HOW TO PAY YOURSELF TAX EFFICIENTLY

Even when a business is operating profitably, paying yourself a good salary isn’t quite as straightforward as you think. Owner-managers of small businesses are subject to several obligations that they need to be aware of before they begin paying themselves, along with the same taxes as any ordinary employee. Business owners can, however, control and manage their tax liabilities while still complying with all the Revenue’s guidelines: the key is careful advance planning, organisation and engaging with the revenue authorities when you need to.

 

Things to consider

 

Before taking any money from a business, the most obvious and important factor to consider is the company cash flow. A business owner has to be careful about what he’s looking to pay himself if, in turn, it jeopardises the cash flow resources of the business and its ability to pay other key overheads. For example, if he pays himself such an amount that it jeopardises the wages of the other staff or if the cash flow resources are affected to such a point that the company is not in a position to pay the VAT or PAYE/PRSI bill, then the problems begin.

Business owners also have to factor in their personal tax liability. He or she may only have a single person’s tax credits available meaning that, for every euro taken above the standard tax threshold, the business will pay substantially on top of the net amount the business owner is paying  him or herself. Despite what some commentators may make out, there’s no special exemption from tax for business owners – they’re exposed to the standard tax rates also, starting with the PAYE rate, PRSI rate and now the Universal Social Charge (USC) rate, which has a particularly damaging effect on the tax situation of business owners earning over €100,000. It’s very probable that, for someone of that income, their average tax rate could rise to over 50%.

 

Reducing exposure

 

Of course, every business wants to limit their exposure and liability – the key is to be organised so that you can take advantage of generous reliefs. One that a limited company can look at is mileage and subsistence. Rather than just hanging on to petrol receipts, the director or owner of the company can complete a revenue-approved spreadsheet that, we feel, gives generous allowances in terms of travel he has incurred on behalf of the company. This is only applicable, though, if the director owns their own vehicle and it’s not owned by the company. Often, directors make the mistake of thinking it’s an advantage to let the company own the motor vehicle. At DCA, we would, in most cases, advise against that because the employer is leaving himself exposed to be taxed on a benefit-in-kind whereby be he will be exposed to an additional PAYE/PRSI charge on it.

 

Another idea is to employ a spouse that may not be working to avail of tax credits. This is perfectly legitimate as long as that person is actually carrying out work for the company. It could be an administrative role or helping with the paperwork at weekends. And of course, the business owner could have children off for the summer who may be able to help out, for which they could also avail of their tax credits.

 

Another option is pension planning, where by the business owner can look at the generous reliefs available for company directors, in particular if they look towards setting up a company executive pension scheme. This type of pension has more generous tax breaks than ordinary PRSA/personal pension scheme and is worth investigating.

 

The compliance issue

 

Of course, availing of these reliefs calls for organisation and planning. Certain businesses, particularly sole traders, tend to leave their tax returns until the final month before the submission deadline. Our view is that these businesses should look towards getting their tax computations and income tax returns completed as early as possible once the tax year is over. That gives them time to anticipate what lies ahead, both in terms of their ability to pay and also any tax planning measures that they might still be able to put in place to reduce their liability.

 

Being organised will stand to the company when the thorny issue of compliance comes up. The most important thing is to file VAT returns and P30 returns on time. That minimises exposure to interest or penalties for filing late returns. Far too many businesses end up exposed to unnecessary costs of that nature.

 

Working for you

 

At DCA, we come across many cases where we find that client cash flows are in such a situation that they’re not able to pay all their taxes at once. In this instance, we write to the Revenue and look towards an instalment plan. For any clients that are suffering tax problems, we have a very strong relationship with the Revenue and can negotiate on a client’s behalf to help that client trade out of his taxation difficulties at that moment in time.

 

More than that, though, we like to think of ourselves as a one-stop shop for these smaller businesses. We have a bookkeeping bureau, whereby we look after the PAYE, VAT, and month-to-month tax requirements of the business, and would act as their tax agent when it comes to dealing with the Revenue. We follow up with a client to make sure he sends in books or records promptly so that we can file returns on a timely basis – in general, we aim to have everything completed five months ahead of the deadline to give the client peace of mind to save towards the liability, or to look at measures that reduce the liability, rather than coming to a client two weeks before the deadline. From experience, we know that planning ahead leads to major savings and far less business stress in the medium to long term.

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie

SETTING UP A BUSINESS – YOUR OPTIONS

SOLE TRADER/PARTNERSHIP

 

Setting up as a sole trader is the easiest way of establishing a business. However, sole traders can only be registered to individuals; if you find yourself in a situation where you are registering a business with another individual or indeed, more than one other person, the business can be registered as a partnership.

 

In order to set up a sole trader or a partnership, a TR1 Tax Registration form must be filled out and sent to the Revenue Commissioners. On this form, businesses can register for income tax, register as an employer, and also register for VAT and RCT (Relevant Contracts Tax), which mainly relates to businesses in the construction industry. Registration takes roughly four weeks but Revenue may request further information if the business is registering for VAT. In some cases, Revenue may ask for a copy of a lease of premises if the business is renting, for example.

 

The deadline for submission of tax returns for sole traders and partnerships is October 31st each year so if you register your business in 2011, your submission of income tax return is due on or by October 31st 2012.

 

In some instances sole traders or partnerships can register a business name so that they can trade under that name – for example, Mary Smith T/A Dublin Photographers. To register a business name, a form must be sent to the CRO (Companies Registration Office) or alternatively, it can be filled out and sent online at www.cro.ie.

 

Once you have registered with the CRO, the next step is to open a bank account for your company. This is a relatively straightforward process and is similar to setting up a personal account in that the bank will require photo id (a driving license or passport) and proof of address (a utility bill dated within three months). If the business is trading under a registered business name, the bank will require copy of the business name registration as supplied by the CRO.

 

For sole traders and partnerships it is vital that proper and up-to-date accounts and records are maintained from the day you start your business – if the books aren’t in order from the beginning, it tends to be much more difficult to prepare annual accounts, which could possibly lead to higher fees come tax return time.

 

For new businesses, it is always a good idea to meet with your chosen accountant and have them explain the records that need to be kept on a daily basis. If after the accounting process has been explain to you and you still don’t understand it, chances are your accountant isn’t explaining it properly, which could land you in serious trouble with Revenue when it comes time to file your accounts.

LIMITED COMPANY

 

A minimum of two people are required to set up a limited company, which, like a sole trader or partnership, can be registered through the CRO.

 

It is important to remember that once the limited company is established, it becomes a separate legal entity and that members’ liability is limited to the amount of share capital each has subscribed to. In all cases, members become directors of the company so it is crucial that everyone involved is aware of their legal duties, responsibilities, and obligations as a company director.

 

To register a limited company for VAT and PAYE and other taxes, a TR2 Tax Registration form must be forwarded to the Revenue Commissioners. This can only be done after the company has been set up through the CRO. Once you have received your company number, registration for all tax heads can take up to four to six weeks.

 

Setting up a bank account for a limited company is slightly different than if you were applying as a sole trader or partnership. As well as proof of identification and address from two directors, the bank will require your certificate of incorporation and certified copies of both your memorandum and articles of association.

 

For a limited company, financial statements and a corporation tax return must be prepared each year. Financial statements have to be in format as prescribed by the various companies’ acts and filed with the CRO, normally within nine months of the accounts year end.

 

How can DCA Accountants and Business Advisors help?

 

In most cases, anyone setting up a business will need to be advised of their options. Our experts will take you through every aspect of setting up the business you have in mind and recommend the specific structure that suits your requirements.

 

We can also submit and follow up with all documentation required for the Revenue Commissioners and the CRO, as well as assisting with opening bank accounts, and ensuring that all other issues are addressed, such as ensuring your business has appropriate insurance so you can start trading.

 

Once the company is up and running, DCA can provide a full bookkeeping service to ensure that your monthly VAT and PAYE returns are forwarded to Revenue on a timely basis, which will help you to avoid interest payments and penalties.

 

Above all else, however, our expert full service accounting package for SMEs ensures that you, the business owner, can concentrate on getting your business off the ground safe in the knowledge that your accounting records are compliant and maintained properly.

 

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie   

BEWARE THE DANGERS OF BAD CASHFLOW MANAGEMENT

Cashflow management is one of the biggest problems facing Irish businesses today. A company may well be able to monitor its profit and loss results on a month-to-month basis but regardless of profit forecasts, no business can expect to continue to trade if it is not in control of its cashflow.

 

To pinpoint the exact problem when it comes to cashflow is difficult – after all, no two companies are the same. However, at DCA Accountants and Business Advisors, we have seen a trend developing where credit control is one function in a lot of companies that falls down – the knock-on effect of course is that day-to-day cashflow management generally falls with it.

 

There are macro issues at play of course – a shortage of credit in the economy being the primary difficulty. People, it seems, are less willing to give out credit terms these days, the result being that credit is much tighter than before. Therefore, third party contractors are less willing to carry out a job in full before receiving payment. This situation damages the economy as a whole from the point of view there is less and less work being initiated. Without having the cash in place, it therefore becomes irrelevant whether or not a company has the ability to generate profits further down the line.

 

There are solutions, however, but it is imperative that directors, managers and business owners alike are aware of the discipline it takes to improve a cashflow situation.

 

The first step most companies must take is to try to work their credit terms more efficiently – this is what we call ‘The Matching Concept’. In other words, businesses need to match the level of credit that they obtain from their suppliers with the level of credit that they supply to their customers.

 

I would also strongly recommend that companies appoint a credit controller – someone who is responsible for and dedicated to managing the business’s debtor’s ledger book on a daily basis. By having this system in place, a company can have someone who can answer queries, can input daily updates to the debtor’s ledger, and can stay consistent when it comes to following up outstanding payments, which is very often left on the long finger by business owners themselves.

 

One of the core functions of the team at DCA Accountants and Business Advisors is to drive home the importance of cashflow management and the effects it can have on the future of our clients’ businesses. In most cases, we prepare cashflow projections for the month ahead and try to help our clients anticipate when and where they will have difficulties in this area. After all, if they are armed with the information, they have the ability to do something about it before it negatively impacts on their company.

 

We can also manage the debtor’s ledger on behalf of our clients. By appointing a dedicated member of our staff, our clients avoid the expense of having to employ a full-time credit controller, as well as knowing that their outstanding accounts are being followed up and managed on a daily basis, which allows them to concentrate on their core business and of course, to generate more sales.

 

Whatever your situation when it comes to cashflow management, it’s always wise to remember that if this most important aspect of your business is not managed correctly every day, you are, whether you realise it or not, putting your business in serious jeopardy.

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie    

THE TRUTH BEHIND BANK DEBT

How your company can handle debt effectively

Tighter controls from all financial institutions in Ireland are taking their toll on small businesses. From what we see at DCA Accountants and Business Advisors on a day-to-day basis dealing with our clients is that while it may seem that the banks are closed for business, they are simply much more stringent in their loaning policies. Some business owners, who may be running viable companies but at the same time cannot get credit, can often be left wondering what it is they’ve done wrong.

 

The answer is simple. While it is true that banks do have much tighter financial controls in place, many of them will still engage with businesses as long as the financial information being supplied to them is accurate and can be relied upon. Whilst it is true that credit is much more difficult to acquire and it can be tough to get, banks will listen and evaluate the financial information presented and then make a decision based on same. With the advent of the Credit appeal process there is then an opportunity for business person to get independent party to evaluate banks decision if not happy with it.

 

During the boom years, banks were literally giving money away and lending decisions to a large extent were perhaps based on the value of property a business person had rather than the fundamentals of the business itself.

 

Due to the availability of credit, some businesses allowed their credit control procedures and cash flow management to deteriorate and hence when the economy began to contract, businesses found it difficult to manage their cash flow due to both poor historical credit control policies and also banks tightening up on lending/overdraft facilities.

 

The credit contraction in Ireland over the last 3 years has lead to business owners realising the benefit of proper cash flow management and also strict credit control policies.  Also the availability of accurate up to date financial information is now paramount to businesses to allow them know in a timely manner how business is performing. Because of the availability of credit in boom, some of these practices were not adhered to /used.

 

Another consequence of credit contraction is that the banks staff have had to learn how to interpret financial information which is based on actual business performance rather than the value of a property.

There has been a steep learning curve for both business owners and bank staff with regard to how best to manage cash flow/debt in tight financial situations so that the client can operate their business and the bank can see that client has ability to pay loan by working with client rather than penalising client.

 

At DCA Accountants and Business Advisors all of our clients know that they need to be armed with the facts of their business when they enter into discussions about accessing credit or restructuring loans for their business from their lender. They know that they need proper profit and loss accounts, a list of signed-off sales orders for the next six months, and prudent/realistic  cash flow projections over that period. If that information is presented to a financial institution, more often than not, business owners will find their bank is willing to engage with them.

 

By working with clients and offering practical sound advice, we find that clients can perhaps have clarity with regard to how best to deal with bank/debt problem. In current climate it’s all about working together to achieve a solution that perhaps is not ideal for everyone but is realistic for all parties.

 

Top tips for dealing with bank debt:

  • Present timely and accurate information so you can have a frank and open discussion with your bank.
  • Be certain that what you are promising is reasonably achievable – don’t ever over-promise.
  • Keep the bank up-to-date on your company’s financial progress.
  • Keep in regular contact with your accountant and return his calls!
  • If you are doing your best and your business is fundamentally sound, you’ll find that your bank will work with you.

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie

HOW TO GET YOUR COMPANY BACK ON TRACK

Right now many companies in Ireland could be classified as insolvent. As cashflows are disrupted by slow paying customers and as bad debts stack up, business owners who find their company in an insolvent position often wonder what the next steps are.

 

Firstly, don’t panic – after all, if you’re confident that your company can trade its way back into a profitable position (which it can in a lot of cases) then you’ll be fine. It’s in nobody’s interest for a company to fold just because there are cash flow issues, least of all the company’s creditors.

 

However, many business owners lose sleep when their company is in the red. The monthly wage bill and the day-to-day operating costs have to take priority to keep the company going but the real acid test of whether or not you can get back to a solvent position is by taking a close look at your balance sheet at the end of each year.

 

If your company’s performance is improving in terms of reducing the level of losses or if profitability is increasing on a gradual scale over a period of say three years, then you can continue trading and at that point, it will generally be agreed that the company and the company’s creditors are of the opinion that the company is returning to a solvent position.

 

Considering options

On the other hand, if there is really no way of knowing whether or not the company can get back in the black, the directors must consider a number of options. The first is whether or not to put the company into liquidation. It is the responsibility of the directors to be honest here and acknowledge the true financial position of the company. Delaying the liquidation process can have, after all, grave consequences – reckless trading being the most serious.

 

There are three types of liquidation. The first is a voluntary liquidation whereby the owners of the company are in a position to wind-up the company themselves. This can only arise in a situation where the company is solvent in the first place though. In other words, the directors should know that if they cash in their overall assets, the money they receive will be sufficient to cover any liabilities that exist within the company.

 

The second and most common type of liquidation is a creditor’s liquidation. This is where the directors realise that they are in an insolvent position. Under company legislation, they are obliged to hold a creditor’s liquidation if they are of the opinion that they will not be able to trade out of their troubles and return the company to a solvent position.

 

The third type of liquidation is a compulsory liquidation, where by a petition has been presented by a creditor to the courts under section 2.3.1 of the Companies Act 1963 to wind up a company and sell off its assets in order to receive outstanding payments in full.

 

How we can help

If you find your company is in financial trouble, the first thing your accountant or business advisors should do is take a look at the state of the company’s finances and restructure where appropriate and possible.  At DCA Accountants and Business Advisors, we often start with the company’s costs and see if there is any room for reducing outgoings. In many cases there will be. It is also important to ensure that the company in question is maximising the resources at its disposal.

 

Once the internal process is complete, creditors need to be informed of the situation – the company’s primary aim, which we always advocate at DCA Accountant and Business Advisors, should be to try to trade back into profitability. To do that takes time and creditors need to be made fully aware of the restructuring process and payment plans that have been put in place.

 

If there is really no other course of action left having explored all possible avenues to keep the company in business, liquidation may be the only option. If that’s the road that you have to go down, it is imperative to ensure that the entire process is carried out as efficiently – from a professional and financial point of view – as possible.

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie

MONTHLY RETURN DEADLINES FOR MAY 2011

14/05/11 – PAYE/PRSI: P30 monthly return and payment for April 2011

14/05/11 – DWT: Return and payment of DWT for April 2011

14/05/11 – PSWT: F30 monthly return and payment for April 2011

14/05/11 – RCT: RCT30 monthly return and payment for April 2011

19/05/11 – VAT: VAT 3 return and payment for period March/April 2011
19/05/11 – VAT: 4 Monthly VAT 3 return and payment (if due) for period January/April 2011

1-21/05/11 – Corporation Tax: PT for APs ending between 1-30 June 2011
1-21/05/11 – Corporation Tax: Returns for APs ending between 1-31 August 2010
1-21/05/11 – Corporation Tax: Pay balance due on APs ending between 1-31 August 2010
1-31/05/11 – Corporation Tax: Returns of Third Party Information for APs ending between 1-31 August 2010

MONTHLY RETURN DEADLINES FOR APRIL 2011

14/04/11 – PAYE/PRSI: P30 monthly return and payment for March 2011
14/04/11 – PAYE/PRSI: P30 quarterly return and payment for January/March 2011

14/04/11 – DWT: Return and payment of DWT for March 2011

14/04/11 – PSWT: F30 monthly return and payment for March 2011

14/04/11 – RCT: RCT30 monthly return and payment for March 2011

1-21/04/11 – Corporation Tax: PT for APs ending between 1-31 May 2011
1-21/04/11 – Corporation Tax: Returns for APs ending between 1-31 July 2010
1-21/04/11 – Corporation Tax: Pay balance due on APs ending between 1-31 July 2010
1-30/04/11 – Corporation Tax: Returns of Third Party Information for APs ending between 1-31 July 2010

MONTHLY RETURN DEADLINES FOR MARCH 2011

PAYE/PRSI:
14/03/2011 – P30 monthly return and payment for February 2011

DWT:
14/03/2011 – Return and payment of DWT for February 2011

PSWT:
14/03/2011 – F30 monthly return and payment for February 2011

RCT:
14/03/2011 – RCT 30 monthly return and payment for February 2011

VAT:
19/03/2011 – Bi-Monthly VAT 3 return and payment (if due) for period January/February 2011

Corporation Tax:
1-21/03/2011 – PT for APs ending between 1-30 April 2011
1-21/03/2011 – Returns for APs ending between 1-30 June 2010
1-21/03/2011 – Pay Balance due on APs ending between 1-30 June 2010
1-31/03/2011 – Returns of Third Party Information for APs ending between 1-30 June 2010

Income Tax:
31/03/2011 – Return of Share Options and other Rights for 2010
31/03/2011 – Deadline for claiming Separate Assessment for 2011
31/03/2011 – Deadline for nominating Assessable Spouse for 2011

MONTHLY RETURN DEADLINES FOR FEBRUARY 2011

PAYE/PRSI:
14/02/2011 – P30 monthly return and payment for January 2011

DWT:
14/02/2011 – Return and payment of DWT for January 2011

PSWT:
14/02/2011 – F30 monthly return and payment for January 2011

RCT:
14/02/2011 – RCT 30 monthly return and payment for January 2011

PSWT:
15/02/2011 – F35 annual return for year ended 31 December 2010

RCT:
15/02/2011 – RCT 35 return for year ended 31 December 2010

PAYE/PRSI:
15/02/2011 – Issue P60 2010, to each employee
15/02/2011 – Due date submission of Form P35 for year ended 31 December 2010

Corporation Tax:
1-21/02/2011 – PT for APs ending between 1-31 March 2011
1-21/02/2011 – Returns for APs ending between 1-31 May 2010
1-21/02/2011 – Pay Balance due on APs ending between 1-31 May 2010
1-28/02/2011 – Returns of Third Party Information for APs ending between 1-31 May 2010

MONTHLY RETURN DEADLINES FOR JANUARY 2011

PAYE/PRSI:
14/01/2011 – P30 monthly return and payment for December 2010
14/01/2011 – P30 quarterly return and payment for October/December 2010

DWT:
14/01/2011 – Return and payment of DWT for December 2010

PSWT:
14/01/2011 – F30 monthly return and payment for December 2010

RCT:
14/01/2011 – RCT 30 monthly return and payment for December 2010

VAT:
19/01/2011 – Bi-Monthly VAT 3 return and payment (if due) for period November/December 2010
19/01/2011 – Bi-Annual VAT 3 return and payment (if due) for period July/December 2010
19/01/2011 – 4 Monthly VAT 3 return and payment (if due) for period September/December 2010

Corporation Tax:
1-21/01/2011 – PT for APs ending between 1-28 February 2011
1-21/01/2011 – Returns for APs ending between 1-30 April 2010
1-21/01/2011 – Pay Balance due on APs ending between 1-30 April 2010
1-31/01/2011 – Returns of Third Party Information for APs ending between 1-30 April 2010

Capital Gains Tax:
31/01/2011 – Payment due on gains arising between 1 December 2010 to 31 December 2010