It will not come as news to self-employed IT professionals in Ireland that the Revenue Commissioners are casting an eye on this sector.
This is in the main focused on the legitimacy or otherwise of having self-employed status (an issue which we will cover in our next post) but for now here are some ‘no-brainer’ tips on managing your tax matters in order to reduce how much you have to pay to the boys and girls in Dublin Castle.
Need advice or information on tax accounting services? Contact Liam here on (01)(01)5677380 or use the enquiry form
1. Utilise Allowable Travel & Subsistence Expenses
- Travel is an allowable expense when the journey is necessarily incurred in the performance of the duties of the office or employment.
- Note that travel expenses are not allowable from home to ‘normal place of work’. Revenue Commissioners have recently being review contractors taxes where expenses seem inappropriate.
- Examples of allowable travel would be travel to continued professional development courses, travel from place of work to clients’ premises.
- Subsistence allowances can be utilised on the same basis – i.e. If the time spent away from the normal place of work is over certain number of hours/days then specific subsistence rates apply.
Rates and Revenue guidance can be found at www.revenue.ie | Statement of Practice SP/IT/2/2007, Information leaflets IT51 and IT54, and in Tax Briefing 3 of 2013.
2. Maximise other Allowable Expenses
Be sure to keep records of expenses – documents, receipts, etc.
- Insurance Expenses
- Continued professional development courses
- Computer software expenses
- Computer hardware expenses
- Administration expenses
- Print Post Stationery
- Telephone and Internet
- Accounts and Bookkeeping
- Companies Office Filing Fees including Company Formation fees
- Rent – in cases where renting premises to work from (or 1/3 of house rent if your home qualifies as normal place of work)
- Light & Heat – (in cases similar to above)
3. Beware of Professional Services Surcharge
You might be under the impression that you can leave the profits in your company and only pay 12.5% corporation tax, rather than taking the money out as salary at up to 52%.
However, this surcharge counters this method of tax avoidance by imposing a surcharge of 15 per cent on 50 per cent of the company’s undistributed professional and service income. When you eventually liquidate the company you will pay an additional 33% (at current tax rates) – Your effective rate being 46%.
You need to consider which is better for you – to have the cash personally now or leave the cash in the company for a number of years saving 6% (at current tax rates).
Most importantly, if you choose that option, ensure to disclose the professional service charge so as not to be open to penalties and interest.
4. Utilise the annual Tax Free Vouchers
- Use the €250 small benefits relief annually. This small benefits relief applies to a one off benefit (Voucher) not exceeding €250 during the year.
- If an employer gives each employee one single €250 voucher in the year, the value of the voucher can be disregarded for PAYE/PRSI purposes.
Note: If the employer gives two vouchers worth €100 each, the value of the first voucher may be disregarded but the value of the second voucher has to be included as notional pay for PAYE/PRSI purposes. If the employer gives one voucher for €350, the value of that voucher (the entire €350) must be taken as benefit in kind.
5. Family Members on Payroll
- A family member could be employed for administration or record keeping. This would not be considered technical work.
- If the pay is for technical work, they should have the skills, qualifications and experience necessary to carry out that work and to justify the rate of pay.
- Also, Company Directors may be entitled to remuneration or fees for their duties as a company officer.
6. Avoid Penalties (Late Submissions)
Ensure your accounts and tax returns are filed on time to avoid late penalties and interest.
- Companies Office Returns – Depending on ARD Date (initial €100 plus €3 per each day for late submissions). Also late accounts require an Audit – Increasing Professional fees.
- Personal Tax returns – due 31st October (Generally, extension of 2 weeks if filed online)
- VAT Returns – due 23rd of Month following period end (Bi monthly, Quarterly, 6 monthly or annually)
- PAYE Returns – due 23rd each month, Annual P35 due 23rd February
- Corporation Tax – due 9 months after accounting year end
7. Maximise Tax Credits
- If your spouse does not use all of their tax credits or tax band – you can transfer them to you or elect as joint assessed for tax, utilising the credits and lower tax bands
- If you are a single parent, ensure you are getting the single tax credit (allowed for both parents up to 2013 – conditions apply)
- Keep all medical expenses – 20% tax credit for allowable medical expenses
- Approved Charities – Claim tax credits if you donated €250 or more to an approved charity (Up to 2012)
- Review other credits available to see if you qualify
8. Termination Payments
Qualifying staff and directors may be eligible to receive a tax free termination payment.
The basic exemption is €10,160 plus €765 for each full year of service with the employer making the termination payment.
The basic exemption as outlined above can be increased by €10,000 in certain circumstances or if more beneficial the Standard Capital Superannuation Benefit (SCSB formula) can be used to calculate increased exemption.
9. BONUS TIP!
Get a professional on your side and give your friendly tax adviser a shout – someone like myself maybe? 🙂
First check out our Ultimate Guide to Contractors’ Company Options and Tax Saving Structures
I usually charge a monthly fee of just €135 plus Vat and in many if not most cases, I will save you a multiple of that in terms of tax as well as getting rid of the hassle and giving you peace of mind that you are tax compliant.
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You can simply fill in your details on this excel sheet and submit them to your accountant. Includes ready made macros and itemised income and expenditure.