There are three main ways businesses in Ireland can minimise their tax liability:
- Tax credit – A tax credit is an item that directly reduces the amount of tax you pay in a full tax year, thereby reducing your tax liability. Some are given automatically and others you must claim. You can’t refund any unused credits or carry them over into another tax year.
- Tax relief – A tax relief is usually given as a refund of tax paid. The amount of relief you pay depends on the rate of tax you pay.
- Claim business expenses – your tax bill is based on the profit of a business and profit is the money that is left over after you deduct expenses. So this means incurring business expenses can lower you tax liability at the end of the year.
If you need help understanding your tax bill and how to save money – get in touch with our Client Services Team. We can talk you through our accountancy services for Startups and small businesses in Ireland.
You can also register for our free, live Startup Webinar that is on every month. One of our Chartered Accountants answer your questions about setting up and running a business in Ireland. Learn more about our Startup Webinar: Free, Live Advice for Startups here.
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.
30% 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).
You need to meet certain conditions to qualify for this tax relief and carry out “qualifying R&D activities”.
Companies need to carry out any of the following activities:
- Be in the field of science or technology
- Carry out systematic, investigative or experimental activities
- Seek to achieve scientific or technological advancement
- Resolve scientific or technological uncertainty
If your company performs any of these activities, you should read our guide that is dedicated to the 30% Tax Credit for research and development.
How to claim?
You can claim the R&D tax credit in your company’s Corporation Tax return. If you need help filing your tax returns, talk to our Client Services Team about our accountancy services.
We are always happy to help you with your financial obligations and take care of your deadlines. Avoid unnessary fines and penalties from misinformation by hiring an accountant.
Tax credits for Sole Traders and Directors
Earned Income tax credit
Sole Traders are entitled to claim this tax credit at the same time as claiming the employee tax credit (below), but the sum cannot exceed the maximum amount of employee tax credit of €1,650 (Budget, 2020).
Employee (PAYE) Tax Credit
Sole Traders starting a business while working full-time can avail of both the earned income tax credit and employee tax credit. However, the combined amount cannot exceed the maximum employee tax credit of €1,650.
Proprietary Directors, their spouse or civil partner receiving income directly related to that directorship cannot claim the employee tax credit.
On the other hand, non-proprietary Directors can avail of the employee tax credit.
How to claim?
Sole Traders and Directors need to file income tax returns every year by completing a Form 11. This is sometimes be 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.
You can claim these tax credits when you are completing the Form 11 on Revenue’s Online System (ROS).
It’s important to note that Sole Traders and Directors of Irish companies need to have a Personal Public Service Number (PPSN) to use ROS.
We help business owners and Startups file their annual tax returns. Get in touch with us if you would liek to receive a quotation for our accountancy services in Ireland.
What is tax relief?
Tax relief is a component in your tax bill that reduces the income on which you pay your tax. This is usually given as a refund of tax paid. The amount of relief you pay depends on the rate of tax you pay.
If you pay tax at the higher rate (40%), your income will be reduced by the tax relief and then the balance will be taxed at 40%, and it is the same if tax is paid at the lower rate (20%).
Examples of tax relief
- 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.
- Medical insurance. 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.
- Rent-a-room. You’re entitled to this tax relief 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. Accountant Online offers a service of preparation and submission of Rental Income Return for €470 + VAT per year
- Transborder workers tax relief. People who are a resident in Ireland but work and pay tax in another country are eligible to reduce their tax liability with this relief. 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.
- €500 Small Benefits Relief for Limited Companies. A non-cash benefit of up to €500 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.
Contributing to your pension to reduce 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 the 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|
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 tax reliefs accordingly. Your accountant can help reduce your tax liability by indicating which credits and reliefs you are eligible for. This is a list of popular ways to reduce your tax bill, but not an exhaustive list. Everyone’s tax bill and business expenditures are different.