The following is a check list of tax planning areas for companies. It is not intended to be an exhaustive list.
1. Patent income
Review activities of company to establish if a patent can be taken out in respect of any of the company’s activities or products.
Consider transferring patent to a separate patent holding company in order to provide shareholders with a tax free dividend.
2. Pre-trading expenses
Certain expenditure incurred 3 years prior to the commencement of the trade is now allowable for tax purposes under Section 82 TCA 1997. Accordingly, please ensure any expenses incurred prior to the commencement of the trade are properly recorded and documented.
3. Repairs and maintenance
Under certain circumstances, repairs and maintenance are not allowed in the first year of trading. Careful attention should be given to the expenditure on repairs and maintenance to see if it should be capitalised to obtain capital allowances.
In later years, the amount of expenditure on repairs and maintenance should be written off in the Profit & Loss Account to ensure a tax deduction in that year. If it were capitalised, the tax deduction for the expenditure would be spread out over later years through capital allowances.
4. Timing of expenditure
At year end, thought should be given to bringing forward any proposed expenditure by the company in order to claim a tax deduction in the current year as opposed to the following year.
5. Balancing charges
Where machinery or plant is sold and is replaced a taxpayer may elect to reduce the cost of the new item by the amount of the balancing charge arising on the disposal of the old item under Section 290 TCA 1997. This effectively defers the balancing charge to later years.
6. Capital allowances on leasehold improvements
Capital allowances are not available on non-industrial buildings (except for designated areas). Accordingly, in the finalisation of accounts, careful consideration should be given to transferring as much expenditure as possible from “buildings” to leasehold improvements and fixtures and fittings on which capital allowances can be claimed.
7. Group relief
Where a person does business through more than one company, consideration should be given to forming a group for corporation tax purposes. This can be done by inserting a holding company or by having one of the companies as a subsidiary of the other.
The advantages of forming a group include transfer of losses from a non-profitable to a profitable company, group payments without deduction of tax and the option to apply to be treated as a VAT group.
8. Pension contributions
At year end, consideration should be given to increasing the pension contributions to executive pension schemes for shareholders and directors as a tax efficient means of withdrawing money from the company. The company can obtain a tax deduction for the contributions and the employee is not taxed on the contributions as a benefit in kind. It is important to note that the company must actually pay the pension contribution prior to the end of the accounting period to secure a corporation tax deduction in the period.
Consideration should also be given to forming a self-administered pension scheme to increase control.
9. Termination payments
Where an employee is leaving the company, consideration should be given to maximising the termination or gratuity payment. Such payments often attract generous tax treatment. It is important to note that normal salary entitlements under the contract of employment (e.g. holiday pay or pay in lieu of notice) must be paid through the payroll as normal and cannot be channelled through the termination payment.
10. Business Expansion Scheme/Seed Capital Investment Scheme
Manufacturing companies and other qualifying companies should consider raising funds through the Business Expansion Scheme (BES). Directors or existing shareholders can invest themselves subject to various conditions. Individuals setting up qualifying companies can reclaim income tax for any of the six years immediately preceding the year in which the investment is made under the Seed Capital Investment Scheme.
11. Interest relief
Interest relief is available to individuals who borrow funds to subscribe or lend money to certain companies. Accordingly, shareholders should ensure that they are obtaining interest relief where possible in respect of such loans.
12. Research and development
A tax credit of 25% is available in certain circumstances for companies in respect of expenditure on research and development (R&D) activities. R&D activities are defined as “systematic, investigative or experimental activities in a field of science or technology, being basic research, applied research or experimental development”.
Related Article: Company Directors – Taxation Issues
Please call Noel Murphy today on 021-4310266 if you need further information on tax planning ideas for companies or a free consultation.