What tax deductions can I make for my small business?

John Cradden looks at what tax reliefs, deductions and exemptions small businesses are entitled to.

Whether you’re a start-up or a well-established business, making sure you invest some time researching your entitlements to tax reliefs, deductions and exemptions will stand to you for many years to come. Below are just some of them.

Business expenses

There are a whole range of tax-deductible business expenses that you can claim for at the end of the tax year, from accounting fees to the running costs of vehicles to lease payments on equipment. You can also claim for mixed expenses, where expenditure is incurred by both business and private use, such as rent, electricity, broadband telephone, heating etc. (In these cases, only that part relating to your business will be allowed for tax purposes.) Ask your accountant about them, or take time yourself, so that you have a good understanding as to what tax deductible expenses are appropriate for your business. You may also claim for expenses you had before your business started trading, such as the cost of preparing business plans.

Tax relief on capital expenditure

A bit of a complicated area, but It is worth looking at your company’s fixed asset register to maximise its capital allowances claim. Capital allowances are a tax write-off for certain capital expenditure against profits and may be claimed for outlays on plant and machinery (12.5% p.a.) and industrial buildings (4% p.a.). Accelerated capital allowances, which are tax write-offs given over a shorter period of time, are available on cars that have low CO emissions and for expenditure on certain energy-efficient equipment (e.g. electric and alternative-fuel vehicles, lighting, heating and ventilation systems).

Taxable Income

Your taxable profit is calculated by adjusting your net profit figure for any items of tax-deductible expenditure and also adjusting for capital allowances. This is the figure that will be charged to tax. If it results in a loss, you can set it off against other taxable income or carry it forward to be offset against future profits.

Corporation tax relief

Section 486c tax relief allows you to claim a reduction in the corporation tax you pay for the first three or five years that your business trades (depending on when your company first started trading). A company can get a full exemption from corporate tax where its corporate tax liability does not exceed €40,000. The full relief is also linked to the amount of employer PRSI paid. Partial relief is available to a company where its corporate tax liability is between €40,000 and €60,000, with no relief being available where the corporate tax liability is €60,000 or more.

Consider incorporating to a limited company 

If you’re currently a sole trader and generating profits over and above what you need to live on, you could consider a change to a limited liability company. This would allow you invest much higher amounts into your personal pension, which qualifies for tax relief, while the tax on business profits will also be lower at 12.5%. There is a relief from Capital Gains Tax (which may only operate as a deferral of tax) on the incorporation of a business, provided certain conditions are met. 

Investor and funding tax incentives

If you’re running a start-up and you’ve attracted the interest of an individual investor, make sure they are aware of the Employment and Investment Incentive Scheme (EIIS), an income tax relief incentive scheme whereby individual investors can avail of up to 40% tax relief on investments of up to €250,000 made into qualifying Irish SMEs in any one tax year. If that investor happens to be a family member, you can point them towards the Start-Up Capital Incentive (SCI), whereby they can claim tax relief on investment they made in your company. You can also claim refunds of income tax you paid as a PAYE employee in previous years if you’re in the process of starting your own business, through the Start Up Relief for Entrepreneurs (SURE) scheme.

Foreign earnings deduction for overseas employees

If you’re looking at expanding your business overseas, there’s tax relief available to employees who spend time working abroad in certain emerging countries. The Foreign Earnings Deduction (FED) is available to Irish-resident individuals who spend 40 qualifying days working outside Ireland in emerging countries over a continuous one year period. The level of relief available to an individual employee is capped at €35,000 for any one year.

Research and development tax credit

If your business is carrying out research and development (R&D), check if the money you are spending on it qualifies for the R&D tax credit. The tax credit is calculated at 25% of the expenditure incurred carrying on activities which meet specific scientific or technical criteria. The credit can be claimed as a cash payment in some cases, rather than as a deduction on your company’s corporate tax liability.

John Cradden
John Cradden is an experienced business and personal finance journalist and financial wellbeing content designer.