Tax Planning for Smaller Enterprises

Income is hard earned these days and with the top rate of pesonal tax and levies amounting to 46%, that’s like working amost six months of every year for the revenue.

By Maurice Cregan, Cregan Accountants

The good news is …

That you can legitimately reduce your tax bill. It is often reported that many of Ireland’s most successful business people pay the least amount of tax.

They recognise that tax is a cost just like any other and this cost can be managed and reduced with proper planning and advice.

Here are some of the more simple and practical tax reduction strategies which are relevant for the smaller business owner:

1. Keep proper records - This might sound obvious but many businesses miss out on legitimate tax deductible expenses or incur unnecessary add backs or penalties because their accounting records are not sufficient to capture and support all of the expenses that they are entitled to claim.

2. Research your entitlements - Ask your accountant, or take time yourself, so that you have a good understanding as to what tax deductable expenses are appropriate for your business.

3. Review your expenditure prior to year-end - It may make sense to bring forward expenditure that you had planned on either equipment, repairs or other items prior to your year end to capture that tax relief within the current year.

4. Fund capital expenditure to maximise tax relief - If you purchase equipment from cash flow or by loan
your get relief at 15% i.e. over six and half years. It may be appropriate to purchase equipment by lease purchase and claim the tax relief over the lease period i.e. three years.

5. Employ spouses or other family members - It can sometimes be tax advantageous to employ spouses or
other family members provided that you can create and justify their role within the business.

6. Change your year-end - If your business is seasonal or if your profit levels are either increasing or decreasing it may be worthwhile in certain circumstances changing your year end.

7. Manage your preliminary tax - Opt to pay your preliminary tax based on the current year estimates where your income is falling.

8. Tax free mileage and subsistence - Revenue permit the payment of mileage and subsistence tax-free provided the appropriate documentation is maintained.

9. Consider incorporating to a limited company - There are other considerations to be examined in forming a company, but it may be appropriate to achieve a tax advantage if you are generating profits over and above the level required to fund your personal living expenses.

10. Prepare management accounts prior to year end - Quantify your potential tax liability prior to your year end to give you sufficient time to plan and manage your tax bill.

Maurice Cregan is a partner with Cregan Accountants based in Swords, and has been advising small and medium-sized businesses for over twenty-five years in all aspects of accounting, taxation and finance.