8 ways to reduce your Irish Corporation Tax bill
Nobody likes paying tax and whilst we would never advocate doing anything shady or underhand to reduce the amount you pay, there are legitimate ways that you can reduce your Irish corporation tax burden.
In this article, we’re looking at some of the more common methods of reducing what you pay to The Revenue and giving you some tips on ways that you can keep hold of your cash.
It’s important to remember though that tax law can be incredibly complex at times and so we’d always suggest that you speak with a specialist in Irish tax law to make sure that you aren’t inadvertently making a mistake.
#1 Claiming all your business expenses
This is the first stop for anyone who wants to reduce their corporation tax bill and it is the easiest to do.
You must make sure that you are claiming correctly for all of the expenses that your business incurs and it is surprising that many business owners don’t actually do this.
It’s a simple matter of making sure that you save copies of all invoices and receipts, ensure that anything paid for personally on behalf of the business (such as on your credit card) is claimed back and that you make use of any limits or allowances.
Any business can do this and it is just a matter of ensuring that you have very good bookkeeping and an organised bookkeeper.
Make sure you have a periodic review of payments you may have made from your personal bank accounts, credit cards and things like PayPal and then put in an expenses claim with your company.
You’ll then be reimbursed tax-free and your company can claim the expense against its corporation tax bill, but do make sure that the spending is for business purposes!
#2 Investing in your business
Companies are allowed to reduce their tax bill for amounts that they invest for future growth.
The Revenue allows companies to claim back a percentage of their spending on assets that have a life that is longer than a year (called capital a capital allowance).
Normally people think of capital allowances as just applying to plant and machinery but actually, there is a long list of things that you can claim for including;
- Plant and Machinery
- Software and systems
- Intangible assets (such as patents, copyrights and trademarks)
The amount you can claim does depend on the type of asset you are claiming for but on a large asset purchase this could work out as a healthy tax saving.
#3 Pension contributions
For some time now the government has wanted to encourage people to put money away for their retirement and one of the ways that they do this is by making pension contributions tax-deductible.
The payment into a pension is classified as a business expense and as such is fully tax-deductible however there are rules about how much you are allowed to pay in.
Generally speaking, you can build a pension fund that will provide up to two-thirds of your final salary and directors are limited to total contributions of €2,000,000.
Your contributions are also limited using a scale based on your age, gender and a variety of other factors determined by The Revenue.
As with all things pensions, you do need to make sure you take advice from a properly qualified person before you make any commitments.
#4 R&D tax credits
In a similar vein to capital allowances, companies investing in the future growth of their company through Research and Development can claim R&D tax credits.
The good news is that if your company isn’t making a profit at the moment, you can apply for the credits to be released to you in future years as your business starts to feel the benefit of your new development.
Companies can only claim R&D tax credits if they fall within the tax regime in Ireland, they carry out R&D activities in Ireland or the EEA and where they haven’t claimed an allowance in another country.
R&D tax credits are designed to reward businesses that are seeking to make strides in scientific and technological change including experimental activities, basic or applied research or resolving specific technological issues.
#5 Claiming for losses
Claimable losses can either be losses that you have incurred during the current year such as bad debts or past overall losses of the business.
If you have a sincerely held belief that the prospect of collecting a debt is nil then it is possible to claim this against corporation tax and claim back any VAT charged (and paid over) on the invoice.
If your company has made losses in previous years it is possible to claim these against future years profits without a time limit and if you make a loss in the current year you can even claim against the prior tax year’s profits.
#6 Advance expenditure
If your business is making a healthy profit in the current year then you can choose to bring forward certain types of expenditure to reduce your current year tax bill.
The types of costs include;
- Building maintenance, repairs and redecorating
- Advertising and marketing campaigns
- Redundancy and closure costs
As you would imagine there are some rules that you need to abide by here and it is important to speak with your accountant before choosing to bring forward any type of expenditure and of course you do need to remember that a lower tax bill this year may mean a higher one next.
#7 Cycle to work
If you want to encourage your staff (and maybe even yourself) to get fit then why not set up a cycle to work scheme?
The employer buys the cycle on behalf of the employee up to the value of €1,250 or €1,500 for e-bikes. This can include safety equipment like a helmet, lights and clothing.
The business then has two choices; it can require the employee to pay back the cost of the bike over a period of not longer than 12 months, in which case there will be no BIK charge but the cost of the bike will not be allowable for Corporation Tax.
Alternatively, the business can loan the bike to the employee for qualifying journeys and retain ownership of the cycle.
In this case, the company can claim back the VAT paid on the bike and the cost against CT as a capital asset.
The rules apply to one-person businesses just as they apply to a large business so a single director could for all intents and purposes provide themselves with a bike to use (for qualifying journeys only) tax-free.
It’s important to note that the company must pay for the bike. The employee cannot buy the cycle and then have the money refunded by the company.
#8 €500 Small Benefits Relief for Limited Companies
One of our favourite benefits is the Small Benefits Relief for Limited Companies.
This allows the company to make a payment to an employee or Director of €500 every year free of tax and PRSI and claim it against its Corporation Tax.
The payment can’t be in cash so the most popular way to do this is to buy vouchers. For many hard-working directors, this is a valuable and very much appreciated bonus for their efforts during the year.
Importantly you are only allowed one voucher, once per year. This means that you can’t take a €250 voucher in June and then a further €250 in December. It’s a once a year thing.
But every individual is entitled to a voucher, so for husband-and-wife teams, there is the chance to take one each and of course, it is an ongoing thing so you can do it every year.
Corporation tax – don’t pay more than you have to!
Corporation tax helps fund the state and in turn build roads, hospitals and schools so paying your tax is a good thing to do, but that doesn’t mean you should pay more than your fair share.
Making use of the tax allowances and credits means that you can keep your corporation tax down to a reasonable level and still make the contribution required by law.
But remember our warning – tax statutes tend to be complex and wordy and very often contradictory so please make sure you take advice from a qualified person before you decide on the methods to use.