Understanding, filing and paying tax is a necessary part of doing business. It is an area that can seem overwhelming for start-ups in particular, but if you do your research, understand your options and obligations, and deal with the Revenue Commissioners in a timely and honest manner, you shouldn’t encounter any problems. You should also consider the need to engage a professional tax adviser where necessary, and particularly for more complicated business activities and transactions.
Tax can have significant implications on a business’s cashflow. It is vital to understand and plan for this impact on cashflow, and that you register for taxes properly. The taxes applicable to your business will depend on what kind of a business you are running.
The taxes your business is liable for will depend on your business’s structure and activity. A sole trader or partnership will pay income tax, USC and PRSI on profits, while a limited company will pay corporation tax. Here are the taxes that your business may have to pay:
- Income tax/USC/PRSI: If you operate through a company, any payments you receive as a director or a shareholder, whether in the form of salary, dividends or distribution, will be subject to income tax, USC and PRSI. There are different tax considerations for the company depending on the type of payment it makes. For instance, a business will be subject to Employers’ PRSI on salary payments, or it may get a corporation tax deduction for salary payments and Employers’ PRSI but not dividends.
- Corporation tax: This is charged on any taxable profits of a company within the charge to tax.
- VAT: Any business selling products or services exceeding a certain value must register for VAT (unless its supplies are VAT-exempt). Careful consideration needs to be given to the rate of VAT applying to supplies of goods or services made by the business. The rate of VAT will depend on the nature of the product or service. For example, the supply of certain goods and services is exempt from VAT. If supplies are VAT-exempt, you won’t be entitled to recover any input VAT on your costs. But if there is a VAT rate, you will be entitled to recover VAT generally on costs. If you do not charge the full rate of VAT, you could be liable for interest and penalties.
- PAYE/PRSI/USC on employees: If your business has employees, you must deduct PAYE, USC and PRSI from their wages. You will also be required to pay Employers’ PRSI on wages. PAYE and employee PRSI are taxes that you withhold from the salary payments to your employees and pay over to Revenue on behalf of the employees. However, Employers’ PRSI is an actual cost to the business. Remember that if you don’t deduct PAYE, PRSI and USC on payments made to an employee, Revenue is likely to pursue you as this is your responsibility.
- Capital gains tax: Capital gains tax (CGT) may apply on gains from the sale of capital assets. For example, if you sold part of your business premises at a gain, the gain may be subject to CGT.
- Relevant contracts tax: This withholding tax may apply if you operate in the construction, meat-processing or forestry sectors or make payments to sub-contractors in those sectors.
- Dividend withholding tax: This withholding tax applies to companies that pay dividends or make other distributions to their shareholders. The shareholder receiving the dividend may then be able to claim a credit for the withholding tax when filing his or her tax return.
- Professional services withholding tax: If you supply certain services to the State (including semi-State bodies), PSWT will be withheld from the payments you receive. Remember that this will have cashflow implications, as you will not recover PSWT until you have submitted your end-of-year returns.
Paying taxes and filing returns: timeframes and tips
- Avoid unnecessary surcharges and relief restrictions by submitting your returns and payments on time, as automatic surcharges are applied for the late filing of returns.
- Consider paying preliminary tax by monthly direct debit.
- Consider whether paying tax based on the prior year’s liability will reduce the preliminary tax requirement and minimise the risk of underpaying preliminary tax.
- Ensure that sufficient preliminary tax is paid to avoid interest charges.
- Depending on the level of your VAT liabilities, it can be possible to file your returns every two months, four months, six months or annually. This can assist with cashflow needs.
- Where refunds are due, file returns early.
PAYE and PRSI for employees
- Consider whether your business qualifies for the quarterly filing option.
- Certain non-cash benefits (such as a company phone or a company car and most other benefits) can be subject to PAYE and PRSI, and care should be taken not to omit taxing such benefits.
Capital gains tax
- There are a number of significant reliefs from CGT, and it is important to ensure that all possible reliefs are considered. Ensure that details of all disposals are included on your income tax return..
Books and records
You are obliged by law to maintain proper books and records. This will allow you to file your tax returns on an accurate and timely basis, and will avoid unnecessary interest and penalties. You should consult with your accountant or tax adviser as soon as possible to agree on an appropriate system.
In addition to the obvious advantages of a good accounting and record-keeping system, the following points are relevant:
- You must retain such records for at least six years.
- If you have reclaimed VAT on the purchase or construction of property, you may be required to retain records relating to that property for up to 20 years.
- Certain industries, such as businesses using cash registers, require additional information to be retained. Details of those requirements are available in the Revenue’s Information Leaflet entitled “Cash Registers”.
- Revenue actively carries out spot checks on businesses to ensure proper records are kept.
Transfer or sale of the business
There are many tax and commercial issues to consider when selling or transferring your business. Every set of circumstances will be different and will give rise to different tax issues. It is important that specialist and timely professional tax advice is received.
The following tax types and reliefs should be considered:
- CGT (for the seller)
- Gift tax (for the recipient)
- Stamp duty (for the recipient)
- Income/corporation tax (for the seller)
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