To minimise your tax liability, you firstly need a 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.
In general, if you are not resident in the State, you are not entitled to any allowances, deductions or reliefs.
Examples of tax credit
There are personal tax credits and business tax credits.
- Home renovation tax credit. This is available on repairs, renovations or improvement work that is carried out on your main home or rental property. The work must be carried out by tax-compliant contractors who are subject to 13.5% VAT. To qualify for this tax credit, the work must be done between 25 October 2013 and 31 December 2018 for homeowners; between 15 October 2014 and 31 December 2018 for landlords; and between 1 January 2017 and 31 December 2018 for local authority tenants.
- Research and development credit. To qualify for this tax credit, there are two tests your R&D activities have to satisfy.
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.