Businesses in Ireland are, in general, subject to a variety of taxes. Tax levels are normally set in the National Budget, which is published in December of every year.
It is your responsibility, as the business owner, to ensure that proper books and records are kept, that your business is tax compliant and that tax returns are made annually. Failure to do so can result in fines in the form of interest and penalties being applied to unpaid and undeclared returns and the risk of publication of names of defaulters.
The main elements of tax include:
- Income Tax - On the profits of Sole Traders and Partnerships
- Corporation Tax - On the profits of Limited Companies
- Value Added Tax (VAT) - All businesses with turnover in excess of €75,000 (goods) or €37,500 (services)
- PAYE/PRSI - Businesses having employees, including owner/ directors
The rates of VAT in force at present are 4.8% (on livestock), 9%, 13.5% and 23%, depending on the goods or services in question. Certain goods and services are exempt from VAT. In general, persons supplying such goods and services e.g. schools, universities and hospitals, are treated as being exempt for VAT purposes.
As a small business owner, you are responsible for registering your business for tax purposes with the Revenue Commissioners, there will be different forms to complete depending on the type of business entity you are going to establish. Visit www.revenue.ie for further information.
Rates of Corporation Tax
- 12.5%: Trading income (see Guidance on Revenue Opinions on the Classification of Activities as Trading).
- 25%: Non-trading income [includes income chargeable under Case III (e.g. discounts, interest, foreign income), Case IV (patent royalties, miscellaneous income) and Case V (rental from land and buildings in the State) of Schedule D]. Also included at this rate is income from activities that consist of working minerals, petroleum activities and dealing in, or developing land, other than construction operations.
Calculating Tax Due
When starting your business it is important to understand the taxes that will need to be paid and what expenses are allowable for tax purposes. Due to the difference in treating certain items for accounting and for tax purposes there is often a significant difference between the profit arrived at for accounting purposes and the amount that is liable to tax. This is because items that are allowable for the purposes of calculating your accounting profits may not be allowed for tax purposes. The key expenses that are allowed and disallowed in calculating the taxable profits of an individual or company include the following.
You can claim for any business expenses which you have incurred in order to earn your profits. These expenses are normally referred to as revenue expenditure.
Revenue expenditure is your day-to-day running costs and covers such items as:
- Purchase of goods for resale
- Wages, rent, rates, repairs, lighting and heating etc.
- Running costs of vehicles or machinery used in the business
- Accountancy fees
- Interest paid on any monies borrowed to finance business expenses/items
- Lease payments on vehicles or machinery used in the business
If you are registered for VAT the expenses you claim should be exclusive of VAT.
The general rule is that you cannot claim for any private expenses, such as:
- Any expense, not wholly and exclusively paid for the purposes of the trade or profession
- Any private or domestic expenditure e.g. your own wages, food, clothing (except protective clothing), income tax etc.
- Business entertainment expenditure i.e. the provision of accommodation, food, drink or any other form of hospitality.
You can claim a deduction for the running expenses of a motor vehicle used for business purposes.
Where expenditure is incurred by both business and private use, only that part relating to your business will be allowed for tax purposes. Examples include: rent, electricity, telephone charges, heating oil etc., where a business is operated from the home. These expenses will need to be apportioned to exclude the element of private use.
Private Use of a Motor Vehicle
When you use a vehicle for both business and personal use, a split of both the capital allowances (wear and tear) and running expenses has to be made. To ensure that this split can be properly calculated, you will need to keep records of your total mileage for the year and the total number of miles travelled for business purposes. Journeys between your home and regular place of work are treated as personal and not business.
‘Capital Expenditure’ is the term given to money spent on acquiring or altering assets that are of ‘lasting use in the business’. For example: the purchase, alteration or fit-out of a business premises, the purchase of plant, machinery and vehicles. You cannot deduct the cost of this type of expenditure from taxable profit.
You can claim capital allowances on capital expenditure incurred on items such as office equipment, business plant and machinery, vehicles and certain buildings (for example, industrial buildings).
Taxable profit is arrived at by adjusting your net profit figure for any items of expenditure that are disallowed for tax purposes and also adjusting for capital allowances. This is the figure that will be charged to tax. If it results in a loss, this may be set against other taxable income or carried forward to be offset against future profits.
BASIS - Taxation