Reducing my tax bill

If you run a business, there are several things you can do to reduce your tax bill.

Currently I have quite a number of clients who benefit from the following arrangement. This arrangement best suits those who travel a little in the course of their business.

Form a company,
and claim travel & subsistance expenses from the company.
As a business owner if you send an employee on a job, the employee is entitled to ask how he/she is supposed to get to where they are being sent. Maybe you provide your employees with a company car, or taxi fare, or maybe you will ask the to use their own car. In the civil service, civil servants are entitled to "mileage" expenses. Typically this rate is about €0.45 per kilometer.
After you form a company you are an employee of your company. Granted you are probably a director as well, but an employee none the less, and entitled to make travel claims against your company, based on the civil service rates.

Additionally, the civil service are also entitled "subsistance" expenses, depending on how far away you are from your "place of work" and for how long, > 5 hours is €13.71, > 10hours is €33.61. There are also overnight allowances.
All of these allowances are very generous, and tax free.
Need help? www.shayrohan.com

Use you Standard Rate Band
If your spouse or partner works in the business, pay them. Actually put them on payroll, that way your household gets to use their Standard Rate Band. In general, this means the household is likely to pay tax at 20% not 41%.
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Start an Occupational Pension Scheme
If you are traveling for work, you could be claiming any thing up to €25k per year tax free.
If you use your own Standard Rate Band (SRB) €32,800 (in 2012) and your spouses' SRB (another €32,800) that is €65,600 at a rate of 31% at most (tax 20%, PRSI 4%, USC 7% (max))
However, any earnings beyond this will be subject to 52% in taxes (Tax 41%, PRSI 4%, USC 7%).
I think paying tax at 52% is madness.

If you start a personal pension you can get relief (within limits) from tax, but not PRSI or USC. In effect 41% tax relief.

However if your company starts a Occupational Pension Scheme, and you company makes a contribution to the scheme on your behalf, this is not a "Benefit in Kind" and is not subject to Tax, PRSI or USC. A full 52% tax relief.

Summary
In other words, take what you can tax free and at the lower rates, and everything else gets put in a pension.

Warning. 
A scheme like this needs to be thought out, and you should seek professional advice before doing this on your own.
Need help? email Shay Rohan

Income Tax. Married persons, where one spouse is working PAYE.

If this was not so serious, it would be funny.

Every year I have clients who return  their Income Tax late. That is make the return late, not necessarily pay it late.

There is a penalty for making a late return. the deadline is (not counting any e-filing extentions) the 31st of October in the following year. So 2010 needs to be filed on or before 31st Oct 2011.

If you miss this deadline their is a 5% surcharge.

Then there is a second deadline, 31st December, and if you miss this deadline there is another 5% surcharge.

The surcharge is on your ENTIRE tax liability for the year.

So, example, a single person has a tax liability of €10,000 but she has already paid €10,400k, meaning a refund of €400 is due.
However, if her return is late the surcharge is applied to the €10k, giving a penalty of €1,000. Turning a refund into a liability.

This becomes a real problem in two particular cases.

1. Company directors who have only PAYE income (because company directors MUST return their income)
2. Married persons, where one spouse is self employed and the other is working PAYE. 

I have a client, who is married to a PAYE worker. As it happens the spouse is a high earner, and pays a lot of PAYE, so her 2009 tax was paid in 2009. Her husband (my client), Is not doing so well at the moment, and made a small loss in 2009.

Normally what would happen is that his loss, would be offset against her income and a refund would be the normal outcome. However in this instance, because he was late in returning is income tax, his refund was more than offset by the 10% (5+5) surcharge, and his refund became a liability.

I don't know about you, but I would not like to have to explain to my wife, why I had to pay "tax" on the tax she had already paid, more than 12 months ago.

Madness  

For help with Income Tax returns

Factors that lead to a Revenue Audit

In my opinion,

1. Have you previously had a Tax liability resulting from an audit.
2. Are you in an industry which is of special interest to Revenue, eg. construction.
3. Does your industry deal in cash.
4. Do you submit your returns on time,
5. Do you pay your taxes on time
6. are you lucky (nothing I can do for you here)

Generally items 1, 2 & 3 there is nothing that can be done. It is what it is, but we can all submit our taxes on time, be it VAT, Income Tax, Corporation Tax or what ever, It is important to be seen as a compliant taxpayer.

www.shayrohan.com

Introduction

Hi, my name is Shay Rohan, I am a qualified accountant, I live in Roscommon, close to the Longford border.

It is my hope to update this blog about once a month with a short paragraph about my observations in the world of bookkeeping, accounts taxation and business in general.