The basics of corporation tax | TAS Consulting | Expert Company Formation & Business Solutions in Ireland

The basics of corporation tax explained

Corporation tax is a tax on the profits earned by companies and other types of businesses. It is a direct tax and is imposed by Revenue (Ireland Tax Departments). Company must be trading and earning profit then Corporate tax is calculated. If a company is not making any money or incur loss then no Corporation tax will be applicable. However, despite the fact the company is making a loss, a corporate tax return needs to be submitted to Revenue with full facts and figures such as Sales, Costs of Sales, Permissible expenses wholly and exclusively used for the purpose of trade or profession of the company. Examples of allowable/permissible/admissible expenses include employee salaries, rent, utilities, insurance, and business travel expenses. However, not all expenses are allowable, so it’s important to consult with a tax advisor to ensure that expenses are being deducted appropriately.

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Corporation tax is calculated as a % of the taxable profits of a company. It is 12.5% in Ireland on Trading or Active income and 25% on Passive income such as rental income from properties held.

Corporation Tax

Corporation tax is an important source of revenue for the Irish Government, and it is used to fund public services and infrastructure. Companies are required to file tax returns and pay corporation tax on an annual basis within 9 months after the year end date of company. The year end date for a company is the date on which the company’s financial year ends. This date is also sometimes referred to as the company’s fiscal year end or accounting period. The year end date is typically set by the company’s directors and is usually the same date each year, although it can be changed if necessary. In most cases, the year end date will be the end of the month in which the company was incorporated.
Penalties for non-compliance with corporation tax regulations can be surcharge on late filing and interest accrued on the liability. In some cases, penalties may be financial, while in others, they may include fines, interest charges, or even legal action. It’s important to ensure that the company is in compliance with all relevant corporation tax regulations to avoid penalties.

Role of a director

As a company director, you have several responsibilities under corporation tax law. These include:
Registering your company for corporation tax: You must register your company for corporation tax with the tax authority in your country within a certain timeframe after starting your business.
Keeping accurate financial records: You must keep accurate financial records of all business transactions, including income, expenses, assets, and liabilities. These records must be kept for a certain period of time, depending on the laws in your country.
Calculating and paying corporation tax: You are responsible for calculating the amount of corporation tax that your company owes each year and paying it on time. This includes submitting a corporation tax return to the tax authority, which shows your company’s profits and the tax that is due.
Claiming expenses and deductions: You can claim certain expenses and deductions against your company’s profits to reduce the amount of corporation tax that you owe. However, these expenses and deductions must be legitimate and related to your company’s business activities.
Complying with tax laws and regulations: You must comply with all relevant tax laws and regulations in your country. This includes filing tax returns on time, paying the correct amount of tax, and keeping accurate records.

Techniques to reduce corporation tax bill:

Claim allowable expenses: You can deduct certain business expenses from your company’s profits before calculating your corporation tax liability. These expenses can include salaries, rent, utilities, and business travel costs. Make sure you keep accurate records of these expenses and claim them on your tax return to reduce your corporation tax bill.
Claim capital allowances: If your company has purchased assets, such as equipment or vehicles, you may be able to claim capital allowances (Normally 12.5% and For Buildings 4%) to reduce your corporation tax bill. The amount of capital allowances you can claim will depend on the type of asset and the rules in your country.
Make use of tax reliefs: There may be specific tax reliefs available to your company, depending on the industry you operate in, the size of your company, and the type of activities you undertake. Examples of tax reliefs include research and development tax relief and Entrepreneur Relief.
Consider your company structure: The way your company is structured can affect your corporation tax liability. For example, if you are a small business, you may be able to reduce your corporation tax bill by operating as a sole trader or partnership rather than a limited company. However, it’s important to seek professional advice before making any changes to your company structure.
Utilize your Losses: By planning your profits and losses carefully, you can reduce your corporation tax bill. For example, you may be able to carry forward losses from previous years to offset against future profits, or you may be able to time your expenses and income to reduce your corporation tax liability in a particular year.

What is the difference between corporation tax and income tax?

Corporation tax is a tax on the profits of a company, while income tax is a tax on the income of individuals. Companies and individuals are subject to different tax rules and regulations, so it’s important to understand the difference between the two.

It’s important to note that corporation tax rules and regulations can be complex. Companies may need to seek the advice of tax professionals to ensure compliance with local tax laws and regulations

What is the role of an accountant in corporation tax?

An accountant can play an important role in helping a company to comply with corporation tax regulations. An accountant can assist with tax planning, ensure that expenses are being claimed appropriately, prepare and file tax returns, and provide advice on how to minimize tax liabilities. It’s important to work with an accountant who has expertise in corporation tax to ensure that the company is in compliance with all relevant regulations.