Posts Tagged ‘tax advice’

Small Companies and Tax

In tax terms most small companies are “close companies”. This means that they are controlled by five or fewer people or companies.  A person and their spouse or relative count as one person

Example

A Ltd is owned as follows

A Limited is a close company. John’s relatives control it.

What does this mean for you?

Tax authorities have always been wary of close companies. They fear that the owners will manipulate matters to give themselves favourable treatment e.g. by taking tax free payments. Therefore, they put several ant-avoidance measures in place. If you are involved in such ba company you need to be careful. Several of these measures can mean you get hit by non-recoverable surcharges.

What are they?

Giving perks to associates of the shareholders.

If you give a perk to, say, a relative who is not an employee it is treated as a dividend. For example, you might give your wife an expensive company car.

1. The benifit in kind will be valued.This is now the value of a dividend.
2. The dividend is taxed at the individual’s marginal rate.
3. The company gets no tax deduction

Dividend Witholding Tax at 20% is due. This may be forgotten, incurring interest and penalties

Taking Director’s Loans

This is always dangerous for Company Law reasons.  However, there are also tax problems. Your company must

1. Gross up the loan for standard rate tax at 20%.If you get €8,000 the grossed up amount is €10,000.
2. They tax the gross figure at 20%. €10,000 @ 20% = €2,000.
3. They must then pay over the €2,000 to Revenue. They can reclaim this when you repay the loan
4. If the cpmpany forgives the loan, you will be
   1. Be taxed on the €10,000 at your highest rate
   2. Get credit for the €2,000

Rental Property and Investments held in the company

If a company has income from these which it does not distribute as dividends it will be surcharged at 20%. This surcharge is not recoverable. The calculation for this is complex and needs professional assistance

Proffessional Service Companies Surcharge

If a close company’s income is mainly from professional services undistributed income is surcharged at a non-refundable 15%.

What are professional services?

Revenue issued guidelines on what constitutes such services. Someexamples are

1. Accountants and tax advisers
2. Architects
3. Engineers
4. Management consultants
5. Auctioneers (but not livestock marts)
6. Opticians
7. Private schools
8. Geologists.

They exclude

1. Retail pharmacists
2. Advertising agencies

The two surcharges above are often overlooked and get caught on revenue audits, wit attendant interest and penalties.

The above comments are general guidelines only. Professional advice should always be used on such matters