6 Simple Ways to Reduce Your Tax Bill
1. Question every Expense
Whether you are trading as a sole trader or a limited company an easy way to reduce your tax bill is to ensure that all of your business expenses are recorded in your accounts. So every time you put your hand in your pocket to pay for something or reach for the credit card, think: is this a business expense? The general rule is that it is a business expense if it is wholly and exclusively for the purpose of your trade.
Remember:
- Client entertainment (although it may be a business expense) is not a deductible expense for tax purposes.
- Staff entertainment expenses are deductible as long as they are reasonable.
- A sole trader cannot claim meals as a tax deduction against profits.
- A company cannot claim an employee’s/director’s meals and accommodation against profits unless it has vouched receipts for the expense or comprehensive subsistence records from the employee/director to back up the expenses reclaim. If the strict Revenue guidelines are not followed, PAYE/PRSI implications may also arise.
- Clothing expenses are not deductible unless it is protective clothing. For example, a new business suit for a sales person is not deductible.
- Where expenditure relates to both business and private use (for example telephone expenses), only that part which relates to your business will be allowed.
- Be careful not to reclaim expenses on the double, for example a company claiming mileage expenses and petrol receipts.
- If you have a question about whether an expense is allowable or not please feel free to email me on blog@parfreymurphy.ie or leave a comment.
2. Keep Proper Records
Now that you have identified your additional business expenses, ensure that you file the receipts and record them in your books. It is all too easy to pay for something by cash and lose the receipt in the car or the bottom of your handbag.
If an expense is business-related but just not allowable for tax purposes, then record it in your accounts as normal. This will be added back in your tax computation.
Warning: For limited companies, please be careful! If a personal expense is paid by the company which results in the director owing money back to the company, this could result in a breach of the Companies Acts.
3. Claim all your tax credits and reliefs (Individuals)
While it may seem with every budget (and emergency budget) that tax reliefs are getting scarcer, there are still some tax credits and reliefs out there that can help to reduce your tax bill, for example:
- Trade union subscriptions
- Rent credit
- Service charges/waste disposal
- Job Assist
- Dependent relative
- Incapacitated person – employing a carer
- Artists exemption
- Deduction for maintenance payments
- Certain medical and dental expenses
- Pension contributions and PRSAs
Married couples should ensure that their tax credits and tax rate cut-off points are shared in the most tax efficient way depending on who is the higher earner. If one spouse is at home looking after the kids, they may be entitled to the home carer’s credit.
The Revenue have a comprehensive list of tax credits and reliefs on www.revenue.ie.
4. Research & Development Credit for Companies
In these challenging times, Research and Development (R&D) is one of the most important activities that Irish businesses can undertake. However, you may not be aware that as well as getting a corporation tax deduction for qualifying research and development expenditure, your company may also qualify for an additional tax credit of 25% in certain circumstances. This tax credit is available for offset against the current year corporation tax liability and any unused credit can be carried forward to future periods.
5. Exemption for New Start-up Companies
New start-up companies which commence trading in 2009 and 2010 will be exempt from tax, including capital gains, in each of the first three years to the extent that their tax liability in the year does not exceed €40,000.
6. Salary Planning for Company Directors
If your owner-managed company is going through turbulent times or even if it is riding out the recession, ensure that you plan the salaries of the directors to minimise tax liabilities. If done properly, salary planning can not only reduce tax liabilities but also allows you to better manage the company’s cashflow throughout the year.
On a final note, as well as trying to reduce your tax bill, always ensure that your tax returns (including VAT, PAYE/PRSI, Corporation Tax and Income Tax) are filed and paid on time. Filing a return even just a few days late can result in avoidable interest and penalties.
NEXT STEP:
If you have any queries on the above or are looking for even more ways to reduce your tax bill please feel free to contact me on blog@parfreymurphy.ie
Orla,
This is an excellent blog, very useful. I will be sharing with my classes. Thanks again
Thank you Veronica. I hope your classes find it informative. If there are any topics you think I should cover please let me know.
Thanks again,
Orla
Is a tatoo artist eligable for artist exemption?
Hi Dermot,
Thanks for the comment/question. Generally tattoo artists don’t qualify for the artists exemption.
I double-checked it with the artists exemption department and they were adamant that tattoo artists don’t qualify (and were not interested in discussing it any further!)
That being said, if your cirumstances are different to a regular tattoo artist, please let me know and I can check it out for you.
Best regards,
Orla
Hi Orla,
Really helpful blog!
I am very interested in point number 5 – does this apply to sole traders?
Many thanks,
Bernie
Hi Bernie,
Glad you are enjoying the blog.
Point 5 only applies to companies and not sole traders.
If you have any other questions, please let me know.
All the best,
Orla
Hi Orla,
If a sole trader made a loss in 2009 can this loss be write against its 2010 profit?
Thanks and regards,
Claudia
Hi Claudia,
Depending on your circumstances the loss can either be offset against other taxable income you may have in 2009 or it can be carried forward and offset against future profits (2010 onwards) of the same trade.
Best regards,
Orla
Thanks Orla for your reply!
Regards,
Claudia
Hi,
I am a soletrader and am paying a mortgage on the business property-Am I allowed to add these payments to my overall expenses and therefore reduce the net profit the business may have?
Hi Kathryn,
If your business premises is used 100% for business purposes then you may be entitled to claim a deduction in respect of the mortgage interest on same in your annual sole trade accounts.
However if you are using a room in your home as your office and claiming tax relief at source on your mortgage then you may not claim a deduction in your annual sole trade accounts in respect of your mortgage interest.
If you have any further queries, please do not hesitate to contact us.
Best regards,
Orla
Hi Orla,
The more I explore your site the more impressed I am.
Under paragraph 03 above ‘tax credits and Reliefs’ it mentions in bullet point 08 – ‘deductions for maintenance payments’. Can you expand a bit more on this please in terms of thresholds, amounts and applicable situations etc.?
Thank you in advance,
Dave.
Hi Dave,
Thank you so much for your comment. Myself and my colleagues have put a lot work into the blog so it is always great to hear feedback. We still have a lot more blogposts to come so if there is anything you would like covered, please let me know.
Regarding maintenance, in a nutshell, if a spouse pays his/her former spouse maintenance under a legally enforceable arrangement (e.g. deed of separation) then the spouse paying the maintenance can get a tax deduction. Maintenance payments to children do not count.
The spouse paying maintenance is entitled to a deduction when calculating taxable income (i.e. your income is reduced by the amount of the maintenance payment). The person receiving maintenance may be taxed on the payments, depending on their circumstances.
You can find more information here http://www.revenue.ie/en/tax/it/reliefs/deduction-for-maintenance-payments.html
Best regards,
Orla
Hi Orla,
Great blog with some really useful information. I am a PAYE employee doing some consultancy work on the side. I have done some part time study to help with this work, can I claim the fees as an expense.
I am not VAT registered as my income will be relatively small.
Thanks Again
David
Hi David,
As long as the course is 100% related to your consultancy work you should be able to claim the cost of same as an expense in your sole trade accounts.
If not you may be able to claim a tax credit in respect of same as long as the course is approved by the Revenue Commissioners. The Revenue’s leaflet regarding claiming tax relief for tuition fees in respect of Third Level education can be found on http://www.revenue.ie/en/tax/it/leaflets/it31.html
I trust that the above is of assistance to you.
Regards,
Una
Hi Orla
Great blog. Do you know if the Exemption for new start-up companies mentioned in 5) above is still operating in 2011? Also how does that fit in with the BES Seed Capital Scheme? Is there any impact?
Z
Hello Orla , this is a great blog thanks for pitting it up & im finding this a good help , I’m a new start up in full time employment in one company but a sole trader part time this is my first 6 months and i have a taxable profit which I’m looking to lower , is lunch covered ? I have bought a warm work jacket and warm work fleeces , could these be included ? As the personal car is used to get to & from work and sometimes for my employee to go around doing choirs & pr is there any entitlements ? Any other tips to legally help my p & l would be greatly appreciated : ) Im due to pay approx 6000 to revenue after all adjustments made by my accountant : (
Hi Tadgh,
There are a number of issues raised in your comment. We have replied directly to you.
Thanks,
David
Hi,
Just discovered this very useful site. My wife Catherine is an artist who has been granted artist’s exemption by Revenue. Her income is now so small that her expences,including rent of a studio, are greater than her income. We are taxed jointly and registered as self complied as this is necessary to qualify for artist’s exemption. Can we offset her artist’s expences against the income tax I pay on my pension ?
Michael
Hi Michael,
According to the Revenue Commissioners as the source of your wife’s loss is from an exempt activity i.e. she does not pay any income tax on the income, then as you are jointly assessed for income tax purposes you will not be able to set this loss against your Schedule E (pension) income.
If you would like a formal ruling from Revenue regarding same we would be more than happy to assist you.
Kind regards,
David
Hi,
I currently have a company that is no longer trading. I took drawings out of the company that I intend to pay back amounting to approx. €8k. PAYE and PRSI to the Revenue as I incorrectly calcuated the amount due and this was on the P60 and P45 forms. I have paid the additional tax due through emergency tax so once I have amended the P45 I should get the overpayment back to me. I hope that’s clear.
My question is can I leave the PAYE amount as a loan to director on the company accounts at the end of the year ? I know that currently there is a limit of 10% of net assets that can be lent to directors but there are exemptions.
I have paid the PAYE due through emergency tax and will just return this to the company once received.
Can you advise?
thanks
Hi Denise,
I would be grateful if you could email me directly at davidoc@parfreymurphy.ie with regard to your situation.
Regards,
David