taxation

10 Things We All Hate About Business Tax Returns

The first records of taxes in the world date all the way back to ancient Egypt, at a time when they didn’t even have a currency, and would pay their taxes with goods or labour. The Greeks then used taxes to fund their wars, but typically took from the rich, and refunded them with the spoils of war. The concept of income tax was first introduced by the British in 1798 to fund the Napoleonic Wars, and although it was abolished in 1816, it was brought back for good in 1842, and the world has been grumbling ever since.

It’s safe to say that taxes have never really been anyone’s favourite thing, but at least in ancient Egypt, they were a lot easier to calculate. In the modern world, people literally devote their lives to figuring out the ever-changing, increasingly complex systems that vary from place to place, and industry to industry. With that in mind, here are 10 things we all hate about business tax returns.


1: Income Tax/USC/PRSI

If you are the director of a company, the exact amount of income tax, USC, and PRSI you will pay may vary slightly. If you are an owner-director, you would be classified as self-employed (Class S), paying the standard rate of income tax, as well as 4% PRSI, and up to 7% USC.

If you are a non-owner director, you will most likely be classed as an employee (Class A), paying income tax, 4% PRSI, and USC of up to 11%, depending on how much you take home. As a non-owner director, your company will also pay either 8.7% or 10.95% PRSI, depending on whether you earn below or above €386 a week.

As either an owner or non-owner director, you can shelter a certain amount of your earnings from tax by putting them into a pension fund. The cap is 15% of earnings for people aged up to 29, which gradually increases to 40% by age 60.

 

2: VAT

One of the most common taxes there is, Value Added Tax (VAT) is applied to most goods on the market, with several different VAT rates, which depend on the good or service being sold.  There are a few thresholds for annual turnover that determine when a person is required to register to apply VAT, but the two most important figures to remember are €37,500 for services only and €75,000 for goods.

If you are required to register for VAT, you are then tasked with applying the correct rate of VAT to your goods and services. Unfortunately, this can be a bit of an arduous process, as you pretty much need to check each item individually. Luckily, Revenue has a comprehensive and easy-to-use database where you can quickly search products and see the correct rate of VAT to apply.

 

3:  Relevant Contracts Tax

The relevant contracts tax is a form of withholding tax, which is a tax that is paid to the government by the issuer of payment, not the recipient, similar to employer’s PRSI. In the case of relevant contract tax, it must be applied by primary contractors making certain payments to subcontractors in the forestry, construction, and meat-processing sectors. There are three rates of tax (0%, 20%, 35%), but which is used actually depends on the tax compliance of the subcontractor. Therefore, the primary contractor must use the Revenue Online System to determine which rate to apply.

 

4: Dividend Withholding Tax

Another form of withholding tax, the DWT is applied to dividends and other payments made by Irish resident companies to the shareholders. There are a small number of rules about when DWT should be applied, but in general, it is applied to all cash and non-cash dividend payments, with exceptions for things like pension contributions. The recipient of the payment may then be able to claim a tax credit or refund if they meet certain criteria.

 

5: Professional Services Withholding Tax

The last form of withholding tax we’re going to look at here is the professional services withholding tax, which is a 20% deduction taken from payments paid by a state or semi-state body to certain professionals. The recipient of the payment can then claim a refund when filing their end of year returns. For a list of the professional services to which this applies, click here.

 

6: Automatic Late Fees

Although Revenue understands that tax liabilities fluctuate, and therefore it is not always possible to predict the exact amount due, but at least 90% of PAYE, PRSI, USC, AND LPT must be paid on time, as must at least 80% of VAT. Anything below this would qualify as a late payment, and incur an interest rate of 0.0274% for each day that payment is unpaid.

 

7: Preliminary Corporation Tax

Preliminary corporation tax is an estimate of a business’s tax expected liability for the following year, combining income tax, PRSI, and USC. Although new companies that qualify as “small” (their tax liability being under €200,000) are exempt, this is still a very frustrating tax for people who are new to business; overpaying can mean waiting for a refund, which Revenue won’t be issuing at the speed of light, while underpaying can mean incurring interest charges of 0.0219% a day.

PCT can be estimated by paying 90% of the tax due in the current year, 100% of the tax due the previous year, or 105% of the tax for the year before that (only payable via direct debit).

 

8: Benefits-in-kind

This is a tax that can trip up people who may be new to business or not too familiar with the tax system. A benefit-in-kind is any non-cash benefit given to an employee, such as a company phone or car. Although there is a one-off exemption of benefits-in-kind worth €500 or less, any non-cash benefits given to an employee earning above €1,905 a year are taxable, based on the value of the benefit.

Please note that the exemption of up to €500 is a ONE-OFF of up to €500. That means if you give two separate gifts worth €250, one of them must be subject to tax.

 

9: Bookkeeping

If numbers have never been your strong point, then bookkeeping will be one of your least-favourite aspects of entering the business world. But bookkeeping can quite easily bring down a potentially successful business if it is done badly, so if this is an area in which you struggle, be sure to take the time to read out blog on the most common bookkeeping mistakes.

 

10: Archiving Records

Many people might put this in the same category as bookkeeping, but the process of bookkeeping has been around for thousands of years, yet the standards have recently become much higher. Now that we are able to cheaply store an essentially limitless amount of information, the quality that is expected of our records has gone up dramatically. More importantly, you should plan for these standards to keep rising.

 

At the moment, you are required to hold all bookkeeping records for 6 years. But it is perfectly possible that in 20 years time, you will be expected to provide records of transactions occurring today, so find a suitable form of online storage, and get into the habit of keeping the best records you can.


The tax system is many things, but simple is not one of them. But as complex as it may be, paying the correct tax is one of the most fundamental aspects of making your business a success. A genuinely innocent mistake could come back to haunt you at any point, so as much as we may hate them, calculating your business tax liabilities is something that will always be worth the necessary time and effort to get right.

7 Tax Reliefs You Didn't Know Were Available To Contractors

One of the most difficult aspects of moving into contract work is learning how to manage your cash responsibly. Usually, contractors are paid above-average rates, due to the short-term nature of their work. It can be exciting to see how much is paid for just a few hours, or days, of work, but it is important to remember that this money needs to be budgeted and spread out, as there won’t always be work available.

Budgeting is an important part of making contract work a sustainable employment option, but it doesn’t end there. Ensuring you are paying the correct tax, and claiming all the relief available to you, is instrumental in making contract work a success. But the tax system can be confusing and hard to navigate, making it easy for people to miss out on opportunities for relief. Below, we look at some of the tax relief available to contractors that could make a big difference to your take-home pay.


Travel Expenses

A courier working in his van.jpg

Travel is probably the most well-known allowable expense, but there are a few important things to note to avoid claiming relief where it is not allowed. Travel is an allowable expense when the journey is intended to advance the interests of the business. Travel to a client’s premises, a training course, or a business conference would all fall under this category. The cost of these trips can be reimbursed, tax-free, using either the actual cost of travel, or rates no higher than those offered to civil servants. If the trip is made using public transport, then the cost of the tickets can be reimbursed tax-free.

It should be noted that if you rent a working space, travel between home and here is not an allowable expense.

Subsistence

A freelance plumber is unlikely to spend more than a few days at the same location

A freelance plumber is unlikely to spend more than a few days at the same location

Depending on the nature of your contract work, you may or may not have what is considered a “normal place of work”. For example, a freelance web designer would likely work from home or in a shared office space, while a freelance plumber is unlikely to spend more than a few days at the same location.

If you do have a normal place of work, and need to leave that location for work-related reasons, you could be entitled to claim a subsistence allowance. Similar to allowable travel expenses, subsistence payments can be made tax-free either at cost or calculated using civil servant rates. The only requirements are that the destination is beyond a certain distance from both home and the normal place of work, and that the trip lasts a minimum length of time e.g. 100km is the minimum distance for an overnight trip.

Rent & Utilities

electrical appliances in the house.jpg

“If you normally work from home, then it may come as a nice surprise to learn that you can claim tax relief on a portion of both your rent and your utility bills.”

The easiest way to claim for these expenses, which will suffice for most people, is to compare the square footage of your working space to the overall square footage of your home, and claim that proportion as a business expense. So if your office takes up 15% of your home, you can claim relief on 15% of your rent, broadband, electricity, and so on.

In some cases, the fact that you are working from home may mean you require more than just an office. A carpenter, for example, would require more space, such as a garage or workshop. In this case, you can claim relief on the rent difference between properties without such a space, and your own property, as it is clear that the difference is a result of business operations.

Wages & Fees

Stack of eur coins.jpg

As a contractor, you are highly likely to engage the services of legal and financial professionals at some point. You may also be required to bring in additional staff for some jobs, but not for others. Regardless of whether you are paying someone to handle your business affairs, or to actually provide labour/services, you can claim relief on any money you pay for people to carry out work on your behalf. This includes salaries, recruitment costs, insurance contributions, consultation fees, and in some cases, bonuses. However, you cannot claim tax relief for your own salary or for an owner’s draw.

Lease Payments

opening the door of a leased car.jpg

One of the disadvantages of being a contractor is that you don’t have access to the same resources that larger businesses would. For this reason, it is quite common that a contractor may be required to lease a vehicle or piece of equipment on a short-term basis. As long as the item in question is being leased for business purposes, you can claim relief on any of the payments made for it.

Running & Repair

A laptop being repaired.jpg

For any equipment you do own, you will be pleased to learn that you can claim relief against any cost associated with keeping the equipment running and operational. It doesn’t matter if the machine needs to be filled with paper or petrol, if you need to purchase something for it to work, you can claim tax relief on those purchases.

It follows logically that any maintenance or repair costs needed to keep the equipment functional can also be deducted. If the equipment is used for both personal and business purposes, only a portion of the costs are allowed.

Small Benefits

Receiving a gift card.jpg

If you do employ other people, it is good to know about the small benefits relief. This allows you to give a one-off, non-cash gift worth up to €500, tax-free every year. The gift cannot be cash or directly exchangeable for cash, and while a gift can be up to €500 in value, only the first gift given will be exempt from tax, meaning you cannot spread this throughout the year.


There are a lot of challenges associated with contract work, with many of them being financial in nature. There will not always be a steady flow of cash or work available, so managing your cash flow is critical to your success. Fortunately, the government does offer support in a lot of different areas, so make sure you review the tax relief available to you, to ensure that you’re not paying too much and harming your chances of succeeding in the long run.

Self Employed? Here's Some Expenses You Can Claim Back

One of the most important aspects of being self employed is knowing how to correctly file your taxes. But self-assessment can also be one of the most confusing and worrying aspects of self-employment. You want to ensure that you are claiming any expenses possible, but incorrect filings can lead to big fines.

In order to legally claim something as an expense, it has to be used for business purposes. But for people who are self-employed, this line can often be blurred. Most self-employed people will use the same car and phone for personal and business purposes, for example, leading many to worry about how much to claim back.

Ensuring that you pay what you owe and claim back what you can is instrumental in helping you to succeed in self-employment, so below is a list of some key business expenses you can claim back.


Travel Expenses

aeroplane on the runway.jpg

Let’s begin with one of the most common expenses: travel. Although this is often a major concern for self-employed people who use the same car for business and personal use, it will come as a relief that the rules are actually quite straightforward. You are entitled to claim a percentage of all maintenance and running costs, such as fuel, repairs, insurance, and NCT. However, you must calculate what percentage of the vehicles use is for business, and keep receipts in case you need to prove how you arrived at this figure. It should be noted that travel between home and a place of work is usually not a deductible expense.

Similarly, any travel expenses for business trips, such as train tickets, flights, or hotels, can be legitimately claimed as business expenses. Again, you should keep documentation to prove that a trip’s primary purpose was for business if need be.

Rent & Utility Bills

switching on the lights.jpg

If you work in some sort of shared office space, the cost of this can be claimed back as an expense. But many of the people working in self-employment do so from home, which can be confusing. The good news is that you can claim a percentage of bills such as electricity, gas, phone, and broadband.

Like motoring expenses, you need to be realistic about what proportion is used for business.

Like motoring expenses, you need to be realistic about what proportion is used for business. For example, there are 168 hours in a week, so if you work 40 hours online, you can claim back 24% of your broadband charges. Alternatively, if the space used for business is 10% of the total square footage of your home, you could claim 10% of your rent or heating as a business expense.

Marketing Costs

Marketing is critical to the success of any business, but it is particularly important for the self-employed. It should come as a relief to many then that these costs can be claimed back as expenses. Any promotional material that appears online or in print can be deducted, but please note that entertainment costs, regardless of whether they are for staff or customers, cannot.

Consultation

business man giving a consultation.jpg

If you are self-employed, you are likely to build up some consultancy fees for expert services, such as legal or financial advice. As long as the advice sought is related directly to the operation of your business, these can all be claimed as an allowable expense.

Staff Costs

Similarly, you can claim for any expenses that go towards employing other people, although you cannot claim back your own wage or any owner’s draws. But any salaries, bonuses, recruitment costs, or insurance contributions can be claimed back.

Financial Charges

They may not appear to be the biggest expense, but financial charges can add up over time, so you want to make sure you’re not missing out on any allowable expenses. Any fees, whether they are for maintenance, currency conversion, overdrafts, and so on, can be claimed back against your taxable income.

Interest on Loans

Watching interest on a dic grow.jpg

In addition to being able to claim back fees and charges from financial institutions, you can also claim back the interest on any business loans you may have taken out. However, it is crucial to note that this only applies to the interest on the loan, and not to the repayments of the loan.

Lease Payments

Any lease payments for vehicles or machinery directly related to business operations can be claimed back. If the vehicle/machine is also also used for personal use, then only the business portion can be claimed back. There are also different limits depending on the CO2 emissions of a vehicle which will affect how much can be claimed. For more information on this, please see this document by the Revenue Commission.

 

Capital Allowance

People working on a computer.jpg

If you purchase a new piece of equipment for your business, such as a laptop, this is considered a business asset. This means it is not listed as an expense, as not only is the equipment intended to bring in more profit, but it can also be sold at a later date. However, as the value of the item will go down over time, you can claim back the cost of the asset as an expense.

It is important to note that you are not claiming back the depreciation, which is not an allowable deduction under Irish law. Instead, we allow the cost of assets that meet these criteria to be claimed back at a rate of 12.5% over 8 years. In simple terms, this means you can claim back 12.5% of the original cost of an asset per year, regardless of depreciation. 


Making the move from a standard 9-5 job to self-employment is a big leap. It carries with it plenty of stress and worries, and will often be an uphill struggle. That means it is all the more important to make sure you are filing your taxes correctly. It is not a simple process, but all these claims add up over time, saving you money, and making it a lot more likely that you will succeed in your endeavours.

How "PAYE Modernisation" will affect Employees and Employers?

In 1960 Revenue introduced the PAYE system. This system was designed for employees and employers to have the most accurate, up to date information relating to pay and tax deductions. Ensuring the right tax deductions are made by the right individuals at the right times, improves the accuracy, understanding and transparency for all the stakeholders. This version of the PAYE system has been used for the past 60 years but for not much longer…

On the 1st of January 2019, the PAYE system will get a long overdue update to evolve with the times. For example, people switch job more regularly and changes in personal circumstances   ( i.e marital status) are much more common compared to when PAYE System originally launched

Now you are probably wondering what do these changes mean for me. Don’t worry, this update will benefit both employers and employees.

 

For Employees

Before the start of the tax year, an online statement will be sent detailing your tax credits and standard cut-off points for the upcoming year. This will be based on estimated income and information available to Revenue for the employee. Employees will be prompted to make any necessary adjustments to or to update this online statement, including claiming any additional entitlements. This contrasts with the current system where the employee must wait until the end of the year for such reconciliation and wait for any refund or be faced with a tax underpayment.

For Employers

This update will have changes on how employers pay their employees. When processing payroll, a file must be submitted (electronically) to Revenue containing details of employee payments. The contents of this file will be like the details currently submitted in the annual P35, but unlike the P35 this file must be submitted each pay period e.g. weekly or monthly.

The update enables employers to submit a new employee’s detail before they start employment their details. This allows the final payroll run in the year will generate a pre-populated statement setting out the total tax deductions for the year both at the level of the employer and the employee. This, in turn, should reduce incidences of year end over/underpayments of income tax.

This new reporting process by employers to Revenue is anticipated to be fully integrated into the employer’s payroll run and will result in a significant modernisation of business processes and reduce the administrative cost for employers.

To discuss these changes further Contact us