Most people will have seen advertisements indicating the end of the tax year, which is coming up next week. However, for new limited companies – those in their first or second year of operation – the tax deadline depends on the accounting period that began when the company was set up or incorporated. The adverts that you see now are for self-assessment tax returns, which is very different to a company’s corporation tax liability.
The first and most important step when preparing your tax returns is knowing the difference between the two. Having a good accountant will help but being able to differentiate between when your company’s corporation tax liability is due and the self-assessment deadline is key.
After a 12 month trading period a company must file a corporation tax return and comply with the preliminary corporation tax deadlines, meaning that returns must be filed and paid somewhat in advance. The requirements for companies in their second year or more of operation are clearly outlined by Revenue, who use a formula based on previous tax returns by company to calculate how much should be paid over three instalments. The first instalment is due 31 days before the end of the accounting period; the second instalment is due within six months after the end of the accounting period; while the third instalment (i.e. the balance of the full liability) must be paid within one month after the company’s corporation tax assessment is returned. For the first instalment, companies must return 18% of the full liability, while 72% is due before the deadline for the second instalment.
For start-ups in their first year, the burden is not so great. The rules by Revenue state that any company has the option of paying 90% of the final liability up front or 100% of the previous year’s liability, which, for new companies, is obviously zero given that they have not been trading before. We always encourage companies to avail of that option when it comes to filing preliminary tax returns as it protects cash flow, which is at the cornerstone of a start-up’s success or failure.
The consequences for missing deadlines can be severe. Not only will a company be subject to penalties and interest of up to 20%, but they are also putting themselves in the firing line of Revenue and potentially classed as high risk in the future. What this means, of course, is that the likelihood of being selected for audit by the Revenue Commissioners increases dramatically.
At DCA Accountants and Business Advisors, we help companies avoid any unwanted spotlight when it comes to their tax liability. From the moment we meet a potential client, whether they are a sole trader or limited company, we identify all tax deadlines relevant to them. Every company is unique of course and so we alert our clients at least 90 days in advance of upcoming deadlines. We also encourage companies to help us to complete their annual accounts as soon as possible – after all, the more time we have the more likely it is that we can find ways of reducing the overall liability of a business.
Keeping a watch on deadlines and ensuring your company is compliant can be a tricky and confusing business, especially when a company is in its early years and not familiar with the system and rules. However, the dangers of non-compliance and putting your company on the radar of Revenue are great, which is why professional assistance should always be sought.
DCA Accountants and Business Advisors.