On the 1st day of Christmas my tax consultant said to me (without the singing) that there are some areas in which individuals and business owners could achieve tax savings which would certainly add to their Christmas cheer. Below are some areas worth considering in the run up to the year end.
1 BES/Seed Capital Relief
Current economic circumstances are likely to result in an increase in start up activity as the labour market tightens. Extremely valuable reliefs are available in the form of either BES relief or Seed Capital Relief for those who either commence or invest in a qualifying business.
For those starting up their own business this form of tax relief could be invaluable. Those who wish to attract investors to their business would be wise to ensure that their company qualifies and that their investors can obtain tax relief and that appropriate structures are put in place to safeguard control of the company for the owner and provide clear exit mechanisms for the investors.
2 R&D Credits
It is the rare business whose turnover is not down this year. Therefore, even more focus and effort is required to safeguard the bottom line. Long neglected in the flusher times is the area of R&D credits. For any company that has qualifying activities under this regime this represents a tripling of tax relief!!
Although there is substantial expertise required from tax consultants in this area to maximise claims and navigate through Revenue approvals, the benefits far exceed any costs incurred many times over.
Normally R&D credits are set off against a company’s corporation tax liability. However, recent legislative changes now introduced allow for a refund of taxes where the company does not have a corporation tax liability.
Clearly an area that business owners can no longer afford to ignore!
3 Pension Trusts
The mid November filing deadline is only around the corner for those self employed who pay and file electronically. For proprietary directors the end of the calendar year is the cut off for employee related pension contributions for the 2009 tax year.
In both instances pension should be critically reviewed and contributions made in order to qualify for tax relief.
Don’t forget this year is the last year for self employed’s to avail of the higher annual income limit of approx €275,000 on which to base pension contributions. Equally for proprietary directors potential cuts to tax relief on pension contributions has received much media coverage in the run up to the December budget.
For all of the above reasons establishing a SSAS and maximising tax relief as part of any wealth management strategy is worth consideration before the year end.
4 VAT
Recent times have certainly proved that cash is king. Anyone with a turnover of less than €1million should register to have their VAT status switched to the cash receipts basis. As a result of this, VAT on any sales would only have to be returned to the Revenue when payment is actually received. Given the fact that most businesses are experiencing long delays in receiving payment this in many cases could add an additional 3 to 4 months in positive cashflow terms.
Businesses that suffer VAT in other jurisdictions should ensure that their tax advisor is re claiming this VAT on their behalf. The introduction of new guidelines from Revenue in this area from January 2010 should hopefully result in more timely refunds being made available.
5 Charitable donations
Receipts are down for most and charities are no exception. For those who are in a position to make a charitable contribution these should be made before the filing deadline which can lower preliminary tax payments to be made by the self employed. For companies, the tax relief on any such contributions should be made before the year end of the company – in most instances 31 December.
6 Purchase capital allowances
For those with income to shelter, consideration should be given to purchasing capital allowances. Although being phased out, tax relief is still available on Nursing Home operations and associated Independent Living Units.
As these reliefs are being phased out there will be only a limited stock of such schemes for tax payers’s to participate in going forward.
7 Film & BES for investors
For those classed as high income earners, making a Film Investment or BES Investment reduces the amount of income subject to tax as relief is available at the marginal rate of tax.
Any such investment should be made before the filing deadline for self employed individuals or before the calendar year end for employees.
8 Corporation Tax Exemption for new business
This is perhaps one of the most valuable and significant changes to the tax regime introduced in recent times. For all trading companies commencing in the calendar year 2009 the Government has pledged that a full exemption from corporation tax will be available up to a corporation tax limit of €40,000 for each of the first three trading years. Thereafter a form of marginal relief will apply where the corporation tax is between €40,000 and €60,000.
Any new start ups or even new operations of existing companies can qualify and careful consideration should be given to this area at the outset of operations to ensure that they are able to avail of this relief. There are a number of conditions to obtaining this relief and it is particularly important that new operations do not commence as a sole trade as they will effectively deny themselves this relief. It is equally important that existing operations draw a distinction between their existing operations and any new trade commencing when structuring the business at the outset.
At the moment this exemption only applies to trading companies and not service companies. As this exemption is aimed at increasing employment in the economy it is difficult to see the Government’s justification in excluding service companies particularly in light of their commitment to growing a knowledge based economy. It is also fairly safe to assume that those that are lucky enough to receive employment in any such new company will not draw such a distinction and neither do their employment taxes payable to the Revenue.
Accordingly, it has been suggested by a number of quarters that the exemption be extended to include the service sector in the December budget – we shall all have to wait and see!
9 Gift tax – annual exemption
Often an overlooked exemption, the annual gift exemption of €3,000 is actually a very valuable relief – particularly in the context of long term wealth management planning for children’s education. This relief is a use it or lose it relief, therefore each year that passes without using this relief represents a lost opportunity.
Given the much touted re introduction of third level fees utilising this relief each year could, in the long term, represent a good tax free alternative to funding fees in the future all in one go. Parents should note that using this exemption does not affect the gift/inheritance tax thresholds – in essence it increases the amount that parents can pass to a child without incurring taxes.
10 Succession planning
Although surely no one is relishing the current trading conditions it is often said that times of great change also bring with them opportunity. This could not be more true than in the area of succession planning and wealth transfer to the next generation.
The prevailing low asset values both in terms of personal property and businesses, while lamentable, also represent a huge opportunity for family businesses or High Net Worth individuals to pass wealth to the next generation whilst still retaining full control of assets.
Any such planning should be considered, particularly where relief’s are being claimed, prior to the December budget as a precautionary measure.
11 Use of losses
For those who are self employed it should be remembered that current year trade losses can be offset against other income arising in the same tax year of either the self employed individual or their spouse.
However, this relief does not apply automatically, a claim must be made!
12 Termination payments
Although now unfortunately a familiar topic it should be noted that there are substantial reliefs available in respect of redundancy payments to employees. However, perhaps not quite so well known is that Revenue have agreed to assist businesses that are awaiting statutory redundancy rebates over a long period of time.
Where a business is awaiting such a rebate and it is experiencing particular difficulties in meeting it’s tax obligations because of a delay in receiving payment, then subject to satisfactory evidence being provided of the repayment due, Revenue have stated that they will accommodate the deferral for a reasonable period of either collection or enforcement proceedings that would otherwise occur in the event of a delayed payment of tax.
It is advisable that any business in this position contact Revenue prior to the year end to agree this deferral.
For more information please contact Darragh Kilbride at:
Kilbride Consulting | Suite 201, Q House, Furze Road | Sandyford Business Park, Dublin 18
M: +353 087 668 5138 | D: +353 1 292 3011 | E: dkilbride@kctax.ie | W: www.kctax.ie
