Tax is undoubtedly one of the trickiest areas of running a business. The rules are complex and not easy for a non-specialist to fathom. Maintaining records and filing returns requires a lot of work, and at the end of it all (assuming your business is profitable) you have to pay a sizable bill.
No business owner enjoys paying tax, but most accept it as part of life. We would like to pay less, sure. Which is why tax incentives are attractive.
However, for many in business, the whole area of tax relief and tax breaks just presents a whole new set of hoops to jump through. It adds complexity and yet more paperwork they could quite frankly do without.
But money is money. Paying out more in tax than you need to is a drag on your bottom line you need even less than some extra admin. And besides, you can get help with the paperwork by reaching out to professional tax planning specialists like Xeinadin.
In Ireland, most tax incentives take the form of relief on Corporation Tax in return for capital investments. The options available fall into several different categories. Here are some that could knock thousands of euros off your tax bill this year.
R&D tax credits
One of the biggest ways to cut your tax liability is to invest in research and development projects. As of January 2024, businesses in Ireland can claim credits worth 30% of the total qualifying expenditure on R&D. When you add this on top of the standard deductions of costs before tax, it results in an effective tax saving of 42.5%.
Qualifying expenditure covers operational as well as capital costs for plant and equipment. Activities which qualify as R&D are defined as having to be on some level “systemic, investigative or experimental”, with an emphasis on applying research to make some kind of scientific or technological advance in your field, or else solve a scientific or technological problem. Qualifying activity can take place in Ireland, anywhere in the EEA, or in the UK.
Intellectual property
In addition to incentivising research and development through tax credits, the government also offers generous tax breaks relating to the acquisition and commercial exploitation of patented technology and other innovations.
There are two strands to this. First, there is a capital allowance regime for expenditure on assets protected by copyright. Working in a similar way to R&D tax credits, firms are able to deduct up to 80% of what they spend on acquiring IP-protected assets from pre-tax profits.
Second, there is what is known as the Knowledge Development Box. This is more of a direct form of Corporation Tax relief which cuts the tax payable on profits arising from qualifying IP assets by 20%.
Start-up exemption
Finally, if you started a new business in the past three years, you may be exempt from paying Corporation Tax altogether. This three-year tax-free ‘holiday’ is available to all businesses which incur tax bills of less than €40,000 per annum, with marginal relief available if tax owed falls between €40,000 and €60,000. The exemption in its current form runs to 2026.
Speak to an expert
Contact our Tax Planning team to find out more ways you can make your business more tax efficient this year.
