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 focus on the legitimacy or otherwise of having self-employed status, here are some ‘no-brainer’ tips on managing your tax matters to reduce how much you have to pay to the boys and girls in Limerick.
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 been reviewing contractor’s taxes where expenses seem inappropriate.
- Examples of allowable travel would be travel to continued professional development courses, and 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 a certain number of hours/days then specific subsistence rates apply.
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 a 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.
This 33% can be reduced to 10% if you meeting the conditions for Entrepreneur Relief, which we will cover in more details in our next post. By availing of this, up to 24% can be saved in tax.
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 €1,000 small benefits relief annually. This small benefits relief applies to a benefit which can be given twice a year (voucher) not exceeding €1,000 during the year.
- If an employer gives each employee up to two one single vouchers in the year up to a maximum of €1,000,the value of the voucher can be disregarded for PAYE/PRSI purposes.
- It does, however, still need to be reported on the new ERR (Enhanced Reporting Requirements) on the Revenue system, normally done through your payroll.
- Company Directors and Company Secretary can received the Tax Free Vouchers – but they MUST be on the payroll / receiving pay.
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, an extension of 2 weeks if filed online)
- VAT Returns – due 23rd of the 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.
Basic Exemption:
The basic exemption is €10,160 plus €765 for each full year of service with the employer making the termination payment.
Increased Exemption:
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 Xeinadin.
We usually charge a monthly fee of just €245 plus VAT and in many if not most cases, we 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.
Fill in the form below and a member of our team will call you back.
