As a business owner in Ireland, reducing your tax bill is always a top priority.
However, it can be overwhelming to navigate the complex tax system and know what reliefs are available to you.
To help you out, we have outlined 20 tax-saving opportunities to help you reduce the amount of tax you pay and increase your business profits.
Make use of losses
If your business has experienced losses in previous years, you may be able to carry them forward against future profits or set them against other income for immediate tax relief.
Make sure your accountant reviews your financials and advises on the most tax-efficient treatment for your business.
Pay into a pension scheme
Setting up a company pension scheme for directors can save tax as the company can contribute generous amounts over and above the directors’ own personal tax-relievable limits. Additionally, a portion of the pension can be drawn tax-free upon retirement.
Pension schemes for your employees
Employers who operate a company pension scheme can have significant tax savings for their business. Employers do not have to pay employer PRSI on payments made into a company pension scheme on behalf of staff members.
If you have not set up a pension scheme for your employees, now may be a good time to get started as auto-enrolment is expected to be rolled out soon in Ireland.
Claim the correct motor & subsistence
When it comes to claiming motor expenses, claiming the specific amount of mileage used is common practice. However, Revenue will also accept payment of mileage and subsistence rates based on civil servant rates. These rates can be quite beneficial to directors and employees. Make sure you use the correct figures, as the Civil Service motor travel rates increased in September 2022.
Buy a smaller company car to save on BIK
With the government’s Climate Action Plan to lower emissions, there are changes to the rules for calculating Benefit-In-Kind (BIK) on motor vehicles.
From 01 January 2023, the new system of calculating BIK takes into account a vehicle’s CO2 emissions, so a car with higher emissions will cost more in BIK. If your company vehicles fall into the higher emission bands, it may be time to consider purchasing smaller cars.
Buy an electric car
In 2023, if an electric vehicle’s original market value does not exceed €45,000, then no BIK arises. The €35,000 threshold will gradually reduce to zero by 2026, with a new BIK rate of up to 22.5% being applied. This will still be lower than the top 30% BIK rate for internal combustion engine vehicles.
Apply for the Temporary Business Energy Support Scheme (TBESS)
The TBESS was announced in Budget 2023 to help businesses mitigate the impact of rising energy costs. If your business is experiencing a 30% or above increase in the gas and electricity average unit price compared to the same period last year, you may be able to apply for the scheme. Read more here
Move to a limited company
It may be time for you to consider moving to a limited company structure to save tax. However, it’s important to consider the commercial and tax issues before deciding to do so.
A key area to examine is whether the company has significant spare cash available each year and if you are starting to pay tax at the top rate of 40%. If so, it may be advantageous to incorporate.
Don’t pay VAT too early
Ensure your accountant has registered your business to return VAT on the “cash receipts basis”. This means you only pay VAT to Revenue when you have received payment from your customers.
The crucial benefit here is that you can also reclaim VAT on purchase invoices paid and unpaid for the relevant VAT period, easing your cash flow somewhat.
Don’t forget to reclaim VAT on diesel
If you reimburse employees who use their own vehicles for legitimate business travel to clients’ premises, you are entitled to reclaim the VAT on diesel relating to this expense. However, VAT on unleaded petrol cannot be reclaimed.
Don’t miss out on capital allowances
Depreciation of assets is not tax-deductible, but capital allowances can reduce your taxable profits. Ensure you keep accurate records of all assets bought and sold to guarantee your accountant can calculate accurate capital allowances.
An accelerated tax deduction (100% in the year of purchase) is available for certain energy-efficient machinery/technology purchases.
The SEAI publishes a list of eligible products on their website and amends the list as appropriate. Be sure to talk to your accountant to attain a more definitive list of assets and ensure you are claiming all that you can.
Claim working from home tax relief
If you work from home, it’s possible to claim tax relief on certain expenses such as electricity, heating, and even your broadband.
Make sure you keep receipts for any expenses you plan to claim for and provide evidence of the portion of your home used for work.
Claim corporation tax relief
If you set up your company in the past number of years and you employ a number of staff, you might be entitled to claim the corporation tax relief based on the amount of ER PRSI your company pays. If you haven’t generated a profit, the relief can be carried forward indefinitely.
Revised entrepreneur relief
This relief gives a CGT rate of 10% on gains from the disposal of qualifying business assets. This is reduced from the normal rate of 33%.
The rate is 20% for disposals from 01 January to 31 December 2016. There is a lifetime limit of €1 million on the gains that you can claim relief on. Only gains on disposals made on or after 01 January 2016 are counted in the limit.
Qualifying business assets are: 1. shares held by an individual in a trading company. 2. owned by a sole trader and used in their trade. Read in detail here
Get research and development tax credits
If your business is carrying on research into a scientific problem or process, you may be able to claim the Research & Development Tax Credit.
In addition to the trading tax deduction taken for things like salaries and equipment used in R&D (at 12.5%), an additional 25% credit can be claimed if you meet all the conditions. Your business may also qualify for a repayment of tax.
Travel passes/Bike to Work Scheme
Implementing these schemes can save you 11.05% ER PRSI on the cost of the travel pass or cost of the bicycle. It can be beneficial for both you and the employee.
Employ your spouse/civil partner
Employing a spouse in your company may allow you to claim the maximum standard rate tax band and pay more tax at 20% rather than 40%.
Rent a room in your house
You can earn up to €14,000 tax-free by renting a room to an unconnected person in your principal residence. This is a great way to earn additional income while also receiving tax benefits.
Plan for the future
It’s important to plan ahead if you want to save money once you retire and pass on your business. With the Small Gift Exemption, you can gift up to €3,000 per year to each child without attracting gift tax. Therefore, a parent can plan in advance by gifting €3,000 to each child for a number of years tax-free before transferring other assets to reduce the overall value of assets/estates gifted/inherited. there is no gift/inheritance tax on transfers of assets between spouses.
Additionally, when deciding to retire or exit a company, selling your shares may be exempt from tax as a result of CGT retirement relief. If you are planning on selling your shares and are aged 55 or over, relief may be available, depending on factors such as your age or who you are selling the business to.
In conclusion, reducing your tax bill is an essential aspect of maximizing your business profits. By making use of the various tax-saving opportunities outlined above, you can ensure that you are paying only what you need to in taxes and that you are able to keep more of your hard-earned money.
Remember to consult with your accountant to ensure that you are taking full advantage of all the tax reliefs and credits available to you.