Tax opportunities and pitfalls to bear in mind
FROM day-to-day in my tax practice, I come across tax opportunities and considerations which business owners should be aware of. The following are some of the issues cropping up most often in recent months:
When you transfer a business by way of a sale or gift, capital-gains tax can arise (now 33pc). Equally, a person who receives a gift of a business or purchases it for less than market value will be liable for gift tax.
Thus, taxes could stand in the way of business succession. So, generous reliefs from capital-gains tax and gift tax are available for businesses passing inter-generation.
Moreover, up to €750,000 can be extracted from a company tax free by a retiring owner. Tricky conditions attach and advance planning is required.
Buying or Investing in a company
Recent poor trading conditions and cashflow pressure has increased the temptation to take shortcuts when it comes to record keeping and, in some cases, paying tax.
While there are currently bargains to be had in buying or investing in a company, it is essential that a thorough tax due-diligence investigation is carried out.
There may be latent tax liabilities within the company which will render it insolvent. Equally, the company's records may not stand up to Revenue scrutiny if it were audited.
Tax Incentivised Investment
If your business requires investment, perhaps the added sweetener of tax relief may be what is needed to encourage investors.
The Employment and Investment Incentive Scheme (EIIS) affords investors income-tax relief of 30c per euro invested initially and a further 11c per euro invested at the end of three years.
If investors are uneasy about parting with the cash in their pockets, they can use their pensions to invest instead (those funds are locked away until retirement).
Our tax-collection system is designed to encourage people to assess themselves. This extends to tax defaults – the less work you give Revenue to do, the less severe penalties will be.
Indeed, one of the arguments in Paul Begley's appeal against his sentence for garlic-tax evasion was that his co-operation with Revenue was not taken into account.
If you can afford to pay, penalties will be reduced for timely disclosures. If you cannot pay, Revenue have demonstrated a willingness to work with taxpayers to find solutions.
When cash bonuses are simply not an option, employee performance and loyalty can be encouraged by giving them a stake in your business.
A Revenue-approved share scheme allows employees to receive shares-tax free. Under an unapproved restricted share scheme, employees will enjoy reduced tax on the value of the shares they receive.
The differences between approved and unapproved schemes are: the administration required, the level of tax relief available and the employer's ability to be selective about who receives shares.
Clearly, these are tax opportunities and issues which business owners should be aware of.
Depending on the circumstances, there may be many others. Business owners should have regular general conversations with their tax advisers to tease issues out. Invariably, such conversations result in tax savings or prevent future liabilities.
Paul Brady is a Chartered Tax Adviser and principal of TaxandLegal.ie