1. Question every Expense
Whether you are trading as a sole trader or a limited company an easy way to reduce your tax bill is to ensure that all of your business expenses are recorded in your accounts. So every time you put your hand in your pocket to pay for something or reach for the credit card, think: is this a business expense? The general rule is that it is a business expense if it is wholly and exclusively for the purpose of your trade.
- Client entertainment (although it may be a business expense) is not a deductible expense for tax purposes.
- Staff entertainment expenses are deductible as long as they are reasonable.
- A sole trader cannot claim meals as a tax deduction against profits.
- A company cannot claim an employee's/director's meals and accommodation against profits unless it has vouched receipts for the expense or comprehensive subsistence records from the employee/director to back up the expenses reclaim. If the strict Revenue guidelines are not followed, PAYE/PRSI implications may also arise.
- Clothing expenses are not deductible unless it is protective clothing. For example, a new business suit for a sales person is not deductible.
- Where expenditure relates to both business and private use (for example telephone expenses), only that part which relates to your business will be allowed.
- Be careful not to reclaim expenses on the double, for example a company claiming mileage expenses and petrol receipts.
- If you have a question about whether an expense is allowable or not please feel free to give us a call or email us on email@example.com.
2. Keep Proper Records
Now that you have identified your additional business expenses, ensure that you file the receipts and record them in your books. It is all too easy to pay for something by cash and lose the receipt in the car or the bottom of your handbag.
If an expense is business-related but just not allowable for tax purposes, then record it in your accounts as normal. This will be added back in your tax computation.
Warning: For limited companies, please be careful! If a personal expense is paid by the company which results in the director owing money back to the company, this could result in a breach of the Companies Acts.
3. Claim all your tax credits and reliefs (Individuals)
While it may seem with every budget (and emergency budget) that tax reliefs are getting scarcer, there are still some tax credits and reliefs out there that can help to reduce your tax bill, for example:
- Trade union subscriptions
- Rent credit
- Service charges/waste disposal
- Job Assist
- Dependent relative
- Incapacitated person - employing a carer
- Artists exemption
- Deduction for maintenance payments
- Certain medical and dental expenses
- Pension contributions and PRSAs
Married couples should ensure that their tax credits and tax rate cut-off points are shared in the most tax efficient way depending on who is the higher earner. If one spouse is at home looking after the kids, they may be entitled to the home carer’s credit.
The Revenue have a comprehensive list of tax credits and reliefs on www.revenue.ie. For a quick checklist on what you may be entitled to, email us for a copy of our Income Tax Checklist (firstname.lastname@example.org) if you haven’t received one already.
4. Research & Development Credit for Companies
In these challenging times, Research and Development (R&D) is one of the most important activities that Irish businesses can undertake. However, you may not be aware that as well as getting a corporation tax deduction for qualifying research and development expenditure, your company may also qualify for an additional tax credit of 25% in certain circumstances. This tax credit is available for offset against the current year corporation tax liability and any unused credit can be carried forward to future periods.
5. Exemption for New Start-up Companies
New start-up companies which commence trading in 2009 and 2010 will be exempt from tax, including capital gains, in each of the first three years to the extent that their tax liability in the year does not exceed €40,000.
6. Salary Planning for Company Directors
If your owner-managed company is going through turbulent times or even if it is riding out the recession, ensure that you plan the salaries of the directors to minimise tax liabilities. If done properly, salary planning can not only reduce tax liabilities but also allows you to better manage the company’s cashflow throughout the year.
On a final note, as well as trying to reduce your tax bill, always ensure that your tax returns (including VAT, PAYE/PRSI, Corporation Tax and Income Tax) are filed and paid on time. Filing a return even just a few days late can result in avoidable interest and penalties.
If you have any queries on the above or are looking for even more ways to reduce your tax bill please feel free to contact me on 021 4310 266 or email@example.com.