IACP 12th September 2012 Taxation Round-Up Irish Association for Counselling and Psychotherapy Presented By: Colm Owens Anne Brady McQuillans DFK www.annebrady.ie Colm Owens, Audit Manager Anne Brady McQuillans DFK Oversee the firms audit and accounts department Provides invaluable advice and assistance with all aspects of audit and accountancy matters including tax issues for all sizes of businesses and organisations Contact Details cowens@annebrady.ie 01 478 6600 www.annebrady.ie Topics for discussion • Deciding Legal Entity under which to trade • Registration, operation and compliance of the following taxes: - Income Tax - VAT - PAYE - Corporation Tax - Relevant Contract Tax www.annebrady.ie www.annebrady.ie 1
IACP 12th September 2012 Deciding the Legal Entity • Will the business make sufficient profits to justify the additional expense of running a company? • Is a company structure required for a grant application or is there a potential investor? • Are you willing to deal with the paperwork associated with the business in a timely manner or will you outsource/delegate this to someone else? • Is limited liability important in your industry sector? www.annebrady.ie Deciding the Legal Entity • Is there a good marketing reason to trade through a company rather than as a sole trader? Do you want to protect the business name by registering a company? • Do you accept that the company’s accounts will be filed on public record at the CRO (although these will be abridged for small companies)? • Practical and legal matters should be taken into account when setting up a company (on which you should seek professional advice.) www.annebrady.ie Sole Trader • Business decisions are the result of the owners abilities • Extension of the individual who owns it • Business owned/operated by one individual • Not a separate legal entity under law • Profit/loss combined with other income for Income Tax purposes • Optional to register business name, Registrar of Business Names www.cro.ie www.annebrady.ie www.annebrady.ie 2
IACP 12th September 2012 Advantage of Sole Trader • Easiest form of business to operate • Business decisions are the result of the owners abilities • Relatively cheap compared to other types of business • Losses from the business can be offset against other income • If business fails it is relatively easy to close down www.annebrady.ie Disadvantages of Sole Trader • Possible higher tax liabilities as taxed on the actual profits of the business and not just on the funds you withdraw • Unlimited liability for all the debts of the business • Reduced options in relation to pension entitlements, the use of civil service mileage rates and other issues. • Less flexibility in transferring ownership www.annebrady.ie Partnerships • Two or more individuals run the business • Each has the responsibility for liabilities • Legal entity recognised under law • Partnership required to file an Income Tax return, Form 1 • Register business name • Partnerships can be messy - vital that a partnership agreement is set up detailing profit share etc. www.annebrady.ie www.annebrady.ie 3
IACP 12th September 2012 Limited Company • Separate legal entity • Legal rights of an individual • Responsible for its own debts • Legal protection afforded to owners • Approval from CRO to use proposed name • Adopt/file a Memorandum and Articles of Association • Must file Corporation Tax returns and pay tax on profits www.annebrady.ie Limited Company • Must file tax returns • Pays Corporation Tax on its profits • Before incorporating seek advice from an accountant • Advantages and disadvantages www.annebrady.ie Limited Company - Advantages • Low tax rate on profits, 12.5% • Improved options for raising finance • Easier sale or transfer of an interest in the business • Greater pension benefits for directors can be secured • Motor expenses - mileage allowances & subsistence claims • Tax incentive schemes for new start up companies www.annebrady.ie www.annebrady.ie 4
IACP 12th September 2012 Limited Company - Disadvantages • Formation costs - Initial set up cost • Accountancy costs are higher as you must file accounts and an annual return • Financial and other information has to be filed on public records • Lenders and key suppliers often seek personal guarantees from directors which tend to reduce significantly the value of limited liability • Potentially subject to double taxation • Not your money to withdraw www.annebrady.ie Registering for Taxes • You should advise the tax office when you start in business. You can do this by filling in one of the following forms: • TR1 Form (appendix A1) Sole traders, Trusts & Partnerships – Income Tax – PAYE – VAT – RCT www.annebrady.ie Registering for Taxes • TR2 Form (Appendix B1) Registration of Companies – Corporation Tax – PAYE – VAT – RCT • You can request a "New Business Visit" from your local Revenue office, for assistance, to ensure compliance. www.annebrady.ie www.annebrady.ie 5
IACP 12th September 2012 Irish Association for Counselling and Psychotherapy INCOME TAX www.annebrady.ie Income Tax – Self-Assessment • Income Tax is chargeable on all income arising in the state to an individual, partnerships and unincorporated bodies. • Most common form of Income Tax is PAYE which is deducted by employers. • When a person is self employed, Income Tax registration (TR1 form) is required, as their income is not taxed at source. www.annebrady.ie Examples of Untaxed Income: • Profits from rents • Investment income • Foreign income and foreign pensions • Maintenance payments to separated persons • Fees • Profit arising on exercising various Share Options/Share Incentive www.annebrady.ie www.annebrady.ie 6
IACP 12th September 2012 Tax Treatment • Contract for services i.e. Self-employed • Individual is responsible for taxes etc. • Payments for such services can generally be made gross. • The individual is entitled to various tax deductions for expenses. www.annebrady.ie Tax Treatment • Contract of services i.e. Employed • Payments for such services are generally subject to PAYE/PRSI • Such an individual is entitled to limited tax deductions, example: Architects. They are entitled to flat rate expenses of €127 pa. www.annebrady.ie Allowable Expenses • Test: Wholly and Exclusively for the purposes of the trade . • Electricity – Could include a portion of home ESB bill if working from home • Heating – Could include a portion of home gas bill if working from home • Insurance - Business related • Rent • Research e.g. books, magazines www.annebrady.ie www.annebrady.ie 7
IACP 12th September 2012 Allowable Expenses - Continued • Serviced offices • Stationery • Subscriptions for the purposes of the trade • Telephone, Broadband • Transport – motor expenses restricted. (Add back for personal use of car) • Wages and salaries – if employing another person www.annebrady.ie Pre Trading Expenses • Deduction for pre-trading expenses • Within three years prior to commencement which would normally would be allowable • Examples of pre-trading expenses are: – Accountancy fees and Advertising costs, – Costs of feasibility studies, – Costs of preparing business plans, – Rent paid for the premises from which the business operates. • Expense can only be offset against trade income from that business but can be carried forward against future business profits. www.annebrady.ie Non-Allowable Expenses • Business entertainment expenditure, i.e. the provision of accommodation, food, drink or any other form of hospitality • Any private or domestic expenditure, e.g. your own wages, food, clothing (except protective clothing), Income Tax, etc., Drawings must be added back. • Donations to eligible charities allowed if over €250 p/a – claim on tax return. www.annebrady.ie www.annebrady.ie 8
IACP 12th September 2012 Items of a Capital Nature • Capital allowances, on capital items, are allowable as a deduction against taxable profits, at 12.5%. Examples are as follows: • Computers • Software • Fixtures & Fittings • Motor Vehicles etc. www.annebrady.ie Tax Cut-off Point 2011 & 2012 € • Single Person 32,800 • Married Couple (Single Income) 41,800 • Married Couple (Dual Income) 65,600 • Standard Rate @ 20% • Balance is taxable @ 41% • Applies to all income, not just salary www.annebrady.ie Tax Credits 2011 & 2012 € • Single Credit 1,650 • PAYE Credit 1,650 • Home Carers Allowance 810 • Dependant Relative Credit 70 • Third Level Educational Fees: Relief at 20% (first €2,000 disregarded for full time) • Service Charges €80 (2011 Only) www.annebrady.ie www.annebrady.ie 9
Recommend
More recommend
