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Business Owners - Tax Tips for 2021

We are almost there where we can say goodbye to one of the worst months ever. Adios January we won't miss you. Apart from the extension to level 5 until March let's hope that February will be a better month. We need to get the small ones back to school and if we can continue reducing the numbers that has to happen. From a sporting viewpoint my delight in seeing Burnley & Man Utd beat Liverpool, in a space of 4 days, was short. When all was going so well for us we lose to Sheffield Utd at home. Watching it was a form of punishment and then Liverpool beat Spurs. Momentary glee turns to sporting despair in a few days.

We have to mention the heart-breaking interview that Jeni Pim gave on the Late Late show last Friday. She was honest, brave, and inspiring to warn us to do the right thing until we get rid of this bloody disease. I never met Nigel but spoke with him a few times over the phone and he was always very helpful and so friendly. It’s so cruel on the Pim family. Sincere condolences to them and all Nigel's former work colleagues in Pimbrook from us at Comerford Foley.

Last week we spoke about Director's salaries. The blog was to give you an idea of what net salary you would get in different situations and what taxes you pay. In case you missed it  Read here

This week we are going to look at some useful tax tips for business owners company directors for 2021. It's not that you need to know everything about them, but some could be relevant to you and worth exploring more.

Government Supports

There are some questions to ask yourself about these

  • Will the turnover/sales in your business in the first 6 months of 2021 be 30% lower than the first 6 months of 2019? If so, and this is because of Covid, you need to investigate this further. You could get a wage subsidy for your employees. If you or your spouse are the only employees, you could get a subsidy for yourselves. This is the employee wage subsidy scheme - click here
  • Is your business closed or very restricted and you carry on your business from a premises? Is your turnover, during restrictions, 75% lower than your average weekly turnover for 2019? If so, you need to look at the CRSS - for more info read here
  • Tax Debt warehousing is still available for employer's Vat & PAYE. It may be vital to hold onto as much cash as possible until your business can operate at full capacity again. You can warehouse these tax debts at 0% interest from 14 months after you recommence business. After that, it is at 3%

The key to the above is to have proper documentation to support any claim and to have tax clearance. Get your numbers up to date and any projections needed.

Buying Assets for your Business

The assets we refer to are machinery, equipment, or company cars. Your business can get a tax write off for the cost of these assets over 8 years. This is known as Capital allowances. 8 years is very long when you consider that you may need to change the assets every 3 years. Rather than get a tax write off over 8 years your business could get a tax write off in the first year you buy the asset. The scheme is Accelerated Capital Allowances for Energy-Efficient Equipment. It used to be only for companies, but sole traders and partnerships can now claim it. The business must own the equipment, so equipment that you lease, hire, or rent will not qualify. Equipment acquired by hire-purchase would qualify. The key points to remember are;

  • The equipment must be new
  • You have to spend a minimum amount on the equipment which will depend on the type of equipment
  • You claim it on your form 11 or CT1 and there is a separate line to enter the amount
  • 100% electric vehicles can qualify subject to a maximum write-off of €24,000
  • The qualify the equipment or electric vehicle must be on the SEAI approved list in the year you buy it

For a full list of qualifying equipment see the SEAI website - click here

Planning for Business Exit or Sale

"It does not do to leave a live dragon out of your calculations, if you live near one" J.R.R Tolkien

This is a topic that comes up quite often for many business owners. We work on business sales, management buy-outs, and business transfers every year. Some businesses are well structured, tax-efficient, and easier to transfer than others. Business owners want to maximise what they can get when transferring the business. A good plan can pay off down the road. You don't need to know all the ins and outs of the tax reliefs available, but some knowledge would be useful. It helps to

  • maximise pension contributions where the business has the cash to do it
  • Look at your share structure and who are the directors
  • Are spouses working in the business at a senior level and, if so, are they directors, and do they have shares
  • find out more about Entrepreneurs relief and Retirement Relief
  • Be careful about your company having investment assets at the time of exit

For more information on the basics of Capital Gains Tax reliefs - see earlier blogs we did on these in 2019 – click here

Clint & Janet have a fresh dinner making company called Feedmenow Ltd. The company was set-up in 2005 and both. are directors and work full-time in the business. Janet owns all the shares. Janet is 57 and Clint is 56. In 2021 they receive an offer for the business. They sell it for €1,400,000. Janet will be able to avail of Entrepreneurs relief on the sale

First €1,000,00010%€100,000
Next €400,00033%€132,000
Total CGT€232,000


If Clint & Janet owned 50% of the shares each then their Capital Gains Tax could be nil. Yes Nil, as both could claim Retirement relief. There is a lifetime limit of €750,000 on the disposal of business assets to third parties. When setting up the company Janet thought it would be better if Clint had half the shares. Clint said no way that he didn't want to own anything, or Revenue could be after him!

Salaries or Dividends

Some companies did very well in 2020 and are in a strong position with cash in the bank. If the directors are looking to take some money out, they can either take dividends or more salary. Taking more salary as a bonus will be more tax efficient, in most cases. The reason for this is that the company can get a write off for the bonus. It will reduce the profits of the business so there will be a corporation tax saving at 12.5%. There is no tax-write off for a dividend as that from after-tax profits.

If the company pays the bonus within 6 months of the end of the accounting period, the relief is in the earlier year. See our previous blog on this Read here

Summary

The purpose of the above is not to worry you but more to get you thinking about planning ahead. For this year and the future. While you have to plan for the business don't forget about yourself. You are the driver of your business. Your primary goal is to be profitable. This protects your job and that of your team. You can get help with all the rest.

Interested in talking to us? Call Deirdre on 051 396703 and she will point you in the right direction. Or contact us to tell us a bit more about you and your business to see how we can help



 

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