structure with respect to control, perception, support, and costs. There are also some things to avoid. For example, if you decide that setting up a limited company to run your business is the best way there may be important things to think about before you proceed. You may wish to talk to us about where the ownership of any property should go - should property be owned by a company or personally by the owners?

The choice of business structure can also be relevant in how you take money from a limited company. A limited company is a useful tax shelter, but only until you take the money out for personal use. There are different ways of doing this - salaries, loans, rent, for example. We can discuss your options of each of these with you and help you determine which is most suitable.

The importance of the accounting date for your business

It is also important to choose the right accounting date for your business. Is there a time of when it is easier to close off your accounts, to get your accounts done? What would be the best time of year to take stock? Is your business seasonal?  You should know these things so that you can choose a suitable year end for you

Tax registration

Advising Revenue when you become self-employed may not be very high on your to-do list in the first weeks of a new business - but if you don't tell Revenue that you are in business you could get a fine. You may not even be sure about the date that your business started. If you have any doubts, we can advise you. Most tax registrations and returns have to be done online.

Make the most of your expenses

Our role as accountants and business advisers is to work with you to help you maximise your profitability and look at any ways we can help you minimise your taxes - we know that you do not want to pay more than is absolutely required

You will pay tax on your taxable profits (which will is different from the profit shown in your accounts), so it is very important to claim all business expenses. You can claim a some of your house costs and some of your home phone bills if you have an office at home. You can also claim for travel and accommodation when you are working away from your main place of business.

You must keep good books and records - including a log of business journeys - because as well as making sure your accounts are accurate, these records may be requested by Revenue. There are a number of easy to use apps which you can install on your smart phone to enable you to record business journeys. Have you considered using a good computer package for record keeping? Cloud accounting is becoming increasingly popular while Sage, QuickBooks, Xero provide good solutions for some companies. If you are considering a computerised solution, please ask for our advice. You must keep your business records for six years. Make sure that they are kept safely and if they are paper they should be retrievable. It is important to ensure that computer accounting records are properly backed up, and if you use a cloud accounting package that aspect is looked after.

 

Involving the family

You can employ family members in your business, as long as the salary and other benefits you pay them is commercially justifiable. In other the salary paid should be matched to the job being done - if doing deliveries for the business, the wages should be the same as what a typical driver would command.  You can pay family members with a salary, and perhaps also with benefits such gift vouchers, phone and so on.

Tax and the limited company

If the limitation of liability is important to you, then a limited company may be the best way to go.  Banks and other people that will give you credit often ask for personal guarantees from directors for company borrowings, so the owners or directors of the business may in fact be responsible for a large chunk of the bills of the business out of their personal assets.

Trading through a limited company can be an effective way of sheltering profits as the rates of corporation tax on profits are generally lower than what is applied to sole traders which can be 52% ( 40% Income Tax / PAYE, PRSI of 4% and up to 8% of USC ) or more. Money paid out of a limited company as salaries will be taxed at top rates, profits left in the company are taxed at 12.5%. 

Retained profits can be used to buy assets / equipment / computers or to provide for pensions - and you can take these away from your profits to reduce tax.

Paying the tax

For the self-employed, the timetable of tax payments is relatively simple:

  • Pay and file 2017 Income Tax in the middle of November 2018.  File income for year ended 31st December 2017, the first slice of tax for 2018 called Preliminary Tax, and the balance of 2017 tax left over from 2017.

The Preliminary Tax is made based on last year's tax liability - you can pay 100% of the 2017 bil lfor Preliminary Tax 2018 - or you can pay 90% of what you think the final bill for 2018, which you can choose if that is lower.

 

Year-round business planning

Tax and financial planning should not be left until the end of the tax or financial year, but in advance of the end of your business year, why not talk to us about:

  • The impact on your tax position and financial results of spending before the year end to save some tax now
  • Check your pension funding and think about paying extra pension contributions
  • How you might take profits from your business at the lowest tax cost
  • Avoiding overvaluing stock and work in progress
  • Improved cash collection strategies
  • Change to how you invoice your customers and keep your accounting records, or a general systems review to improve profitability and cashflow
  • Tax saving employee pay packages with possible cost savings for you and your employees.