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Growing your business - taxation terms to be aware of!

Hello from CF

Unreal hurling final, not so much for the quality but the sheer drama of it all!  Limerick winning handy, the weight and wait of 45 years, 8 minutes on the board for injury time, Galway realising that if we don’t do something in the next 10 minutes we are handing over our cup to these imposters all resulted in another freakish finish and finally getting over the line.  They have had plenty of heartache in the past and when 80,000 turn up for the homecoming you know it means a lot. Well done to Limerick and well done to Galway on being extremely sporting runners up. Just shows how difficult it is to defend the title with the current system. Now for 2019, could it be Waterford’s year?   There’s a slight change of emphasis on our blog for this week. We are holding a Business growth event in our office on Thursday the 13th September for ambitious growing business owners where we will give them a little bit of tax & accounts information but the main take away from it will be business strategy and growth tips that have worked for us and our clients. In this blog we just want to cover the main tax points we will cover on the day so that those in attendance are aware of what they need to be aware of.

Key Dates

When is my Income Tax, Vat, Paye and Corporation Tax due? What amounts do I need to pay and how will I pay them? If I am in a Vat refund can I set that off against my other tax liabilities? What happens if I don’t pay on time or file my return on time?  What if I bury my head in the sand? I got a call from the Sheriff I thought they were only in westerns! Not the most exciting stuff in the world but important. If the business is struggling to pay taxes then it is probably not making money and that’s a bigger problem. Our motto, pay what you owe and pay it on time. Otherwise there is a cost of extra time and money and distraction from growing your business  

Tax rates and bands

Most people know that the corporation tax rate is 12.5% in Ireland. Most people don’t know that the corporation tax rate is 25% on investment income such as deposit interest and rental income in a company. How much can I earn at the lower Income Tax rate of 20% and what is the maximum a married couple can earn at the lower rate? How is the lower rate band split between a higher income and lower income earning spouse? What PRSI do I pay as a company director and what will that give me. What are the USC rates and what can I earn before going into the top rate. Knowing this stuff and planning around it, if there is scope for planning, can put more cash in your pocket. And what could you do with that extra cash. Could you buy a bigger home, put a few bob away for the kids education fund or put it on the outsider of Willie Mullins in the last? Let the choice be yours!

Main Tax credits

You will be aware of the main tax credits such as single, married and PAYE. But what about other credits that are available and that you should be getting?  There are lesser known credits like the Earned Income Credit for self-employed individuals or the Home Carer credit for a non-working spouse looking after kids. These credits are cash so you need to know the credits you are entitled to.  

Start your own business and Start-up companies

These reliefs are available up until the 31st December 2018 so the clock is ticking! The first one applies to individuals who have been unemployed for a period of 12 months or more before setting up a new business but it gives Income Tax relief of up to €40,000 per annum for the first 2 years. The second relief applies to start-up companies commencing a new trade and the amount of relief is linked to the amount of employer’s PRSI paid in an accounting period. The relief is available for a period of 3 years from the start of the new trade.

R&D Tax credits

This is a very valuable credit hence the large number of Revenue enquiries into claims. The applicant must be a company that is liable to Irish Tax and is carrying out qualifying R&D activities within the European Economic Area. The credit is 25% of allowable expenditure and can be offset against corporation tax for the current, prior or future periods or can actually be refunded to the company as a cash payment.

Start-up refunds for Entrepreneurs [SURE]

Individuals setting up companies that require significant investment should be well aware of this relief. If one qualifies, then it is possible to get an income tax deduction for the value of the investment in the tax year in which the shares in the company are issued or you can elect to have the income tax relief spread over a 6 year period prior to the year of issue of the new shares.  The maximum figures are quite large at €700,000 on which one could claim income tax relief on over a period of 7 years at €100,000 per annum.   

Taxes on Exit

The most important question that is often asked of us is how much will I be left with after paying Capital Gains Tax [CGT] on the sale or transfer of my business? The CGT rate is 33% so Revenue will get one third of your lifetime’s work unless you have planned well. If you can benefit from Entrepreneurs relief the tax saving can be up to €230,000 and if you can avail of Retirement Relief then there may be no CGT to pay at all. We will share with you how these reliefs have worked for our clients and what tax savings they have made and outline some of the key points around these reliefs without getting you bogged down in too much detail.

Strategy can include Tax!

There are many variables here but often the key question asked of us is should I be running my business through a company? There is no one size fits all answer to this question as it will depend on numerous factors such as the type of business, the profitability, the level of drawings required, the amount of borrowing and future plans for the business. Some professions, such as medical consultants, have incorporated and fallen foul of Revenue. You will have seen this from some very large tax settlements that Revenue publish on a quarterly basis. It is obviously much better to pay 12.5% corporation tax than to pay up to 55% Income Tax but what salary would you need if you were trading through a company. There has been a strong recent trend towards incorporation and we will take a look at the pros and the cons.

Summary

Our primary objective is that you are more informed leaving our office than you were coming in.  While the tax and accounts are very important our aim is to use our clients as live  examples as what credits and reliefs worked for them. Clients don’t worry we won’t be using your names. There is a thing called GDPR that we are aware of! The key for the attendee is not that they know everything about the credit or relief, as that’s our job, but they are aware that there is a credit or relief and that they set themselves and their business up so that they can minimise their taxes and maximise the cash in their pockets.     

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