1ST AUGUST, 2019

How Can Irish Businesses Reduce Their Corporation Tax Bill?

Corporation Tax can be a major pain in the wallet for any business but the good news is there are a number of things that companies in Ireland can do to reduce the burden. Take a look through our handy list of tips and see if any apply to you.

Who must pay Corporation Tax?

All Irish companies (as well as non-resident ones) who are trading in Ireland must pay Corporation Tax (CT) to the Revenue based on the taxable profits they make. The rate applicable to all corporate trading profits is currently 12.5% with non-trading (passive) income taxed at 25%.

Filing and payment of Corporation Tax

Companies in Ireland must use the Revenue Online Service (ROS) for filing their returns and paying any tax amounts owed under Mandatory e-Filing.

Businesses must:

  • Calculate and pay preliminary tax by a specific date stipulated
  • Calculate and pay preliminary tax by a specific date stipulated
  • Settle any balance of tax due by the deadline

When is preliminary Corporation Tax due?

Larger companies can divide the payment of their preliminary CT across two instalments as long as their accounting period is more than seven months long. The initial instalment needs to be made by the 23rd of the 6th month of the accounting period. The amount required for payment is either:

  • 45% of the Corporation Tax amount due for the current accounting period
  • 50% of the Corporation Tax amount due for the accounting period before the current one

The second instalment must be forthcoming by the 23rd day of the 11th month. This will mean that the preliminary tax has then been made up to 90% of the final tax bill for payment during the current accounting period. Companies with an accounting period of less than seven months must pay 90% of the preliminary tax in a single instalment instead.

For small companies, preliminary tax must be paid in one instalment if they have a Corporation Tax liability of €200,000 or less across the previous accounting period. Tax due must be settled at least 31 days before their current accounting period ends, and by the 23rd day of that month.

How can pension payments help?

Making a year-end pension contribution or AVC (Additional Voluntary Contribution) has long been a very effective method for Irish businesses to reduce their Corporation Tax liability. Contributions can be made up of retained profits, thus reducing the Corporation Tax charge simply due to the fact that less money remains in the business.

Because this payment is an allowable business expense it effectively reduces assessable profits, meaning a lower tax bill.

However, there are two key points which you need to take on board here:

1)   The balance must be received by the Revenue before the year end, and,

2)  Certain limits apply as to the amount a payment can be. Such limits can be dependent on anything from your age, how long you’ve worked for the company and the current value of any existing pension plans you already have set up. In essence, it’s simply a case of balancing your need to build up a decent pension pot for retirement, versus the more urgent need to reduce your next Corporation Tax bill.

How else can Irish companies reduce their Corporation Tax bill?

Besides pension payments, there are several other important ways that Irish businesses can reduce the amount they have to hand over to the Revenue by way of Corporation Tax. These include:

  • R&D tax credits

Could your company be missing out on generous Revenue-backed tax credits for research and development?  If your business has engaged in any activities that would come under the umbrella of innovation, such as investing in a new process, software or technical solution, then you may be able to reduce your Corporation Tax bill by around €25,000 for every €100,000 of innovation spend. Tax savings in the form of R&D tax credits can to applied to anything you’ve spent on equipment, testing, consulting or research facilities too.

  • Investing in plant and machinery

Corporation Tax liability can also be reduced if investments have been made by a company in various types of plant and machinery. Businesses can take advantage of the AIA (Annual Investment Allowance) which means they can claim immediate tax relief when buying certain business assets up to a clearly defined limit. The AIA was substantially increased up to £1million from 1st January 2019, meaning companies that invest in qualifying assets are allowed to write off a large amount of the cost of this investment against their profits.

  • Claiming all your business expenses and any losses too

It might sound pretty obvious, but make sure all your expenses are included in your accounting records and be careful not to miss any off. It’s all too easy for Directors to incur expenses themselves on the company’s behalf but then forget to claim them back via the accounting records.

Additionally, if your company is making a loss for any reason, ensure that it’s taking advantage of all available loss reliefs. There are a variety of different losses that a business can suffer, but in some circumstances they can be applied back to the year previously (to create a tax refund), carried forward against profits made in the future, or even handed over to a another group company.

  • Check you’ve claimed for capital allowances

Companies are generally allowed to claim capital allowances for capital expenditure that it has incurred on a number of different business premises and assets. The tax owed is then calculated based on these net costs and different rates will apply depending on the asset type. Typically a company can claim capital allowances on things like industrial buildings, business vehicles, plant and machinery and computer software.

Try our Tax Cloud calculator

If you’re keen to know exactly how much tax relief your Irish business could claim then why not try out our handy calculator? Created and developed by Myriad Associates, it’s designed to guide you through the claims process with minimum effort and hassle.

If you have a question about any aspect of R&D tax credits or would like to discuss an accounting issue for any business located in Ireland, then take a few minutes to speak with the experts on +353 1 556 2001 or use our contact page.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey David Farbey MA, FISTC, FRSA Technical Consultancy Director
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
Lauren Olson Lauren Olson MA, MISTC Senior Technical Consultant