If you are an independent contractor operating in Ireland, you’ll need to declare your income to the Revenue Commissioners and pay tax through the self-assessment tax system.
However, a combination of effective planning and ensuring you avail of all applicable tax reliefs can impact your tax bill. You need to assess your tax saving opportunities in order to maximise your tax credits and increase saving. Ask yourself – what taxes can my business claim?
While we at Icon Accounting are always on hand to help you with your accounting needs, below are some of the most effective tax saving tips that could help reduce your tax liability.
Claim for ‘Allowable Deductions’
Contractors are entitled to claim legitimate business costs as expenses, which can be offset against income. Any expenses are deducted from your profits, so the higher your expenses, the lower your taxable profits. There are many common contractor or freelancer expenses you may be able to claim for, such as: phone bills, motor expenses, insurance costs and materials.
Avoid Penalties
Avoid penalties for the late submission of your tax return. As an independent contractor, tax must be paid on or before the annual tax deadline, based on the income you earned in the previous year. If you don’t pay your tax bill on time, you could be liable for a penalty, which can rise if your payment continues to be late.
– When is the income tax return deadline 2020?
The income tax return (AKA Form 11) deadline for 2019’s income is the 31st of October 2020. If you file and
pay your taxes online, the deadline is Thursday 12th of November 2020.
– When is the companies office return deadline 2020?
Depending on ARD Date (initial €100 plus €3 per each day for late submissions).
Also late accounts require an Audit – Increasing Professional fees.
– When is VAT returns deadline?
VAT returns are due 23rd of Month following period end (Bi monthly, Quarterly, 6 monthly or annually)
Claim Medical Expenses
If you pay medical expenses that are not covered by the State or by your medical insurance provider, you can still claim tax relief on those expenses. You will receive tax relief for health expenses at the standard rate of 20%.
Maximise Tax Credits
There may be various tax credits that apply to you, so be sure to review and apply for them where appropriate.
You may be able to:
– Transfer any unused tax credits from your spouse across to you or apply for joint assessed tax.
– Ensure you are getting the SPCCC tax credit if you are a single parent.
Claim Assets
Assets including a car, computers, office furniture or any plant and machinery that are required in the course of running your business – can be claimed over a period of 8 years.
Apply for Earned Income Credit
As a self-employed person, you can claim the Earned Income Tax Credit of €1,350 or 20% of your qualifying earned income, whichever is the lower. Be aware, however, that Earned Income Tax Credit can only be applied to trading income and is not available against investment or rental income.
Add Family Members to the Payroll
Wages paid for work done by family members is an expense of the business and its tax deductibility must be considered like any other expense. A family member can be employed for administration or record keeping. This is not considered technical work – if they are being employed for technical work, they should have the skills, qualifications and experience necessary to carry out that work and to justify the rate of pay.
Use the ‘Small Benefit Scheme’
The Small Benefit Scheme allows employers to provide a tax-exempt benefit to Irish employees of up to €500 per employee, per year. This is a totally tax-free gift but must be awarded in the form of a benefits voucher and cannot be paid in cash.
Expense Travel and Subsistence
Travel is an allowable expense when the journey is necessarily incurred in the performance of the duties of the office or employment. Examples of allowable travel are travel to continued professional development courses, travel from place of work to clients’ premises, travel for meetings etc.
Subsistence allowances can be utilised on the same basis – i.e. If the time spent away from the normal place of work is over a certain number of hours/days then specific subsistence rates apply.
Pay into a Pension
Pensions are one of the most tax efficient investments you can make. Any premiums paid by a self-employed person are allowed for tax relief for up to 40%.
Pay into an Income Protection Policy
Like pensions, income protection policies are very tax efficient. Income protection policy payments allow self-employed persons to claim tax relief for up to 40%. Income protection is also commonly known as Permanent Health Insurance.
Beware of Professional Services Surcharge
You might think that you can leave the profits in your company and only pay 12.5% corporation tax, rather than taking the money out as salary at up to 52%.
However, this surcharge counters this method of tax avoidance by imposing a surcharge of 15 per cent on 50 per cent of the company’s undistributed professional and service income.
When you eventually liquidate the company you will pay an additional 33% (at current tax rates) – Your effective rate being 46%. You need to consider which is better for you – to have the cash personally now or leave the cash in the company for a number of years saving 6% (at current tax rates).
Get Professional Support
Enlisting the help of a tax specialist, such as Icon Accounting will make sure that you are not only maximising your tax opportunities but by keeping track of the various expenses or tax reliefs that you can claim. We will calculate your income tax accurately, so you don’t run the risk of over- or under-paying and will file the tax return on your behalf and on-time.
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