There are three main ways businesses in Ireland can reduce tax liabilities: claiming tax credits, claiming tax reliefs, and claiming tax-deductible business expenses.
If you are just starting out in business, in the early stages of setting up, or when preparing your taxes, you may be asking yourself “what can help reduce the amount of taxes that you owe?”
In this guide, we discuss how businesses can reduce tax liabilities by giving you insight into the types of schemes available. However, it’s important to note that not all tax schemes apply to everyone so talk to your accountant for specific advice about your circumstances.
Claim business expenses
Tax credits for business owners in Ireland
Sole Traders and companies in Ireland have access to different tax credits. However, if you are also an employee or Director of a Limited Company, you can claim similar tax credits to a Sole Trader.
We go through some examples below but we recommend you seek advice from an accountant as each situation is different and not all tax credits will apply.
25% tax credit for Research And Development (R&D)
The R&D tax credit is for Limited Companies in Ireland. It is a value-based incentive that encourages companies to invest in R&D activities in the European Economic Area (EEA). If your company fulfils technical requirements, you can claim up to 25% of the cost of R&D expenditure by way of a reduction in your Corporation Tax.
Find out more about what kind of R&D activities qualify and how to claim your R&D tax credit in our guide. For more information on how we can help, talk to our Client Services Team.
Earned Income tax credit
The Earned Income Credit is a tax credit based on the type of pay that you earn. It applies to Sole Traders, proprietary directors (owning more than 15% of the ordinary share capital of a company), and the spouse or child of proprietary directors.
Employee (PAYE) Tax Credit
Sole Traders starting a business while working full-time can avail of both the Earned Income Credit and the Employee Tax Credit. However, there are limitations on the combined amount which cannot exceed a certain amount, so we recommend that you seek advice from a professional.
It’s important to note that proprietary directors (owning more than 15% of ordinary share capital in a company), their spouse or civil partner receiving income directly related to that directorship cannot claim the employee tax credit.
How to claim tax credits?
Sole Traders and directors need to file income tax returns every year by completing a Form 11 on Revenue’s Online System (ROS). This is sometimes referred to as a Directors Return if you are a director of an Irish company.
This form will outline your total income for the previous year and the amount of tax to pay, including preliminary tax for Sole Traders.
If you need help with filling out your Income Tax Returns, our professional team can do so on your behalf.
Tax reliefs for businesses owners in Ireland
Tax relief reduces your total taxable income which can reduce taxes paid. You may be eligible to claim back tax paid over the last four years. Here, we explain some of the most common type of tax relief in Ireland.
Cycle to work
Employees who cycle to and from work are eligible for this tax relief. Employers can pay for bicycles and bicycle equipment for employees and the employee pays back through salary deductions of up to 12 months.
The amount of tax relief is calculated by the insurer and the cost of your policy is reduced by this amount. Revenue.ie specifies the approved insurance providers.
You’re entitled to this tax deduction if you rent a room in your home where you live for one year. You don’t have to own the property, you could be a tenant and sub-let to someone else. You can claim the tax relief by preparing rental income accounts and filing a tax return.
People who are a resident in Ireland but work and pay tax in another country are eligible to claim this tax deduction. You need to work for a continuous period of 13 weeks in a year and you cannot claim this relief if your spouse or civil partner is a proprietary director for the company you work for.
€1000 Small Benefits Exemption for Limited Companies
A non-cash benefit of up to €1000 in value, tax-free, each year. This is usually given through gift cards on goods and services and reduces the tax implications for both parties.
A change in your personal circumstances can have implications for how you are taxed. These changes should be communicated to your accountant so they can ensure you are availing of all the tax schemes available to you.
Start Your Own Business Relief
The Start Your Own Business Relief is aimed at entrepreneurs who start their own businesses while unemployed.
You may be entitled to this relief if you started your own business between October 25th 2013 and December 31st 2018 and you were unemployed for at least 12 months before you started your business.
It allows you to claim Income Tax relief of up to €40,000 a year, for a maximum of 2 years. You can only claim it once and you must make the claim within 4 years of the year your claim relates to.
StartUp Relief For Entrepreneurs (SURE)
The StartUp Relief For Entrepreneurs (SURE) scheme is a tax refund scheme that allows investors of companies to claim back up to 41% of their investment in a Startup, through a refund of Income Tax you have paid in previous years.
To avail of this scheme, the investor must make a qualifying investment in a qualifying company, and there are certain criteria that must be met.
To find out more about whether you can qualify for SURE and how to apply, check out our guide to the SURE scheme or talk to our Client Services team today. We are happy to advise you on the best services for your needs.
Corporation Tax Relief
Corporation Tax Relief can help to reduce the amount of Corporation Tax your company will pay during your first 5 years of trading.
You may be entitled to this tax relief if:
- Your company’s income is from a qualifying trade, according to Revenue
- Your corporation tax due is less than €40,000 per year
- The amount of Pay Related Social Insurance (PRSI) you pay is less than €5,000 per employee and €40,000 for all employees in a 12-month period
- Note: If your Corporation Tax is between €40,000 and €60,000 per year or you pay more than the PRSI limit you may still be entitled to partial relief. We recommend that you talk to your accountant for specific advice about your situation.
Companies can apply for this relief on your Form CT1 tax return or you can outsource your annual accounting requirements to our team of Chartered and Certified Accountants. Reach out to us today to discuss outsourcing your company’s tax obligations.
If you have been a business owner for at least three years and have business assets you plan on selling for greater than the amount you paid, you may be entitled to claim Entrepreneur Relief.
This relief reduces the amount of Capital Gains Tax (CGT) you pay on any gains made when you dispose of an asset.
The standard rate of CGT is 33%, but Entrepreneur Relief reduces this rate to only 10%.
You need to follow certain conditions, and the correct paperwork must be filed to Revenue to claim this relief.
Contributing to your pension to reduce income tax liability
Pension contributions are eligible for tax relief as the government offers generous tax breaks to encourage pension saving for company directors. Your retirement strategy can ensure the extraction of maximum cash from the company when retiring.
It is measured at the same rate as your income tax rate. In other words, if you are paying income tax at a higher rate (40%), you will get 40% tax relief on your pension. Likewise, if you are taxed at a lower rate (20%), you would get tax relief at that rate.
The maximum pension contribution one can make is in relation to your age;
|under 30 years||15% of earnings|
|30-39 years||20% of earnings|
|40-49 years||25% of earnings|
|50-54 years||30% of earnings|
|55-59 years||35% of earnings|
|60 years plus||40% of earnings|
Business and pre-trading expenses
Sole Traders and Limited Companies can claim tax-deductible business expenses to reduce the amount of tax they are liable to pay at the end of the year and reduce the overall tax amount.
You can also claim back expenses incurred in the 3 years before you started trading. These are known as pre-trading expenses and can include accounting and company formation fees.
Examples of expenses you can claim:
- Accounting and company formation fees
- Insurance costs
- Wages for employees and directors
- Protective clothing
- Lease payments, and running costs for machinery for the business
- Business plans
- Feasibility studies
- Rent for business premises
Am I using all my tax credits and tax reliefs?
Keep your accountant up-to-date on your personal circumstances so they can adjust your tax credits and reliefs accordingly. Your accountant can help reduce your tax liability by indicating which schemes you are eligible for. This is a list of popular ways to reduce your tax bill, but not an exhaustive list. Everyone’s tax and business expenditures are different.
If you are unsure what tax schemes you are entitled to, we’re happy to help. Talk to a member of our Client Services team to find out more about our services.
Larissa is a Fellow Chartered Accountant (FCA) and is the CEO of Accountant Online, which specialises in company formation, company secretarial, annual accounting services, bookkeeping, tax, and payroll services for micro and small companies in Ireland and the UK.