What taxes do I pay?
Filing and paying taxes is a necessary part of every business. Derek Keating, Director of Tax Accounting Ireland, talks you through what taxes you must pay and shares some tips on how to pay them
Derek Keating, Director of Tax Accounting Ireland, talks you through what taxes you must pay and shares some tips on how to pay them
Business is full of costs, from operating costs, to stock, to travel expenses. And just like these payments, tax is a cost that needs to be managed and controlled as efficiently as possible. This is especially true for small- and mediumsized enterprises (SMEs) as cash-flow is of paramount importance.
The taxes your business must pay is based on the design and the activity of your company. For the next tax season, Derek Keating says there are a few measures that business owners can take to effectively prepare.
“Businesses should ensure that they are registered for all the necessary taxes,” says Keating. “For example, they may have just gone over the threshold for VAT registration which is €37,500 in annual sales for supplying services only, or €75,000 annual sales for supplying goods.
“To make tax season run smoothly, their books and records should be kept up-to-date to enable them to file accurate returns in a timely fashion. And, it’s important to manage cash flow effectively. They must be able to ensure that they have adequate cash available to meet their liabilities as they fall due.”
Here, we take you through some of the taxes self-employed people and businesses must pay and some tips on how to pay them:
SELF-EMPLOYED
The salary you receive will be subject to income tax, USC and PRSI, just like every other worker in the State.
“A self-employed person is obliged to pay income tax on their profits,” says Keating. “The first €34,550 of profit is taxed at 20% and the balance at 40%.
“They are also obliged to pay PRSI and if their profit exceeds €12,012 for the year, they will also be subject to the USC.”
With these payments in mind, what do self-employed people need to be aware of when filing their taxes?
“They need to be aware of the filing deadlines for the various taxes and ensure all returns are filed on time. They need to manage their cash flow to ensure that they have sufficient funds, and, that any expense claimed when computing their taxable profits are incurred wholly and exclusively for the purpose of their trade.”
LIMITED COMPANY
A company has more taxes to pay than a self-employed person as they tend to be larger, have a lot of overhead and usually have more than one employee.
A company also must pay PAYE, USC and PRSI to Revenue on behalf of their employees’ wages. But, the main tax a business resident in Ireland or trading in Ireland must pay is corporation tax on profits. In Ireland, this is charged at 12.5% on worldwide trading income. A company normally resident in Ireland pays the Irish Corporation Tax on its worldwide profits, not just its Irish profits.
Any business selling products or services exceeding a certain value must also register for VAT (value-added tax). The rate of VAT depends on the product or service itself. For example, if you supply financial, medical or educational services, you will not have to pay VAT.
From capital gains tax to dividend withholding tax, there are many other payments a business could owe to the Revenue Commissioners depending on circumstances. So, what are Derek Keating’s top tips for business owners on meeting every one of their tax liabilities?
“Keep all your records up-to-date so you can immediately see what your tax liabilities are. It’s also good to ensure you have an experienced accounts staff and software to allow you to accurately and conveniently record all of your business transactions.”
Keating also adds that businesses should consider engaging a professional tax adviser or firm if there are more complicated business activities.
“Companies should consider outsourcing their finance function to a professional firm if they do not have the time or resources to develop their own in-house finance function. Tax Accounting Ireland (www.taxaccountingireland.ie) have seen huge growth in this area in recent years which shows that it’s a major help to businesses.”
Either with a professional accounting firm or with their own accounting prowess, the most important thing when filing taxes is not just knowing all commitments, but making sure to pay by the deadline.
“Ensure that all tax returns are paid and filed on time. It is vitally important to avoid paying any interest and penalties at all costs.”