What deductions and allowances can be made regarding my Corporation Tax?
Companies in the Republic of Ireland are able to claim for certain expenditure against their profits to bring down the amount of tax they need to pay. Remember though that these expenses don’t include company entertainment expenses, or items classed as capital expenditure. Capital expenditure refers to the costs involved in buying or maintaining land, equipment or buildings.
Companies can claim capital allowances for capital expenditure it has incurred on particular types of company premises and assets.
Capital allowances are usually calculated on the net cost of the company premises or asset. There are varying rates available which depend on the asset type, and capital allowances can be claimed on:
- Industrial buildings
- Computer software
- Motor vehicles
- Plant and machinery
- Transmission capacity rights
- Specified intangible assets
Capital allowances can be claimed at a rate of 4% over 25 years for most industrial buildings and 12.5% over eight years for plant and machinery.
What about Accelerated Capital Allowance (ACA)?
Irish companies are able to claim a 100% Accelerated Capital Allowance (ACA) following:
- Gas vehicles and refuelling equipment
- Energy efficient equipment including electric vehicles
- Equipment in a gym or creche that a company has provided for use by its employees
A business can claim ACA in the first year that a specific asset has been used in the business. Additionally, businesses can also claim capital allowances at a rate of 15% over seven years on the cost of buildings that are used by employees for recreation, such as a gym or a creche.
How is pre-trading expenditure treated?
Revenue recognises that often companies incur certain expenses in the years before they begin trading (for tax purposes this is generally three years). A business can include these expenses as a deduction when it calculates its profits.
Interest and other annual payments
Companies are allowed to deduct royalties, interest payments and other payments they have to make when working out the amount of Corporation Tax they owe. A business’ Dividend Withholding Tax (DWT) on patent royalty payments needs to also be deducted and included in the Corporation Tax calculation. Note however that this doesn’t apply to:
- Payments that come under Taxes Consolidation Act 1997 (TCA 1997), s242A
- Payments that come under the Interest and Royalties Directive
- Payments covered in Corporation Tax - Treatment of specific patent royalties payable to businesses that reside outside the State.
How should charitable donations made by my company be treated?
Companies can make a charitable donation to any third-party charity or organisation that’s been pre-approved by Revenue. If they choose to do this, they may be offered a reduction in their Corporation Tax. Minimum donations of €250 per year are required for this to take effect.
Are dividends deductible?
Dividends cannot be deducted when a company is calculating its trading profits. There is also no Corporation Tax due on dividends that one Irish resident company pays to another. The majority of Irish resident companies that pay out dividends must pay the Dividend Withholding Tax (DWT).
What about trading losses?
If a business makes a trading loss in an accounting period then it can offset these losses as a means of reducing its tax bill. This would apply for trading income of the same accounting period or for trading income that immediately precedes the accounting period.
This calculation for the relief is made on a euro for euro basis, meaning one euro that is lost can be offset against one euro of profit.
Value basis relief
Revenue will allow any trading losses that are currently unused to be offset against non-trading income on a value basis, which includes chargeable gains. The value of tax regarding trading losses can be up to a maximum of the standard rate of Corporation Tax (12.5%).
Losses carried forward
Any trading losses currently unused may be carried forward (with no time limit) against a company’s trading income for the accounting period that comes immediately afterwards. The loss will need be claimed against the first available profits of the same trade.
A company that carries out an excepted trade is able to offset a trading loss against:
- Its total profits for the period during which the loss took place
- Its total profits of the accounting period immediately preceding.
Charitable tax exemption
If the Charities Regulatory Authority (CRA) grants charitable status to an organisation, it can then make an application to Revenue for a Charitable Tax Exemption. This means it may be exempt from:
- Corporation Tax (CT)
- Income Tax (IT)
- Stamp Duty
- Dividend Withholding Tax (DWT)
- Capital Gains Tax (CGT)
- Capital Acquisitions Tax (CAT)
- Deposit Interest Retention Tax (DIRT)
If the charitable organisation has employees, it will be required to pay Income Tax under the PAYE system. The exemption also doesn’t apply to Value-Added Tax (VAT).
I think my organisation may qualify for Charitable Tax Exemption. How do I apply?
In order to make an application for a Charitable Tax Exemption, your organisation needs to:
- Register for tax with Revenue
- Register with the Charities Regulatory Authority (CRA)
The simplest and fastest way to register is through Revenue Online Service (ROS).
In putting together your application for the exemption, you must fill out a CHY1 form and send it to Revenue’s Charities Section. You will need to submit your application using the Revenue Online Services (ROS) MyEnquiries and include the following:
- A copy of your organisation’s constitution
- A statement of its current activities and future plans
- Your latest financial accounts or a detailed plan of your finances for the future
What about Research and Development costs?
Any companies carrying out Research and Development (R&D) activities may well be eligible for a reduction in their Corporation Tax bill via R&D Tax Credits. Open to a massive variety of innovative projects in just about any field, they were introduced by the government to encourage businesses to innovate and grow.
R&D Tax Credits can either be applied as a reduction in a company’s CT bill, or as a lump sum relief. You can find out more about R&D Tax Credits, as well as how to apply, on the R&D Tax Credits webpage.
How can Tax Cloud help?
Designed for both businesses and accountants in the Republic of Ireland, Tax Cloud is an online portal offering businesses great value expert guidance through the R&D Tax Credits claims process. Not only it is quick and simple to use, it could save you a substantial amount of time by giving your company the very highest chance of being accepted.
Call us today on 0207 118 6045 or use our contact page and we’ll be pleased to help you in any way we can.
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