|What is the best way to save tax? These tax saving tips may help||
Can you do accounts now before the year ends? Get accounts on time, then set out a plan with your accountant before the year end or as close as possible to the year end. That way you can plan your business to avail of better tax planning. Many tax saving tips depend on getting notice in advance of the last few weeks.
|Should you have a limited company?||
Consider setting up a limited company for your business as there are many tax advantages.
The company can increase your pension contributions.
You can be taxed at Corporation Tax rates rather than Income Tax rates which would save a lot of money.
Or you could rent property to the company, and you could use retirement relief if you ever sell or close the company.
If you are a sole trader now and you sell your business into a limited company there is a once off chance for tax-planning to shelter income from Income Tax rates ( up to 40% plus USC at rates of 2 to 11% ) to Capital Gains Tax ( 33% ).
Your business activities may qualify to be free of Corporation Tax for the first 3 years, depending on the activities carried on by it.
Is there any chance that you could sell an existing business ( a Sole Trader ) to a new company and pay for Goodwill in the Sole Trader.
If you already have a limited company and would like to get a quote now for all your accounting call us on 01-2834123 to see what we can offer.
Updated 10th September 2019
|Some quick tax saving tips to help you avoid paying too much tax||
Some other suggestions in rapid-round format:
1. You can become a dual income couple – Pay your spouse through the business up to the limit of his / her 20% Income Tax limit moving income from 40% to 20%.
2. Look to earn tax-exempt income – rent-a-room ( €14,000 per year ), Patent income ( €250,000 per year )
3. Try to realise Capital Gains ( @ 33% ) rather than Income ( up to 40% plus PRSI of 4% plus USC of up to 11% on all income ). You can do this by, for example, selling off part of your business. Could you start an easily separated section of your existing business with a plan to sell it in a few years to take advantage of Capitals Gains Tax.
4. Make pension payments through the business. Directors can pay any amount into a pension – employees are limited to paying a part of their income.
5. Pay your commuter train or bus ticket through the business, get your mobile phone invoiced and paid through the business, purchase your home office computer through the business. Pay some of your rent and utilities bills to yourself for your home office.
6. If you travel for work, then you are entitled to reclaim travel expenses from the business tax-free using Civil Service rates.
7. Are currently employed? Look into whether you can become self-employed. You can claim expenses such as travel and so forth, and you save your customer ( your former employer ) 10.95% Employers PRSI.
8. Covenant income to an elderly or relative who has bad health. A covenant is a promise to pay someone a certain sum for a definite period. Covenanted income is deducted from the payers taxable income, and added to the person who receives the income. If the person who receives the income has low or no income then the tax is saved as between the two parties. For example if you covenant to pay a relative €2,000 per annum, you get a refund of €800 Income Tax plus PRSI.
9. Claim all Medical and Dental expenses paid by you for yourself, your spouse, children or dependant relatives.
10. Employment and Investment Incentive ( formerly Business Expansion Scheme ) – look into investment in your own business – up to €150,000 per year.
11. Seed Capital Investment – if you qualify for this scheme you can reclaim PAYE ( Income Tax ) paid by you before you start your business. You can reclaim €100,000 per annum for 6 years.
12. Ensure you claim all allowances in the year. You can do this by looking at a list of all allowances available to you.
13. Pay non-earning offspring wages from a business to use up their 20% tax band. You can earn up to €35,300 per year and still only pay 20% tax. The total bill for someone on €35,300 and with normal allowances for a single person is €6,083. Above this your wages are taxed at 40% plus normal rates of PRSI and Universal Social Charges, so if you earned this income over €35,300 would give you a bill of €17,140. Savings to you are €11,057. If you want to pay no PAYE or PRSI on the salary you pay to your offspring, you could opt to pay a salary at a level that is totally exempt. The first €18,000 of income for a single person is totally exempt from PAYE and PRSI . However you will have to pay Employers PRSI of 8.7% on earnings of €18,000 total bill €1,566.
14. Allowances – widowed parent tax credit €4,000 for 5 years,one parent family €1,800 and the rate bands increase.
15. Claim tax relief on payments to Medical Insurance. You need to give your medical insurer your PPS number.
16. Trade Union subscriptions, Teachers Allowances, Architects Allowances – check PAYE allowances.
17. File Tax Returns on time to avoid surcharges
18. Pay taxes on time – avoid interest.
19. Time Capital disposals to avail of you annual allowance to Capital Gains Tax of €1,270 per annum. You could sell shares before the year end to make sure you get this allowance. You can ensure that your spouse claims this allowance by putting shares in their name.
20. Register your business for Value Added Tax ( VAT ) if possible. This means you can reclaim VAT on whatever you buy. Assuming your customers are VAT registered then they can reclaim the VAT you charge so there is no impact on them.
21. You can opt for Cash receipts basis for VAT. This means that you pay VAT as you collect money from your customers. Normally you are liable to pay VAT as you invoice your customers whether they pay you or not. From 1st May 2014 your Sales have to be less than €2 million per year to avail of the Cash Receipts Basis. Up to this date the limit is €1.25 million. The advantage to your business is that you don’t have the pay out the VAT as quickly as the normal basis of accounting for VAT.
22. Become non-resident before making large gifts and avail of lower rates of Capital Acquisitions Tax. If possible donor and recipient should both be non-resident to get full advantage of lower Capital Acquisitions Tax rates in other jurisdictions. As for many of the Irish tax tips we share here, professional advice is vital before taking such a radical step.
23. You could change your business from being a sole trader to a limited company. The Limited Company pays you for the business and you save by paying Capital Gain Tax at 33% rather than paying Income Tax at rates of 40% plus PRSI plus Universal Social Charge. However the company cannot get credit for Corporation Tax on the amount paid to you.
24. Extract profits from a business by getting the company to buy back your shares, again taking advantage of lower Capital Gains Tax rates.
25. In a liquidation shareholder is entitled to what’s left after everyone is paid – this is taxable at 33% rather than at 40% plus PRSI plus USC. If you have funds in a limited company which is no longer trading, you can liquidate the company and you as the shareholder are entitled to the money left after all liabilities are paid. As Irish tax tip
26. Buy your premises and rent it to the business. You can pay for a valuable asset from money that would otherwise be paid out as rent. If you grant the business a lease on the property and you charge a premium then the premium is liable for Capital Gain Tax at 33% rather than at 40% plus PRSI plus USC.
27. Maintenance to an ex-spouse is tax-deductible for you (but taxable for them )
28. Do any transfers that you plan to so as part of deed of separation with your soon-to-be ex-spouse. There may not be another chance to do tax-free transfers as while they are your spouse the transfers are non-taxable.
29. Use a credit card or debit card for small business expenses where possible to cut down on ‘lost’ cash expenses. You can also use the credit card statement as a reminder of where you went and what you did ( but make sure pay the balance off every month by direct debit ). There is a little extra bookkeeping involved but it should be worth it even in the short term.
30. If you are made redundant from a business that employs you, you can take a tax free redundancy lump sum depending on your earnings and on your length of service with the company.
31. Can you borrow money to invest in a company? You can reclaim the interest against your taxable income.
32. Tuition fees paid to colleges are tax reclaimable, for example if you do further job-related study.
33. Stamp duty is deductible when selling an investment property e.g. if you have rental property which you later sell. The Stamp Duty you paid on buying the property ( plus all other expenses like solicitors fees, architects fees, estate agent fees ) can be deducted before calculating the taxable gain.
34. If you are over 55 years and have worked in a business for over 10 yeas then the sale of the business if exempt from Capital Gains Tax for sums of up to €750,000. This exemption applies to spouses and each spouse has a separate €750,000 exemption. This exemption was reduced in a recent budget so it is advisable to check closely what the limit is, as with many of the tax tips here.
35. Make sure if you do get a gift or inheritance that you take all deductions to minimise Capital Acquisitions Tax.
36. If you are transferring property, you can delay signing the contract thereby avoiding Stamp Duty indefinitely.
37. Small Benefit Exemption - you can take up to €1,000 in gifts from your employer without any tax. This applies if you are a director of your own company, or you are an employee. This is a change from the situation up to 2021 when the limit was €500 per year. Tax-free vouchers or benefits can be used only to purchase goods or services. They cannot be redeemed for cash.
Updated 16th Nov 2022
|Could art be a tax-effecient investment?||
Art is considered to be chattel by Revenue and any increase in the value of artwork when it comes to be sold is exempt from all forms of tax – not bad when you consider that you can invest as little as €500 in a piece of art and that you can enjoy the art in your home, while it appreciates in value. Where the piece of art is worth less than €2,540, as a collector you are completely exempt from tax on the sale. For larger or more expensive works of art, Capital Gains Tax may apply, but there is Marginal Relief which means that tax at rates between zero and 20% apply for sale of art up to €3,385.
|Could you become self employed?||You will need more than one customer but if you are employed now you could take a lump sum on redundancy. You can deduct business expenses from your income, and your customers are automatically 10.95% better off as they don’t pay Employers PRSI on your charges to them.|
Relief from Capital Gains Tax (CGT) is available for shareholder disposing of shares in limited companies or sole traders selling part of their business. Entrepreneur relief was first brought in under Finance (No 2) Act 2013 and has since been changed by Finance Act 2015 to serial entrepreneurs to set up new businesses.
Nature of the relief
The relief provides that there is a 10% rate of CGT for gains on the sale or part sale of qualifying business assets, on or after 1st January 2017, up to a lifetime limit of €1 million. This provides for a maximum tax saving of €230,000. Before 1st January, a 20% rate of CGT applied to qualifying sales.
Availability of the relief
A qualifying business is any business other than:
the holding of shares, securities or other assets held as investments;
the holding of development land or letting of land;
and assets owned personally, outside the company, even where such assets are used by the company.
shares held by an individual in a trading company; and
assets owned by a sole trader and used in their trade.
Conditions of the relief
The qualifying business assets must have been owned by that individual for a continuous period of three years in the five years just before the sale of those assets. Where a business is carried on by a company, someone seeking to qualify for the relief must own not less than 5% of the shares in the qualifying company or 5% of the shares in a holding company of a qualifying group. A holding company means a company whose business consists wholly or mainly of the holding of shares of all companies which are its 51% subsidiaries. A qualifying group means a group where the business of each 51% subsidiary (other than a holding company) consists wholly or mainly of carrying on a qualifying business.
There is a requirement that the person selling the shares spends at least half of their time in the business. The individual must have been a director or employee of the qualifying company (or companies in a qualifying group) who is or was required to spend not less than 50% of his or her time in the service of the company or companies in a managerial or technical capacity and has served in that capacity for a continuous period of three years in the five years immediately prior to the disposal of the chargeable business assets.
Periods of ownership
Any period during which an individual owned shares in or was a director or employee of a company that qualified for relief under certain restructuring provisions (eg, Section 586 TCA 1997), may be taken into account for the purpose of the three year ownership and director or employee requirements.
Periods of ownership of assets before setting up a limited company and periods of ownership of spouses cannot be added up for the three out of five year rule.
Situations suitable for use of the relief
If the relevant conditions are emt and also certain pre-structuring steps are taken, relief can also apply to the following circumstances:
Certain share buybacks;
Partnership assets; and
double holding company structures.
Finance Act 2017 anti-avoidance measures
Finance Act 2017 introduced anti avoidance measures which are effective from 2 November 2017. No relief is available on:
transfers of goodwill or shares to a company, if transferor is connected to the company after the transfer; and
non share consideration received for transfer of a business on incorporation if transferor is connected to the company after the transfer.
These restrictions do not apply if the disposal was made for bona fide commercial reasons and did not form part of any arrangement or scheme, the main purpose of which was tax avoidance.
In order to ensure that an individual’s business is fine-tuned to avail of the relief, the initial key things before a sale include:
Reviewing the current structure of the business and mix of business assets to consider pre-sale planning to avail of the relief;
where the business is carried on by the company and forms part of a group, is the group qualifying and can any pre-sale planning be done to get the relief;
is the individual a director or employee of the business and can steps be taken to demonstrate that this is the case; and
if previous restructurings of the company/group have taken place, how will this impact the relief.
|Could you realise a Capital Gain, paying Capital Gains Tax at 33% and live off the proceeds, rather than paying Income Tax at 40% plus PRSI?||Can you dispose of part of your business, or can you sell a property, leaving you liable to Capital Gains Tax rather than being assessed to Income Tax on the proceeds? You could take advantage of the significantly lower rate of Capital Gain Tax that applies, and take a lower salary from your business.|
|Are you about to transfer property?||Check taxes such as Capital Acquisition Tax, Capital Gains Tax and Stamp Duty before selling property – huge savings can be made by choosing the right way to go about a transfer, depending on the property involved and the relationship between the transferrees.|
|Transferring the business to a family member||
If you intend to transfer your business to a family member there are a few tax headings to consider:
Updated 23rd Jan 2019
|Claim all your allowances||Make sure you claim all you are entitled to. We automatically check that all clients are getting the correct tax allowances each year, and apply any items in the tax tips.|
|Are you a landlord?||If you are then you should register every new tenancy with the Private Residential Tenancies Board. If you don’t, Revenue are entitled to withdraw interest relief which means you cannot deduct interest paid when computing your tax bill. If you have a number of different tenants in the year, you need to register each of them.|
|Research and Development Expenditure – Tax relief changes||
There are new tax benefits available to companies for spending on research and development. The tax treatment in Ireland has changed recently to encourage such spending. We set out below the tax implications of the old system and the new system.
A credit is available to all Irish companies who undertake R&D activities within the European Economic Area.
– A credit of 20% is available on all incremental expenditure since 2003.
– Where a company has insufficient corporation tax against which to claim the R&D credit in a given accounting period, the tax credit may be carried forward indefinitely.
– Tax credit is in addition to any allowable deductions for R&D expenditure in the accounts of the company.
– The company is not required to hold the intellectual property rights to avail of the credit.
– A credit of 25% is available on all extra spending since 2003.
– Credit can be claimed in a different manner than previously. First of all, the company may offset the unused portion of the credit against the corporation tax of the previous accounting period.
– Where a company has offset the credit against the corporation tax of the previous accounting period or where no corporation tax arises for that period, and an excess still remains, the company may make a claim to have the amount of that excess paid to them by the Revenue Commissioners in 3 instalments.
– The remaining balance will then be used to first reduce the corporation tax of the next accounting period and if any excess still remains, a second instalment amounting to 50 per cent of that excess will be paid to the company.
– Any further excess will then be used to reduce the corporation tax of the following accounting period and if an excess still remains, that amount will be paid to the company as the third instalment.
– There is a limit on the amount of tax credits payable to a company by Revenue. The amount cannot exceed the greater of;
1. Corporation tax payable by the company for the 10 years prior to the accounting period preceding the period in which the expenditure was incurred, or
2. The amount of PAYE, PRSI and levies, which the company is required to remit in the period in which the expenditure was incurred.
What constitutes Research and Development Expenditure?
1. Systematic, investigative or experimental activities.
2. In a field of science or technology.
3. One or more of the following categories of research and development:
A. Basic research
B. Applied research
C. Experimental development
E. Seeking to achieve scientific or technological advancement and involve the resolution of scientific or technological uncertainty.
If you think that you may be incurring expenditure that meets the above criteria or are interested in carrying out some research and development please let us know and we can investigate whether you are be entitled to claim relief on the spending.
Also bear in mind that some of the tax tips discussed above apply to the employed as well as the self-employed.
Updated 23rd Jan 2019