The Business Lending Blog

The Complete Guide to Irish Business Taxes for 2017

Posted by Alan Fagan on

According to recent Central Statistics Office (CSO) data, there are over 230,000 SME’s active in Ireland, employing over 900,000 people.If you’re leading up one of those 230,000+ business, then first of all, congratulations. It’s no small feat to get your own business up and running. Perhaps you’re following a dream, a passion or monetising your own unique skill sets in some other fashion.

Or maybe you just spotted an opportunity in the market and you’ve gone all in to make it a success.

Regardless of your reasons, launching and growing a successful business is a huge challenge as the obstacles are numerous and ever mounting. There are so many balls to juggle from the marketing mix of product, price, promotion and place down to the nitty gritty of staff recruitment, cashflows, employee engagement, culture, processes, finance, cashflow, balance sheet, scenario planning, forecasting, sales, pipelines, growth, leadership, the list goes on and on and it’s daunting.

The purpose of this document is not to offer help with everything (no document can) but instead to help you with an area that we do know about, finance. Specifically we’re going to drill down into Irish Tax laws and highlight what you need to know for all things tax related for 2017.

We’ll highlight useful information and guidance on taxes, tax reliefs and incentives for SME’s. Depending on your business, its size and maturity, some sections may be more relevant than others. Therefore, be sure to check out the table of contents and jump around as you see fit.

While the intention is to provide a comprehensive resource, there is always more detail to be discovered, in order to understand exactly what works for each business. Therefore, links to source information or additional reading will be included throughout.

You will see some acronyms throughout this document. One you will see a lot is ‘SME’. Here are three classifications that comprise the Small & Medium Enterprise (SME) sector:

 

  • Micro Enterprise – fewer than 10 employees and has either an annual turnover and/or Balance Sheet not exceeding €2m.
  • Small Enterprise – fewer than 50 employees and has either an annual turnover and/or an annual Balance Sheet total not exceeding €10m.
  • Medium Sized Enterprise – between 50 – 249 employees and has either an annual turnover not exceeding €50m or an annual Balance Sheet total not exceeding €43m

 

Finally, this guide is not intended to be, nor is it possible to provide one-size-fits-all tax advice. For specific and/or complex situations, consultation with a qualified tax adviser is essential.

Not all sections are relevant to everyone, so you might find it useful to glance at the following schedule of contents and zip down to areas and sections that jump out to you.

 

1 Business Structure

2 Registration Requirements

3 Types of Tax

 

1. Business Structure

Structure in this context has nothing to bricks and mortar yet the foundations upon which you build your empire will have tax implications depending on how you set up for business. In general, a business can be structured as a sole trader, partnership, or a company. There is no ‘best’ structure, just the one that most appropriately fits with your personal and business objectives. Also, it’s worth noting that businesses that start out as a sole trader or partnership can be transferred at a later time to a company, however in doing so, further tax liabilities could arise.

1.1 Sole Trader

A sole trader registers a business for taxes under his or her name, or if trading under a business name, that name must be registered with the Companies Registration Office (CRO- www.cro.ie). To be clear here, it is worth highlighting that registering a company name as a sole trader (for example a tradesman operating as a sole trader under a business name such as ABC Contracting) is not the same as registering a Limited Liability company (section 1.1.3). The administrative differences between the two can be substantial.

1.2 Partnership

Two or more individuals working together may enter into a partnership agreement. A partnership must register its name with the CRO and register for the relevant taxes with the Revenue Commissioners. The partnership will be issued with a separate tax registration number from the individual partners. Generally, each partner will be personally liable for any liabilities or losses of the partnership; however this will depend on the details of the partnership agreement reached.

1.3 Limited Liability Company

For a limited liability company (LLC), the company is required to register with the CRO. The company will then operate as a business and will be regarded as a separate entity from the individual (i.e. the owner) for tax and other purposes. Generally, the shareholders’ accountability for losses or other liabilities of the company should be limited to the extent of their contribution to the capital of the company.

2 Registration Requirements

As you can probably guess, all companies are required to register for tax upon commencing business. It’s just a fact of (business) life. In the case of limited liability companies for corporation tax, this registration must occur within one month of beginning business activities. Where the business is liable for VAT (see section on Tax Liability below), registration must be made within 30 days of becoming tax liable. The forms required for registering for tax (i.e. TR1 & TR2) are available on the Revenue website.

2.1 Personal Public Service Number (PPS)

In order to register for tax, an individual must have a PPS number as this is the unique identifier number that is used in transactions with public bodies including the Revenue Commissioners. If you don’t know your PPS number, you’ll find instructions on how to get yours at www.welfare.ie.

2.2 Revenue On-Line Service (ROS)

In most circumstances, registration for taxes must be completed through Revenue Online Service (ROS). ROS is an online system for filing tax returns, paying liabilities and accessing tax details. Further details on ROS are available on the Revenue website (www.revenue.ie).

3 Types of Tax

There are only a select few things in this world that unite people with polar opposite mindsets. But a dislike of taxes is one of them. For better or worse, paying tax is a cost of doing business that can have significant implications on your company’s cashflow. So in starting a business, consideration needs to be given to your company’s structure and the potentially relevant areas of taxation, such as the registration processes, determining the amount and timing of payments, record keeping, and of course tax reliefs and initiatives. Many of these items are covered in the section below, except for tax reliefs and initiatives which are outlined in greater detail in section 2 of this document.

3.1 Tax Liability Considerations

A business’s tax liability and obligations for registering ultimately depends upon the business structure and activity. The section below outlines the main tax categories for consideration and relevant filing and payment obligations occurring with each.

3.2 Income Tax, PRSI and USC

Where an individual carries on in business as a sole trader, he or she is obliged to pay Income tax, PRSI (pay related social insurance) and USC (universal social charge) on the profits of the business. Likewise in partnerships, each partner must pay Income tax, PRSI and USC on his or her share of the business profits. In both instances, the self assessment pay and file system applies.

This means that under self assessment, there is a common date for the payment of tax and filing of Tax Returns, which is 31 October. This system (Pay and File) requires individuals to file returns, complete a self-assessment, and pay the balance of tax outstanding for the previous year at the same time as he or she is required to pay preliminary tax for the current year. There is a legal obligation under self assessment that this must be completed by 31 October, otherwise interest and penalties apply.

Preliminary Tax is an estimate of tax and related charges payable by the individual for a tax year and must be paid by 31 October in the year in question. In calculating the Preliminary Tax payment, ensure that it covers also the liability to PRSI and Universal Social Charge, as well as Income Tax.

To avoid interest charges, the amount of preliminary tax paid for a tax year must be equal to or exceed the lower of 90% of the final liability for the tax year, 100% of the final liability for the previous tax year, or 105% of the final liability of the pre-preceding tax year (Note – not applicable where pre-preceding year tax payable was nil and only available where preliminary tax is paid through direct debit).

Filing for the above is now mandatory online through Revenue Online Service (ROS). For additional details on all of the above, including further information on filing requirements, seewww.revenue.ie the Business & Self Assessment section.

3.3 Corporation Tax

Where business is carried on through a company structure, the company is obliged, under the self assessment Pay & File system, to pay Corporation tax on the profits of the business as adjusted for tax purposes (i.e. adjustments from accounting profits to tax profits are required and include for example adding back non-cash items such as depreciation).

The two rates of corporation tax are:

  • 12.5% for trading income unless the income is from an excepted trade* in which case the rate is 25%
  • 25% for non-trading income (such as investment income or rental income)

*Excepted trades include certain land dealing activities, income from working minerals and petroleum activities.

Corporation tax filing requirements and deadlines vary based on the size and structure of companies. For example, the Revenue includes its own definitions of “small” versus “large” companies, and outlines a set of filing requirements according to each. These details and more can be found on www.revenue.ie under the Taxes & Duties (Corporation Tax – Payment) sections.

3.4 Value-Added Tax (VAT)

VAT is a tax on consumer spending. It is collected by VAT registered traders on their supplies of goods and services within the State to their customers. Generally, each trader in the supply chain, from manufacturer through to retailer, charges VAT on the business’s sales and is therefore entitled to deduct from this amount the VAT paid on his or her purchases.

The effect of offsetting VAT on purchases against VAT on sales is to impose the tax on the added value at each stage of production. For the consumer (not being VAT registered), VAT simply forms part of the purchase price.

Most goods and services supplied in Ireland are subject to VAT. Goods imported into Ireland from outside the EU are also subject to VAT, which is charged by customs at the point where goods enter the State.

Depending on your company’s activities VAT registration may be required, subject to certain thresholds. Generally, where turnover is greater than €75k for the supply of goods (or €37.5k for the provision of services), VAT registration is required.  

A VAT-registered person normally accounts for VAT on a two-monthly basis (January/February, March/April etc.). The return is made online through ROS together with a payment for any VAT due. The due date for the submission of the ROS VAT return is the 23rd of the month following the end of the taxable period. For example, a return for the VAT period May/June is due by 23rd July.

There are several different VAT rates in Ireland, including:

For details on rates and other VAT relevant information visit www.revenue.ie under the Taxes & Duties Section.

3.5 PAYE/PRSI on Employees

The Pay As You Earn (PAYE) system is a method of tax deduction under which an employer calculates and deducts any income tax due each time a payment of wages, salary etc. is made to an employee.

In addition, employers are obliged to calculate and deduct any liability to Pay Related Social Insurance (PRSI) and income levies.

Any employer who makes payments exceeding a rate of:

  • €8 per week (or €36 per month) in the case of an employee engaged full-time or
  • €2 per week (or €9 per month) where the employee has other employment and who is not already registered must register for PAYE purposes. An employer is also required to notify Revenue of their name and address and of the fact that they are making such payments within a period of 9 days after the date of commencement.

A company must register as an employer and operate PAYE on the income of directors even if there are no other employees. A director of an Irish incorporated company is liable to PAYE on any income attributable to the directorship irrespective of their residence status or where the duties of the directorship are performed.

Notification should be sent to the local Revenue office responsible for the geographic location where the business is managed and controlled within 9 days from the date the employer is so liable.

Full details on employer PAYE/PRSI can be viewed on www.revenue.ie under the Business and Self Assessment section.

3.6 Capital Gains Tax

Capital Gains Tax is chargeable on gains arising on the disposal of assets. The standard rate in respect of disposals depends on the date that the disposal was made as follows:

Disposals made:

  • from 6 December 2012 – 33%
  • from 7 December 2011 to 5 December 2012 – 30%
  • from 8 April 2009 to 6 December 2011 – 25%
  • from 15 October 2008 to 7 April 2009 – 22%
  • made on or before 14 October 2008 – 20%

The first €1,270 of an individual’s annual chargeable gains, net of allowable losses, is exempt.

3.7 Relevant Contracts Tax (RCT)

Relevant Contracts Tax (RCT) is a tax deduction at source system that applies to payments made by a principal contractor to a subcontractor under a relevant contract (i.e. a contract to carry out, or supply labour for the performance of, relevant operations) in the construction, forestry and meat processing industries. Full details of the RCT system can be found on www.revenue.ie under the Relevant Contracts Tax section.

3.8 Dividend Withholding Tax

Dividend Withholding Tax at the standard rate of income tax applies to dividend payments and other distributions made by an Irish resident company, with some exceptions. Irish individual shareholders are taxable on the gross dividend at their marginal rate of tax but are entitled to a credit for the tax withheld by the company paying the dividend and to a refund of the balance where the withheld tax exceeds their tax liability. Full details on Dividend Withholding Tax can be found on www.revenue.ie under Taxes and Duties.

3.9 Professional Services Withholding Tax

A withholding tax, at the rate of 20 per cent, is deductible at source from payments for “professional services” made to individuals and companies by “accountable persons” (Government Departments, local authorities, health boards, State bodies, etc.). The tax applies generally to fees and similar payments made by listed accountable persons but does not apply to payments already covered by PAYE or the construction industry tax deduction scheme. The tax also applies to payments made by health insurers under contracts of insurance to cover fees for services provided by medical practitioners in certain circumstances. The tax is charged on payments net of value-added tax.

Any person (including a company) receiving a payment from an accountable person in respect of professional services is liable for the tax. A wide range of professional services is included. Non-residents come within the ambit of the scheme but they are entitled to a full refund if the income is not chargeable to Irish tax. Full details on Professional Withholding Tax can be found on www.revenue.ie under Taxes and Duties.

 

4 Reporting Obligations

Creating and maintain reports might seem a pain, but unless you have a photographic memory and an encyclopaedic mind, these will serve you well in keeping an eye on just how your business is doing, at a glance. Businesses must prepare and maintain full and accurate records in paper or electronic format. These records should enable you (as a sole trader, partner or company) to carry on in business, calculate business profits and make true and proper tax returns. They keep you honest and keep your feet on the ground.

The records kept must include books of account in which all purchases and sales of goods and services, and all amounts received and paid out, are recorded in a manner that will clearly show the amounts involved and the matters to which they relate. All supporting records, such as invoices, bank and building society statements, cheque stubs, receipts, rent books, etc should also be retained.

Failure to keep proper books and records (including failure to maintain them for the required 6 years) where you are chargeable for tax, is a revenue offence. If convicted of a Revenue offence, fines or in some cases imprisonment can be imposed.

 

5 Tax Reliefs & Incentives

Ok, so you’ve followed the advice above and set up your company for success. You’ve structured appropriately, registered for tax purposes, you understand the different types of taxes and sorted out your reporting. Now you’re in a position to avail of a wide range of supports, reliefs and incentives. These supports range from reduced filing frequency to thresholds for certain exemptions. This section provides an overview for several of these supports along with links and references wherever possible to obtain additional details.

5.1 Tax Reliefs and Incentives

In addition to the available supports and reliefs provided to businesses, there are a number of government initiatives designed to contribute to the creation of jobs in the State, such as the Start Your Own Business Scheme. An overview of these initiatives is also provided in this section.

5.2 Payment Arrangements for Employer PAYE/PRSI, VAT and RCT

Reductions in the filing and payment frequencies for VAT, PAYE/PRSI and RCT by smaller businesses were extended to eligible customers from 1 January, 2014.

  • Businesses making total annual VAT payments of less than €3,000 are eligible to file VAT returns and make payments on a 6 monthly basis;
  • Businesses making total annual VAT payments of between €3,000 and €14,400 are eligible to file VAT returns and make payments on a 4 monthly basis;
  • Businesses making total annual PAYE/PRSI payments of up to €28,800 are eligible to make payments on a 3 monthly basis;
  • Businesses making total annual RCT payments of up to €28,800 are eligible to file RCT returns and make payments on a 3 monthly basis.

5.3 VAT Registration Exemption

As referenced in the first section of this document VAT registration is required where certain turnover thresholds are exceeded or are likely to be exceeded in any twelve-month period.  The thresholds (www.revenue.ie) are as follows:

  1. While the general turnover threshold for the supply of goods is €75,000, persons supplying goods liable at the reduced or standard rates which they have manufactured or produced from zero-rated materials must register if their turnover is €37,500 or more.
  2. While the general turnover threshold for the supply of services is €37,500, for persons supplying both goods and services where 90% or more of the turnover is derived from supplies of goods (other than of the kind referred to in the above paragraph) then the threshold for Goods applies.
  3. Intra-Community acquisitions of goods for business purposes by a person in the State
  4. Distance sales of goods by a foreign trader to non-registered customers in the State
  5. Persons not established in the State but supplying goods and services here must register regardless of the level of turnover.
  6. Persons receiving services from abroad for business purposes in the State must register regardless of the level of turnover.

5.4 VAT Cash Basis

Under the normal Invoice Basis for accounting, a trader is liable to account for VAT when an invoice is issued to a customer. Under the Cash Basis (also called the Receipts or Moneys Received Basis) of accounting, a trader is liable to account for VAT when payment is actually received.

A trader must fulfil one of two criteria to be on the Cash Basis. Either

  • Annual turnover does not exceed €2,000,000 or
  • Supplies are almost exclusively (at least 90%) made to customers who are not registered for VAT, or are not entitled to claim a full deduction of VAT.

In practice, the Cash Basis of accounting is mainly used by shops, restaurants, public houses and similar businesses, and by any other person making supplies of goods or services directly to the public. A person or business applying for VAT registration who wishes to use the Cash Basis rather than the Invoice Basis must also apply at the time of registration in writing for permission. Alternatively, application may be made to the local Revenue District subsequently, again in writing, to change from the Invoice Basis to the Cash Basis.

5.5 Deferral of Corporation Tax Preliminary Due Date

A small company is a company whose Corporation Tax liability in the preceding accounting period does not exceed €200,000. Such a company has the option of basing its preliminary tax on the corresponding Corporation Tax liability for the preceding accounting period.

New or Start-up companies with a Corporation Tax liability of €200,000 or less for their first accounting period will not be required to pay Preliminary Tax in respect of that first accounting period and will instead be required to pay their final Corporation Tax liability for that accounting period at the same time as they are required to submit their Corporation Tax return, i.e. within nine months after the end of the accounting period, subject to the 21/23 day rule referred to above.

5.6 Business Expenses

A tax deduction against business profits can be claimed for any business expenses incurred in order to earn profits. Referred to as revenue expenditures, these are the day-to-day running costs and include such expenses as wages, rent, and running costs for vehicles and machinery.

5.7 Losses

For sole trader and partnerships it may be possible to offset losses for a year against other taxable income in that year. Where not fully absorbed, losses can be carried forward for use against future trading profits from the same trade.

For incorporated businesses, a trading loss in an accounting period may generally be offset against other trading income from the same year, trading income in the immediately preceding year and trading income of future accounting periods.

There are several restrictions and other complexities related to application of losses against taxable profits. Therefore it is an area where typically professional expertise should be sought. For further details on applying losses against taxable profits see the Tax and Duty Manual (related to section 381 of the Taxes Consolidation Act 1997) on www.revenue.ie.

5.8 Capital Allowances

Sole trader / partnerships and incorporated business are not generally allowed to claim a deduction in respect of capital expenditures. However, it may be entitled to capital allowances in respect of certain capital expenditures.

There is an allowance for wear and tear of plant and machinery in use for the purposes of a trade at the end of an accounting period. The allowance is calculated by reference to the cost of the item (less any grants received) and the allowable expenditure may be written down at the rate of 12.5% on a straight line basis. A wear and tear allowance is also available in respect of expenditure incurred on motor vehicles – also at the rate of 12.5% on a straight line basis.

Capital allowances are also available in respect of expenditure on transmission capacity rights, computer software, energy efficient equipment including electric and alternative fuel vehicles, and industrial buildings and specified intangible assets. The rate at which the expenditure may be written down varies according to the type of expenditure incurred.

5.9 Patent Exemptions

An Irish resident individual or company on making a claim is entitled to have any income accruing from a qualifying patent disregarded for the purposes of the Income Tax Acts or Corporation Tax Acts, as appropriate. Applicants claiming exemption must, however, make the appropriate tax returns.

An individual in receipt of income from a qualifying patent is not entitled to have that income treated as exempt income unless the individual carried out, either solely or jointly with another person, the research, planning, processing, experimenting, testing, devising, development or other similar activity leading to the invention which is the subject of the qualifying patent. A qualifying patent is a patent where the work which gives rise to the invention which is patented is carried out in the State.

Revenue may, in determining the amount of income to be disregarded, make such apportionment of receipts and expenses as may be necessary.

Those in receipt of disregarded income are obliged to show the amount of such income in their tax returns.

5.10 Intellectual Property

Companies with qualifying Intellectual Property (IP) can avail of significant deductions on certain capital expenditure. Tax depreciation is available for capital expenditure incurred on the acquisition of qualifying IP assets. The deduction is equivalent to the amortisation or depreciation charge on the IP included in the accounts. Alternatively, a company can elect to claim tax deductions over 15 years, at a rate of 7% per annum and 2% in the final year.

5.11 Start Your Own Business scheme

The Start Your Own Business scheme provides for relief from Income Tax for long term unemployed individuals who start a new business. The scheme will provide an exemption from Income Tax up to a maximum of €40,000 per annum for a period of two years to individuals who set up a qualifying business having been unemployed for a period of at least 12 months prior to starting the business. The relief is available from 25 October 2013 to 31 December 2016.

The Start Your Own Business relief only applies to Income Tax and does not extend to USC and PRSI. USC and PRSI will therefore be payable on any profits earned in the new business.

Full particulars of this scheme are available on Revenue’s website at www.revenue.ie.

5.12 Startup Refunds for Entrepreneurs (SURE)

If an individual is an employee, an unemployed person, or was made redundant recently and is interested in starting his or her own business, he or she may be entitled to a tax refund under SURE. An unemployed individual or 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.

Details of the refund / potential refund include:

  • It is possible to claim a refund for all income tax paid over six years (provided the investment is big enough).
  • The individual can select the tax years for which he or she may claim refunds from any or all of the six years prior to the year of investment. The investment must be claimed up to the extent of the total income in each of the selected years (subject to a max of €100k). There is no facility available where the investment can be spread over a number of years so as to utilise personal allowances each year.
  • For each year selected, the refund is limited to the tax amount that was paid (upper limit of €100k).
  • If an individual has previously received Business Expansion Scheme (BES) or Employment Investment Incentive (EII) relief for any of the six years selected, the amount of the relief available in that year is limited to the difference between €100k and the amount of the original BES or EII investment.
  • A refund can be obtained in this manner for two investments in the company made within a three-year period. Both investments, however, must be made in the same company.
  • Full details of the scheme, including conditions related to the investor and the company is outlined in Leaflet IT15 on www.revenue.ie.

5.13 Employment and Investment Incentive (EII)

The EII scheme allows a qualifying individual who makes a qualifying investment (max of €150k in any one year) in a qualifying company to deduct 30/40 of the cost of the investment from their total income in the year of the investment. A further deduction of 10/40 of the cost of the investment will be allowed if, after a three year holding period, the company has increased its number of employees or has increased its expenditure on research and development.

The relief may be carried forward to future years if the investor cannot take the full deduction to which he or she is entitled in any one year. The investment must be held by the individual for at least three years. The relief is currently scheduled to end in 2020.

Full details of the conditions relating to the investment, the company and the qualifying activities of the company are outlined in Leaflet IT55 on www.revenue.ie.

5.14 Corporation Tax Relief for New Startup Companies

Relief from Corporation Tax for new startup companies for the first three years of trading is provided for in section 486C of the Taxes Consolidation Act 1997. The relief is provided in respect of profits of a new trade and chargeable gains on the disposal of assets used in the trade. Relief applies where the total Corporation Tax payable for an accounting period does not exceed €40k, with marginal relief available on a reducing basis where total Corporation Tax payable is between €40-60k.

The value of relief is linked to the amount of employers’ PRSI paid by a company in an accounting period, subject to a maximum of €5k per employee and an overall limit of €40k.

The scheme does not apply to a trade which was previously carried on by another person or formed part of another person’s trade, a trade dealing in or developing land or exploration and extraction of natural resources. Further details of the scheme, including addition considerations and exclusions, are available on www.revenue.ie under tax instruction 15-03-03 (Tax Relief for new Start-Up Companies).

5.15 Research and Development (R&D) Tax Credit

The key features of the R&D scheme are as follows:

  • A tax credit of 25% is available on incremental R&D expenditure incurred on trading expenses (e.g. wages, materials, utilities etc.) and plant and machinery. The credit is given at a rate of 25% on qualifying R&D expenditure. For accounting periods beginning on or before 31 December 2014, the credit is given on incremental expenditure over expenditure in the base year, which was permanently set at 2003. For accounting periods beginning on or after 1 January 2015, there is no requirement to subtract base year expenditure from qualifying expenditure when calculating claims. This R&D tax credit is in addition to the normal 12.5% deduction for trading expenses and capital allowances.
  • Buildings are treated separately. The expenditure qualifying for the credit is calculated on a volume basis, i.e. there is no incremental basis for expenditure on buildings.
  • Where a company has insufficient corporation tax against which to claim the R&D tax credit in a given accounting period, the tax credit may be carried forward indefinitely, or if a member of a group, in certain circumstances, allocated to other group members.
  • Unused tax credits can be carried back for set-off against a company’s prior year corporation tax liabilities thus generating a tax refund.
  • Where there is insufficient current or prior year corporation tax liabilities, the company can claim unused tax credits in cash over three years (in three instalments over 33 months from the end of the accounting period in which the expenditure is incurred).
  • A company’s R&D tax credit may be assigned to key employees.

Full particulars of the scheme are available on Revenue’s website www.revenue.ie.

5.16 Retraining Relief

Where, as part of an employee’s redundancy package, an employer incurs the cost of retraining that individual (e.g. to support improvement in job prospects after redundancy) then the first €5k of the cost of such retraining will not be taxable in the hands of the employee being made redundant.

Statutory redundancy payments are exempt from tax. In addition, ex gratia redundancy payments in excess of the statutory redundancy, including provision of retraining, are also currently free from tax up to certain statutory limits.

The retraining must be:

  • For an employee with more than two years continuous service full time,
  • Part of a redundancy package and be designed to improve skills or knowledge used in obtaining employment or setting up a business.
  • Completed within six months of the employee being made redundant.
  • The exemption does not apply to a spouse, civil partner or dependents of the employer, and the employee must avail of the training as they cannot take cash instead.

5.17 Employment Grants and Recruitment Subsidies

Certain grants and subsidies paid to employers who employee people under certain schemes are to be disregard by the Tax Acts (i.e. paid tax free). These grants and subsidies include:

  • Department of Social Protection back to work scheme.
  • Any scheme established by the Department of Jobs, Enterprise and Innovation which promotes the employment of individuals who have been unemployed for three or more years.
  • Under any operating agreements between the Minister for Jobs, Enterprise and Innovation and County Enterprise Boards.
  • On or after 6 April 1997, under the Employment Support Scheme administered by the National Disability authority.
  • Under the Wage Subsidy Scheme.
  • Under the Area Partnership Schemes, which are administered by Area Development Management Limited under the EU Operational Programme for Local, Urban and Rural Development.
  • Under the Special Programme for Peace and Reconciliation in Northern Ireland and the Border Counties, or
  • Under any initiative of the International Fund for Ireland.

5.18 Film Relief

This scheme is intended to act as a stimulus to the creation of an indigenous film industry in the State, creating quality employment opportunities and supporting the expression of the Irish culture. Prior to 2015 the scheme operated by giving tax relief to individuals investing in the film industry. From 2015 the scheme provides direct support to film producer companies in the form of a tax credit. The scheme is provided for in section 481 of the Taxes Consolidation Act 1997.

The scheme provides relief in the form of a corporation tax credit related to the cost of production of certain films. The credit is granted at a rate of 32% of the lowest of:

  • Eligible expenditure.
  • 80% of the total cost of production of the film.
  • €50m.

The minimum amount that must be spent on the production is €250k and the minimum eligible expenditure amount to qualify is €125k. Full conditions are outlined in Guidance Note for Section 481 Investment in Film, which is available on www.revenue.ie.

5.19 Special Assignee Relief Programme (SARP)

SARP provides for income tax relief on a proportion of income earned by an employee who is assigned by his/her relevant employer to work in the State for that employer (or for an associated company in the State of that relevant employer).

The company assigning the employee must be incorporated and tax resident in a country with which the State has a double taxation agreement or a tax information exchange agreement.

Where certain conditions are satisfied, an employee can make a claim to have a proportion of his/her earnings from the employment with the relevant employer (or with an associated company) exempt from income tax.

The Special Assignee Relief Programme works by exempting 30% of an employee’s income from the employment. For the years 2012, 2013 and 2014, the exempted proportion is 30% of the employee’s income between €75,000 and €500,000. For 2015, and subsequent years, the exempted proportion is 30% of an employee’s income over €75,000.

The full amount of income earned remains subject to USC and PRSI.

 

Employees can also receive free of tax certain travel expenses associated with the provision of an annual trip home for the individual and their family and costs of up to €5,000 per child per annum associated with the education of their children in the State.

The relief can be claimed for a maximum period of five consecutive years starting with the year of first entitlement.

Full particulars on SARP are available on Revenue’s website www.revenue.ie.  

5.20 Foreign Earnings Deduction

The Foreign Earnings Deduction is designed to assist indigenous companies seeking to expand into emerging markets. Employees or directors working for specified periods in the identified emerging markets can avail of an income tax deduction. The amount of the deduction will depend on the number of days worked in a relevant state/s and the relief is granted by providing a proportional deduction from income based on the number of qualifying days worked in such relevant states. The maximum amount of the deduction cannot exceed €35,000 in any tax year.

Full particulars of the scheme are available on Revenue’s website www.revenue.ie.

5.21 Retirement Relief – Capital Gains Tax

This relief is aimed at encouraging the transfer of businesses and farms by elderly owners to younger persons.

This is a relief from capital gains tax in the case of an individual aged 55 or over on the disposal of all or part of his or her farming or business assets. In general, the assets concerned must be owned and used by the individual for farming or business purposes for a minimum period of 10 years prior to the disposal of those assets. However, land which has been let can qualify for the relief in certain circumstances, provided it was owned and used for farming or business purposes by the individual disposing of the land for at least 10 years prior to being let.

Where the disposal is outside the family, full relief is given where the proceeds from the disposal do not exceed €750,000. Where an individual is aged 66 or over, the relief is reduced to €500,000.

In the case of disposals within the family, full relief is given. Where an individual is aged 66 or over, relief is capped at €3,000,000.

Full particulars of the relief are available in the Guide to Capital Gains Tax on Revenue’s website www.revenue.ie.

5.22 Entrepreneur Relief – Capital Gains Tax

This relief is aimed at encouraging entrepreneurs to reinvest the proceeds of a disposal in new businesses.

Section 597A of the Taxes Consolidation Act 1997, inserted by section 52 of the Finance Act 2014, provides relief from a future capital gains tax liability for entrepreneurs who, on or after 1 January 2014 and on or before 31 December 2018, invest the proceeds of an earlier disposal in respect of which capital gains tax was paid in new business ventures, which are subsequently sold.

The relief is in the form of a tax credit against any capital gains tax liability on the future disposal of chargeable business assets of the qualifying enterprise made more than 3 years after they were acquired. The tax credit will be the lower of:

  • The CGT paid on the earlier disposal where all the consideration on the disposal, apart from any CGT paid, is invested in chargeable business assets (or a proportionate amount where less than the full amount is reinvested), and
  • 50 per cent of the CGT payable on the disposal of chargeable business assets.

Chargeable business assets are assets used wholly for the purposes of a new business carried on by an individual or new ordinary shares issued on or after 1 January 2014 in a qualifying company over which the shareholder has control and in which the shareholder is a full-time working director. There is a minimum investment requirement of €10,000. In the case of investment through a company, each shareholder must own not less than 15% of the shares in the qualifying company carrying on the new business (or in a holding company which owns 100% of the ordinary share capital of a qualifying company carrying on a new business) and must be a full-time working director in the qualifying company. Assets held as passive investments do not qualify for the relief.

If the proceeds of a disposal of chargeable business assets are in turn reinvested in another new business, CGT relief can be claimed on the same basis as outlined above.

5.23 Agricultural Relief and Business Relief – Capital Acquisitions (Gift and Inheritance Tax)

Special treatment is afforded both to Business property and to Agricultural property on the transfer of those assets to the next generation by way of gift or inheritance.

The market value of Business property and Agricultural property may be reduced by 90% for tax purposes provided certain conditions are met while the annual tax-free threshold is also available for offset against the reduced value.

The aim of these reliefs is to encourage entrepreneurial activity and also to avoid a possible forced sale of trading entities in order to pay significant CAT liabilities.

Conclusion:

Ok, so that was a long, detailed and hopefully enlightening read. But it’s really only an overview and every business has its own particular needs and opportunities. Any growing business will need to lean on an expert to avail of tax breaks and we would definitely advise that you seek an expert before committing to a course of action.

With expert guidance on specialised subjects like tax, you’re free to concentrate on bringing your own individual skills and talents to the fore. You’re one of the lucky ones. You get to be the boss, live the dream, reap what you sow and grow from strength to strength.

Running a business will always be tough, but if you get a good handle on your tax obligations that’ll be one significant source of headaches that you won’t need to worry about.