10 Tips for Reducing Your Corporation Tax Bill

Irish businesses are fortunate to pay a far more favourable Corporation Tax than in other countries, even having been compared to a tax haven. Still, Corporation Tax (CT) can cut a dent into your wallet and you’d be forgiven for looking for ways to reduce the burden. Here, we take a look at some ways to minimise the impact that CT has on your company’s profits.

Who pays Corporation Tax?

Understanding Corporation Tax is step one for reducing the bill at the end of the year. All Irish companies (including non-resident companies) trading in Ireland must pay CT to the Revenue on all their taxable profits. Trading profits have a rate of 12.5% and non-trading (passive) income is taxed at 25%.

How to file and pay Corporation Tax?

Companies in Ireland need to use Revenue Online Service (ROS) to file and pay their tax amounts under Mandatory e-Filing. You must calculate and pay preliminary tax by the specified due date, complete a CT1 form and a 46G form and then pay the balance by the return filing due date.

The due date is nine months following the end of the accounting period (on or before the 23^rd of that month).

Large and small companies have different guidelines for paying their preliminary CT; larger companies can pay their CT across two instalments while smaller companies must pay in one instalment if their CT liability is of €200,000 or less.

Now let’s look at some of the ways you can reduce your Corporation Tax.

Pension payments

Pension contributions on behalf of employees or directors are a deduction of profits. These payments must be made before the end of the accounting period to be counted against CT. Year-end pension contributions or Additional Voluntary Contributions (AVC) have long been one of the simplest ways for Irish companies to use their retained profits and reduce their CT balance.

However, certain limits apply to how much you can pay in AVC. These limits depend on your age, your time spent at the company and the current value of the existing pension plan.

Knowledge Development Box

This is one of Ireland’s most lucrative forms of tax relief. Qualifying profits under this scheme are taxed at 6.25%, a deduction of 50% of the qualifying profits. Eligible assets are computer programmes, an invention with a qualifying patent or IP for small companies certified as patentable but not yet patented. These assets must result from Research and Development (R&D) activities.

Capital allowances

Irish companies can claim certain costs against their profits to reduce tax, usually money spent on buying or maintaining land, building or equipment. Different rates are available depending on the type of asset; 4% over 25 years for most industrial buildings or 12.5% over 8 years for plant and machinery. However, business entertainment expenses and capital expenditure are not covered by capital allowances.

Investing in the future of your company can save you money in your CT bill, as well as encouraging growth and development in your business.

Accelerated Capital Allowances (ACAs)

ACAs are worth 100% of the tax on specific expenses. Companies can claim ACAs on energy-efficient equipment, specific vehicles, or equipment in a creche/gym provided by the company to its employees. ACAs can be claimed in the first year the asset is used in the business.

Donations

Charitable donations to a Revenue approved charity or organisation can reduce the CT amount due.

Director’s salaries

Balancing dividends and salaries can be an effective way to reduce CT in some measure.

Small Benefit Exemption

Companies can give employees and directors a small benefit of up to €500 in value, tax-free, each year. This benefit cannot be in cash and can only be offered once a year, but offering employees vouchers as a reward for their hard work can also benefit your company’s CT.

Checking all business expenses

It may sound obvious, but keeping detailed records of all expenses will pay off when it comes to filing your taxes. It’s too easy for directors to incur expenses then forget to claim them back. This is often a case of having a good, well-organised bookkeeper.

Losses

If your company is loss-making, then there are plenty of schemes available to reduce your tax liability. Trading losses can be offset against trading income from the same accounting period or the accounting period immediately preceding, as well as against chargeable gains. Losses can also be carried forward without a time limit, although they must be claimed against the first available profits.

R&D Tax Credits

If your company is engaged in R&D activities, then you could be entitled to the generous Revenue-backed R&D tax credit scheme. Many activities come under the umbrella of innovation, like investing in a new process, software or technical solution, then your Corporation Tax bill could be reduced by around €25,000 for every €100,000 of innovation spend. This can apply to equipment, testing, consulting, on top of salaries and consumables.

These tax credits are generous, but making the most of them may require the trained eye of specialist R&D tax credit consultants. At Tax Cloud, we’ve seen the whole spectrum of claims and can identify whether you will qualify from a quick call. We then help you maximise your claim, from the beginning until the very end, on a success fee basis.

Get in touch

If you think your company may have eligible R&D activity, use our free tax credit calculator to get an estimate of how much you could receive from Revenue. Or, if you’d prefer, give us a call on +353 1 566 2001 or use our contact page. Our friendly staff will be happy to advise you on any aspect of R&D tax credits.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud