This week I’ve decided to ask an expert – Enda Lewis is a chartered accountant from Enda Lewis & Company . Enda has kindly compiled a list of eight fantastic tip to minimise your tax bill. Although some of these points are related to the Irish tax system most of them are transferable to all country. If you are unsure please seek advice from your account.
The tax administration system is deliberately and successfully designed to penalize non-compliant tax payers very heavily. Unfortunately non compliant in this context doesn’t only include people who set out to pay less tax than they are obliged to pay; it also includes people who want to be tax compliant but for various reasons haven’t paid the full amount of tax they were due to pay by due dates. With a huge number of filing and payment dates for the various taxes, small business owners are well advised to avail of the service of professionals who deal with the tax administration system every day. One of the biggest causes for small business owners paying more to the revenue commissioners than they ought to, arises from incurring unnecessary penalties and interest. The cost of availing of the services of a reputable accountant/tax advisor provides piece of mind and will result in reduced payments having to be paid to the revenue commissioners.
Capture all expenditure wholly and exclusively incurred for the purposes of your business.
It is extremely important that your business has a system in place to facilitate recording details of all expenditure incurred for business purposes. In addition to cheque payments and direct debits most small business pay business expenditure by other means (eg. by credit card or by cash). Small sundry items paid by cash can accumulate to significant amounts over a year so it is imperative that they are captured by your system. Systems don’t need to be complicated, can be manual or computerized but they must facilitate the capture of business income and expenditure in whatever form it occurs. Cloud systems like Xero, Kashflow & surf accounts are cost effective and facilitate taking a scan of receipts at point of purchase to capture them immediately, avoiding risk of omission resulting from small receipts being subsequently mislaid. Such systems are accessible on the go from a smartphone tablet or laptop and can also be accessed by your accountant.
Family members working in a business
Anyone whose parents were self employed will know that a spouse and children are often gainfully employed in a family businesses. Where family members are paid to work for the business it is usually more tax efficient for such family members to be taxed on the income they earn from the business and for the business to get a tax deduction for the remuneration paid to those family members. It is important that the remuneration is for genuine tasks carried out for the business and is at normal rates for such work.
Travel and subsistence expenses
If you travel for work, (other than from your home to your normal place of work), you are entitled to reclaim travel and subsistence expenses from the business tax-free using Civil Service rates. It is very important that such claims are well documented and relate to travel necessarily incurred for business purposes.
Tax relief is available for personal pension funding at your top tax rate. This is a very tax effective way to provide for retirement, particularly for top rate taxpayers. Age and upper income limits apply but the potential tax saving from pension contributions should be considered by top rate taxpayers each year.
Permanent Health Insurance/Income Protection
Some permanent health insurance/income protections policies provide tax relief at 40% thereby reducing the cost of the premium. It is important to have the insurance company/broker confirm that tax relief is available for the particular policy your taking out.
Consider incorporating your business
Potential tax advantages of trading through a limited company include: income retained in the business and not drawn out as salary is subject to 12.5% corporation tax as opposed to significantly higher income tax rates; if you are a startup your may qualify to be free from corporation tax for the first 3 years of operation (you must have employees other than the business owners to avail if this relief as it is now restricted to the amount of Employers PRSI the company pays); facilitating increased pension contributions
You may not be thinking of retiring anytime soon but this is one of the most important tax reliefs available to business owners. It is available from age 55, but it should be planned for well in advance. The effect of the relief is that value can be extracted from the business tax free. The owner must have worked in the business for the previous 10 years, hence the necessity for forward planning. This relief is often a very important part of succession planning to pass the business on to new owners or to family member(s).
To find out if Enda can help or want a second opinion (if based in Ireland) please email by clicking here or contact his office using the links below.
Enda Lewis FCCA; CPA
Enda Lewis & Company
2 Leinster Lodge