How Irish Companies Can Shave Money Off Their Corporation Tax Bill

Some options are more obvious than others

They say death and taxes are the two certainties in life, and Corporation Tax definitely falls into this bracket.

Every Irish company is subject to Corporation Tax (CT). It’s paid to the Revenue based on taxable profits at the current rate of 12.5%, with passive (non-trading) income taxed at 25%.

But COVID-19 has thrown the economy into disarray with companies looking to claw back every euro they can. Luckily, there’s a number of (totally legal) ways organisations in Ireland can reduce the amount they need to pay. We’ve put together some ideas to help.

Apply for R&D Tax Credits

If your business has engaged in any activities that would come under the umbrella of innovation then help could be at hand. Typically, Irish companies that have invested in a new product, service or process - or substantially upgraded an existing one - could well be able to claim very lucrative R&D Tax Credits.

As long as a technological or scientific advancement has been made along the way then it’s likely you can reduce your Corporation Tax bill by around €25,000 for every €100,000 of innovation spend. This is on top of the standard deduction of 12.5%, so in fact as much as 37.5% of R&D expenditure can be claimed back from Revenue.

The important thing is that the company’s scientific or technological advancement benefits the whole field in which it operates - not just the company on its own. The award is offered either as a reduction in Corporation Tax or as lump sum payments if the company made a loss.

A huge range of projects and costs are covered by the scheme, including staff costs, wages, materials, overheads, certain types of software and more.

See our R&D Tax Credits page for more information and how to claim.

Check you’ve claimed for capital allowances

Capital allowances can typically be claimed on capital expenditure that it has incurred on certain business assets and premises. The tax owed is calculated based on these net costs and different rates will apply depending on what type of asset it is. Usually companies can claim capital allowances on things like business vehicles, industrial buildings, plant and machinery and computer software.

If this sounds like it might apply to your business, our team will be pleased to advise you. Send us a message.

Maximise pension opportunities

One of the most effective ways of reducing Corporation Tax is still by making pension contributions, or Additional Voluntary Contribution (AVCs) by your year end. Contributions can be made as the result of retained profits, which in turn reduces the money left in the business (hence the lower CT bill).

These payments are also an “allowable business expense”. This means they also reduce your firm’s assessable profits, so lowering Corporation Tax.

At this point however, there are a couple of very important points to note:

1)   The payment must be made before the year end, and,

2)  There are limits on the size of payment allowed. Limits will depends on your age, how much pension you’ve already accrued and length of service. However, whichever way you slice it, there’s never anything wrong with topping up your pension pot. More money in retirement and reduced Corporation Tax - what’s not to like?

Claim the Accelerated Capital Allowance

The Accelerated Capital Allowance (ACA) is designed to encourage companies to buy energy-efficient equipment and products. The ACA is a tax allowance based on the long-established ‘Wear and Tear Allowance’ for investment in machinery and capital plant. It works by providing compensation for capital depreciation via a reduction in a company’s Corporation Tax.

The ACA scheme allows companies, farmers and sole traders based in the Irish Republic to deduct the entire cost of the equipment from their profits during the year of purchase. As a result, a 12.5% reduction is permitted in that year to be deducted from the value of capital expenditure. Whilst the Wear and Tear Allowance does provide the same tax reduction, it’s spread over a longer period (8 years).

Company car purchase can also attract ACA. If a car comes under the category “Electric and Alternative Fuel Vehicles” then the ACA claimable is based either on the cost of the vehicle or on €24,000 (whichever is lower).

Find out more on the Revenie.ie website.

Claim all your business expenses (as well as any losses)

This one may sounds pretty obvious but it’s surprising how many businesses don’t claim all their expenses. The odd train ticket or working lunch can really add up over the year, but by claiming your expenses you can ultimately reduce your Corporation Tax.

Ensure all your business expenses are shown in your accounting records and put even the smallest amounts in. Directors can all too easily take on expenses themselves on the company’s behalf, only to then forget to reclaim them via the accounting records.

Additionally, if the company has been making a loss for any reason, make sure that it’s taking advantage of all the available loss reliefs. There are a number of these that companies can claim, and in some cases they can be applied retrospectively to previous years to create a tax refund. They can also potentially be carried forward against future profits, or even be given over to another company in the group if applicable.

See more about Trading Losses on the Revenue website.

Make a donation to charity

Altruistic, yes. But donations to Revenue-approved charities or organisations can actually help reduce your Corporation Tax bill too. The minimum single donation per year is €250 - find out more on Revenue’s Charitable Donation Scheme page.

Use the Tax Cloud portal to make your R&D Tax Credit claim

The Tax Cloud portal for businesses allows you to see quickly and easily how much your company can claim in R&D Tax Credits. Once you’ve signed up (it’s free!) simply enter some details to make sure you’re eligible. Then it’s a case of following the easy steps to provide Revenue with your R&D expenditure and put together your technical report.

Developed by the R&D funding specialists at Myriad Associates, the Tax Cloud is a scaled back version of our full service offering. Ideal for those who value saving money but who also want to make a totally watertight claim, we can help you maximise it too with minimum effort and hassle.

Why not sign up for the Tax Cloud now or call our team on +353 1 556 2001. We’re also working remotely during the pandemic so feel free to use our contact page so we can get back to you.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud