Quick wins for Irish companies: Top 5 Corporation Tax deductions at a glance
Why pay more than you really have to?
“Death, taxes and childbirth! There's never any convenient time for any of them.” - Margaret Mitchell, Gone with the Wind
Paying Corporation Tax is not exactly the most fun thing in the world to do, and in the wake of COVID-19 chaos no company wants to pay more than necessary.
Here we take a look at the quick, easy (and of course, perfectly legal) ways companies in Ireland can knock their CT bill down to size.
Who has to pay Corporation Tax?
All Irish companies (as well as non-resident ones) that currently trade in Ireland must pay Corporation Tax (CT). It’s paid to Revenue and based on the taxable profits they’ve made.
There are currently three Corporation Tax rates:
- 12.5% for trading income
- 25% for income from an excepted trade (as defined in part 2 of the Taxes Consolidation Act)
- 25% for non-trading income (rental and investment income for example).
Corporation Tax is charged on the profits a company has made in its latest accounting period. This period cannot be more than 12 months long. If the tax rate is changed during that accounting period, profits will be apportioned on a time basis and taxed appropriately.
There have also been calls to increase the 12.5% rate up to 15% by 2023. This will have big implications for both companies and the wider economy so is well worth following updates on.
So how exactly is it possible to reduce your Corporation Tax bill?
Although paying Corporation Tax can be painful, the good news is there are several handy ways to reduce what you need to pay. They are:
#1: Pension payments
This is a really popular one and is also beneficial to you at the same time.
Making a year-end pension contribution or AVC (Additional Voluntary Contribution) has for a long time been an effective way Irish companies can slash their CT bill. Contributions can be made up of retained profits, so effectively you’re reducing the money in the business. It’s an allowable expense therefore reducing profits, which means less Corporation Tax.
Sounds great (and it is!) but there are a couple of things to bear in mind here:
1) Revenue must receive the balance from your company prior to year end, and,
2) There are some limits on how much you’re allowed to pay into your own pension pot. Much of it depends on how old you are and how long you’ve been working for your company. Essentially, it’s simply about balancing your wish to reduce your Corporation Tax bill against the chance to bolster your pension provision.
#2: R&D Tax Credits
Could your company be missing out on generous Revenue-backed R&D Tax Credits for research and development? If any recent projects have occurred that have given rise to a new (or improved) product, service or process then you could significantly reduce your Corporation Tax bill by around €25,000 for every €100,000 of innovation spend. A huge array of costs including money spent out on equipment, staff wages, consultancy fees, research facilities and testing can be claimed too.
Any company can claim - regardless of size or sector - and with average R&D Tax Credit claims sitting at around €55,000 it's money that's not to be sniffed at.
#3: Investing in plant and machinery
If a company in Ireland invests in specific types of plant and machinery their Corporation Tax liability can also be reduced. This is thanks to the AIA (Annual Investment Allowance) which allows firms to claim tax relief when purchasing particular business assets to a limit. Up until 31st December 2021 this limit was £1million, however since January 2022 the limit has been reduced to £200,000. Nevertheless, any company investing in eligible assets can still write off a hefty amount of investment costs against their profits.
#4: Making sure all business expenses are claimed - and losses too
This one may sound rather obvious, but even the smallest of businesses expenses can add up to big money over the year. It’s also very easy for Directors to themselves incur expenses on behalf of the company, only to then forget to claim them back via the accounting records.
Furthermore, if the company is - for any reason - making a loss, make sure all relevant loss reliefs are being claimed. There are quite a few of these on offer and the Revenue website is a good place to start. But it’s worth noting that in some circumstances they can be applied retrospectively to the year before, therefore creating a tax refund. They can also be carried forward against any future profits, or even given over to another group company.
#5: Seeing if you’ve claimed for capital allowances
Companies are usually able to claim capital allowances relating to capital expenditure that has been incurred on various business premises and assets. The tax that is owed should then be calculated based on these net costs with different rates applying depending on the type of asset.
Assets that companies can claim capital allowances on typically include things like business vehicles, industrial buildings, computer software and plant and machinery.
Claim R&D Tax Credits fast with the Tax Cloud portal
Could your business be eligible for R&D Tax Credits? If you think it is, you’ll first want to know how much you can claim - so why not try out our handy calculator?
Once you’ve seen what you can get, you’re then ready to use the Tax Cloud portal to make your claim. Developed and supported by the R&D tax specialists at Myriad Associates, the Tax Cloud portal will guide you through the claims process step-by-step without the hassle. We’ll even help you to maximise your claim too, making sure your company claims back everything it’s rightfully owed.
If you would like to speak to us about R&D Tax Credits for your Ireland-based company, simply call our friendly team on +353 1 556 2001 or drop us a message.Still not sure? Give our free demo a go too.
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