Tax Planning Tips

Here are some tax planning tips that may help you in the running of your business.

VAT

• Apply for the VAT “cash receipts” basis which is helpful to avoid the cash-flow difficulty of accounting for VAT on a supply when the invoice has not yet been paid.  This can be availed of if your annual turnover is less that €1million.

• Revenue’s interest rate is calculated on a daily basis and equates to an annual rate of approximately 8% so file your returns on time to avoid interest. 

• Look at the total VAT payable to see if your business is eligible to file returns and make payments on a less frequent basis (3 monthly, 4 monthly or 6 monthly) or via direct debit.

• Make sure you receive proper VAT invoices in relation to expenses to reclaim all VAT incurred. A VAT invoice must show the VAT charged, the VAT rate and it must be issued to to the business.

•  Where bad debts arise and VAT has been accounted for on the supply, you may be able to claim for VAT bad debt relief.

• Review your turnover to see if it has fallen below the obligatory registration level.  The threshold for the supply of services is €37,500 and €75,000 for the supply of goods per annum. Of course, if you de-register for VAT you will not be able to recover VAT on purchases that you make for your business.  However, if your customers are generally non-registered persons they would benefit from receiving the service without VAT being charged.

 PAYE/PRSI

• Review total PAYE/PRSI payable to see if your business is eligible to file returns and make payments on a less frequent basis or via direct debit.

• Consider where employer PRSI savings may be made if you are taking on new employees:

• The Revenue Job Assist Scheme, gives your business a double tax deduction for wages and employer PRSI for the first three years in respect of each eligible job where the employee was previously unemployed for 12 months or more.

• Review total PAYE/PRSI payable to see if your business is eligible to file returns and make payments on a less frequent basis or via direct debit.

• You may qualify for the Employer (PRSI) Job Incentive Scheme.  Under this scheme, where an employer creates a new job and employs a person who has been unemployed for six months or more, there will be no employer PRSI contributions for the first 12 months of the employment.

• If you have implemented pay cuts check to see if the employers PRSI should be reduced to 8.5% rather than 10.75%.

• The “tax-free” rates for employee’s mileage and subsistence rates have reduced significantly so ensure you are applying these new rates.

• If your business is awaiting a statutory redundancy rebate and is experiencing particular difficulties in meeting its tax obligations as a result, there is a facility to offset the rebate against the tax due.  You could ask for this to be offset against your next PAYE (or VAT) liability.

• Pay your liabilities on time to avoid interest.  Revenue’s interest rate is calculated on a daily basis and equates to an annual rate of approximately 8%.

 Income Tax

• If you are a sole trader, it may be possible to offset any trading losses against tax on other income in the year.

•  If your spouse works in the business, review whether it would be beneficial to pay him or her a salary to avail of the increased standard-rate tax band for a married couple.  However, the salary paid must be a commercial salary for the work being carried out.

•  Reclaim any withholding tax (RCT and PSWT) at the earliest possible dates.

• Consider pension contributions as a means of reducing your taxable income.  Pension contributions paid before the filing date for the 2010 Income Tax Return, can be carried back and relieved against your 2010 income (subject to limits).

• Revenue’s interest rate is calculated on a daily basis and is approximately 8% annual rate so pay your liabilities on time to avoid interest. 

Corporation Tax

• Returns and payments should be made on time to avoid interest and penalties of up to 8%.

• Sufficient preliminary tax should be paid in order to avoid possible interest charges (at an annualised rate of approximately 8%).

• Any surplus trading losses can generally be offset against profits of the previous accounting period, which may result in a refund of corporation tax.

• Consider tax relief for Research and Development .  Any claim must be made within 12 months of the end of the relevant accounting period.

• Scrapping old assets on which capital allowances are available may create a balancing allowance.

• Reclaim any withholding tax (RCT and PSWT) at the earliest possible dates.

• Where a company is regarded as a “close company”  avoid the 20% surcharge by ensuring that sufficient distributions are made in a timely fashion.

 Imelda Prendergast is Partner - OSK Small Business Support and OSK Contracting