Corporation Tax Exemption for StartUps – Updated

February 27, 2014

Did you know that your new company can be exempt from Corporation Tax for up to three years?

Back in 2010, the Government introduced a Corporation Tax exemption for new start-up companies.  This allowed companies to earn annual profits of up to €320,000 per year for 3 years, with no liability to Corporation Tax.

The relief has since been capped at the amount of employers’ PRSI paid by the company in a given year.

This applies subject to a maximum of €5,000 per employee and an overall limit of €40,000.

On the other hand, companies who fail to use up their exemption in their first three years are now allowed to carry forward unused relief to future years.

The Corporation Tax exemption for Start-ups

In calculating the capped amount, credit is given for any employers’ PRSI exempted by the Employer Job (PRSI) Incentive Scheme.

This means that the exemption is now only worthwhile to companies who employ staff (excluding directors) within the first 3 years of operation.

However, it can still be useful even if your company doesn’t make profits until year 4, or later.

If you have a new or recent startup company, it is well worth doing the sums to see if you can benefit by hiring a new staff member.

The relief currently applies only to companies that start trading before the end of 2014, so if you’re planning a startup, don’t delay.

As always, professional advice is recommended before making any major decisions.

My previous blog post explains how the exemption initially worked. See also the Revenue 2011 Tax Briefing and 2013 Tax Briefing updates, each with worked examples.


Dentists Feel Pain As Taxman Hits a Nerve

June 7, 2012

A new Revenue move could mean bigger tax bills for dentists and their workers.  

Following their previous focus on the tax status of locum doctors, Revenue have now turned their attention to the Dental sector. In recent weeks, they have written to the Irish Dental Association stating that Dental Associates and Dental Hygienists, “who in Revenue’s view are employees”, must have PAYE/PRSI operated on their earnings with effect from 1 January 2012.

The net effect of this move will be to prohibit many dental associates and hygienists from working as self-employed contractors for dental practices. They must instead be treated as employees, and have PAYE/PRSI deducted on their earnings.

This is in line with the Code of Practice for Determining Employment or Self-employment Status of Individuals, agreed by the Employment Status Group, under the Social Partnership process in 2007.

The biggest impact of this change will be the imposition of 10.75% employer PRSI on the earnings of affected workers.  This will represent a major additional cost for dental practices. Given the current state of the economy it will be difficult if not impossible for practices to pass on these cost increases to paying customers.

While the Irish Dental Association have asked Revenue to defer the implementation of the changes to 1 January 2013, it is clear that the new rules will take effect sooner or later.

Of course Revenue will be anxious to implement the changes as soon as possible in order to maximise their own Income Tax, USC & PRSI take from the dental sector, so it is difficult to see them agreeing to the dentists’ pleas.

The key message for dental practitioners, associates and hygienists is that they will need to take immediate action to review their current status, and ensure that they stay Revenue-compliant.

Their first step should be to review the recent Revenue letter to the Irish Dental Association, copies of which are presumably being circulated to dentists nationwide.  Chartered Accountants Ireland have published extracts from the letter online and these are also reproduced below:

Practices will also need to review their contracts with dental associates and hygienists as many of these workers may now be entitled to additional employee rights which did not arise while they worked as contractors, eg rights to annual leave, unpaid breaks, minimum notice, redundancy etc.

Whether or not individual practices and their dental associates and hygienists are affected by the new rules will depend on the existing contractual working arrangements in place in each case. Revenue have pledged “to consider each case on its own merits”. In cases of doubt, they are urging dentists and hygienists to make a submission to their local Revenue District, outlining the terms and conditions of the particular engagement(s) and asking for Revenue’s opinion on their correct status.

I recommend that affected dental practices, associates and hygienists should seek expert professional advice on their status and working arrangements before making any such submission to Revenue.

It may well transpire in individual cases that existing ‘independent contractor’ arrangements already conform with the self-employment criteria set out in the Code of Practice, and (more importantly) existing case law precedents. In such cases there may be no need to treat the workers in question as employees.

However given the stakes involved, and the risks attaching to non-compliance with any Revenue matter, it would be foolish to ignore this issue in the coming weeks and months.

Extract from Revenue correspondence to Irish Dental Association:

“Employment Status of Dental Associates and Dental Hygienists engaged by Dental Practices

Revenue have considered the circumstances surrounding the engagement of dental associates and dental hygienists in dental practices, having regard to the criteria set out in The Code of Practice for Determining Employment or Self Employment Status of Individuals and relevant case law. It is the Revenue view that generally speaking associates and hygienists engaged by dental practices are engaged under a contract of service (i.e. they are employees) and their remuneration comes within the scope of PAYE and that PAYE should be operated on all payments from 1st January 2012.

It is accepted that there may be exceptional cases where the terms of engagement differ from the norm and in these instances Revenue is prepared to look at these on a case-by-case basis. Revenue will consider each case on its own merits and in cases of doubt a submission, outlining the terms and conditions of the engagement should be submitted by the dentist or the hygienist to their local Revenue District for consideration.”


Govt Jobs Initiative – The tax measures

May 10, 2011

Finance Minister Michael Noonan has today unveiled the Government’s much-heralded ‘Jobs Budget’, including the following tax measures:

Pension Levy

A levy of 0.6% is to be applied on the capital value of pension assets held within the State.

PRSI

Employers PRSI on lower-paid employees is to be halved. This will apply until the end of 2013 for employees earning less than €356 per week (not the figure of €365 per week as announced by the Minister in the Dáil today).

Employers PRSI will no longer apply to share-based remuneration.

Michael Noonan Government Jobs Initiative

9% VAT

A cut in the lower rate of VAT to 9% on so-called ‘tourism-related’ goods and services. This will apply from 1 July 2011 until the end of 2013.  The VAT cut will apply to

  • restaurant and catering services
  • hotel and holiday accommodation,
  • theatre, cinema, museum, fairground and other entertainment tickets
  • hairdressing
  • newspapers and magazines.

Air Travel Tax

The Air Travel Tax of €3 per passenger is to be abolished, but not with immediate effect. Its abolition is to be conditional on the major Irish airlines opening new tourist routes into Ireland.

R&D Tax Credit

The Minister intends to introduce a technical change to the Research & Development tax credit legislation, in order to allow companies more flexibility in how they account for the credit. This is intended to make the credit more attractive for qualifying companies.

Corporation Tax

Unsurprisingly, the Minister confirmed that ‘our 12.5% rate of corporation tax is here to stay’

The Department of Finance have just published full details of the Jobs Initiative on their website.