Your Tax Situation

OK, so tax is not the most exciting topic but for the prospective Entrepreneur it is worthy of serious attention. That’s not just because you need to ensure that you are complying with your tax responsibilities but also because there are several tax schemes which could, should you be eligible, significantly reduce your tax bill.

Company Incorporation

A corporate tax rate of just 12.5% applies to retained profits of Companies – significantly lower than the income tax rates which are paid by sole traders and partnerships. This is very useful should a Company wish to reinvest profits.

Income tax is paid at 20% up to €36,500 per annum, and 41% thereafter.

Start-Up Companies – Corporation Tax Exemption

In October 2008 the government outlined a three-year tax exemption for start-up companies. The aim is to provide a stimulus for entrepreneurs starting businesses in 2009. In the December 2009 Budget this stimulus was extended to encompass businesses which incorporated during 2010 & again in Decemeber 2010 for the year 2011. Not all start-ups qualify for it, but for those that do & envisage profits and/or capital gains in their first three years of trade, this is a potentially massive benefit.

In essence it is a three-year exemption from Corporation Tax on profits and capital gains for companies with a tax liability of less than €40,000 per year. Because the Corporation tax rate is 12.5% this in effect exempts trading profits of up to €320,000 per year from Corporation Tax for three years.

Where corporation tax for the period is between €40,000 and €60,000, marginal relief will apply. No relief is available where corporation tax liability for the period exceeds €60,000. This relief will apply for three years from the commencement of the new trade. Therefore the company could potentially shelter €960,000 of trading profits from tax over a three year period.

• The company must commence to trade during 2009
• The trade must be a new trade and must not have been carried on previously by another person in the State.
• The tax relief will apply for 3 years from the commencement of the new trade.
• The tax relief does not apply to companies that are dealing in land or petroleum and mineral activities.
• The tax relief does not apply to professional service companies.
• The tax relief for companies operating in the road transport sector is restricted to a total of €100,000 over the 3 year period.

Significantly these provisions will not come into operation until a Ministerial Commencement Order is made which should occur after consultation with the European Commission.

Tax Registration

All new businesses are obliged to notify the Revenue Commissioners within one month of commencing activities.

To register for Taxation as a Sole Trader a person must complete a form TR1 and submit this to Revenue – Form TR1

To register for Taxation as a Company a form TR2 must be completed and submitted to Revenue. Companies are obliged to register for tax within six months of incorporation. Form TR2

If you run a service-based business then you are not obliged to register for VAT unless you turnover is in excess of €37,500 per annum. If you supply solely goods then the turnover threshold for VAT registration is €75,000. Those who charge VAT on goods/services sold can reclaim the VAT which they themselves have spent on outlay. For further information on this topic check out this Guide to VAT for Small Businesses

Entrepreneurs should also be mindful of the fact that they are responsible for deducting PAYE/PRSI payroll taxes at source.

For the self-employed, 31 October is the date for paying tax and filing income returns.

This Revenue taxation guide provides a fantastic overview of the basics of all aspects of tax for small business in Ireland and is well worth a look – Starting a Business in Ireland

The Seed Capital Scheme

If you are an employee, an unemployed person or were made redundant recently you may be entitled to avail of the tax refund available under the Seed Capital Scheme when you set up a new Company. This scheme allows employees to a refund for the PAYE they paid from all or part of the previous six years if the investment is large enough.

An employee who leaves employment and invests by means of shares in a company, which carries on a new business, may claim a refund of income tax paid in previous years. An unemployed person may also avail of this facility.

For more information about the Scheme follow this link:- Seed Capital Scheme

Business Expansion Scheme

The Business Expansion Scheme (BES) allows individual investors to obtain income tax relief  on investments in each tax year. There is no tax advantage for the company in receipt of the BES, but securing this funding may enhance their ability to attract other external funding.

For more information about the Scheme follow this link:- Business Expansion Scheme

Research and Development Tax Credit

A Tax Credit of 25% is available on expenditure incurred for R&D which may be used for offset against the companies Corporation Tax Liability, carried forward for future use against Corporation Tax liabilities or refunded.