Pay yourself or the tax man??
This week your company may have a VAT liability, your payroll taxes for last month are due and your preliminary corporation tax is also due!
Here’s what to consider before your company year end of 31 December 2019.
No. 1 is do NOT work with ‘last minute’ accountants (i.e. tells you your tax bill when it’s too late to do anything about it). Make sure your business is as tax efficient as possible and that your accountant is thinking ahead for you too.
Forecast and consider long term savings and investments
If you forecast a little ahead to December, look at your bank balance, debtors list (who owes you money) and your creditors list (who you owe money to). If your company has funds available, it might be worth topping up your pension (if you have a company one set up). Payments must be made before 31 December to qualify for offset against this year’s profit. So if considering this, act on it fairly soon.
Post year-end bonus option
Alternatively, if you’re unsure how the numbers for 2019 will pan out or you don’t have the unencumbered cash to set aside, you can wait. You have the option of paying directors bonuses up to June next year that can be offset back against the 2018 profits. There’s a higher tax cost to this option (more so than the pension option, if you’re aiming to put money aside for you and your family for the long term).
It will depend what your financial goals are; what you’re doing with your salary and take-home pay.
Tax can be refunded
If you have a CT payment to make this week and decide to take more funds out so your profit and CT is less when the 2019 accounts are done, as soon as you do your annual accounts and file your CT, you will receive back the money you’re spending this week.
Yet another reason to not leave your accounts work until the last minute. Your CT return is due almost 9 months after the year end (23 September 2020 for 31.12.19 year ends), but if you leave it until then to do the accounts, you will miss these potential ways to reduce your tax bill.
As a massive Warren Buffett fan, this is my mantra:
“Do not save what is left after spending; instead spend what is left after saving”
Whether its company funds or personal funds, planning will always help you make better decisions (and tax efficient ones).
It’s all too easy to take cash and spend it but working the reverse will ensure you’re always putting something by for your long-term future (and your ‘financial freedom’ account as I often refer to it).
What is Financial Freedom to you?
Here was my short video on it. If you haven’t thought this through, it’s worth asking yourself what you’re working for and what you’d like to achieve financially in all the years you work.
CT – Prelim tax notes for your info
If your company has a December year end, you’ll be aware that your preliminary corporation tax (CT) is due this week (before Friday).
Revenue note ‘small companies’ for CT purposes as a company is a company whose CT liability is not above €200,000 in the previous accounting period. Plenty of average Irish companies falling into this category.
Small companies can base their preliminary tax for an accounting period on:
- 100% of their CT liability for the previous accounting period
- 90% of their CT liability for the current period (and there is provision for a top up payment to be made).
The amount of preliminary tax paid cannot be less than the lower of either of these. If you chose the 100% rule and the previous period is less than 12 months, the CT liability must be ‘annualised’.
New or start-up companies
New or start-up companies do not have to pay preliminary tax for their first accounting period if they have CT that is less than €200,000. Instead, they must pay their final CT charge for the first accounting period when submitting their CT return.
The Revenue website is pretty user friendly now so have a read here if you want more information.
To know when your CT return is due, check what you had as your year end on your TR2 form when registering for taxes or make sure your advisor will tell you when it must be returned.
Have a great week
Wendy[18 November 2019]