Cork Society Of Chartered Accountants Annual Practice Day

Irish Times Friday March 13th 2008

PRACTICE MAKES PERFECT

Edel Walsh of O'Connor Pyne & Co with Sean Pierse Chairman of Cork Society of Chartered Accountants, Claire O'Neill and Gillian O'Halloran

Edel Walsh is a part of the Taxation department at O'Connor Pyne & Co and a member of the education committee in the Cork Society of Chartered Accountants.

Edel graduated from University College Cork with a degree in Finance in 2004 before going on to become a chartered accountant. Edel spent fours years in KPMG in Dublin where she trained as a tax consultant. During her time In KPMG she also lectured with the Business Management Institute.

Edel joined the tax department in O’ Connor Pyne in November 2008. She is also a part time lecturer with Griffith College in Cork where she lectures professional accountancy courses in particular for the ACCA and CPA. She primarily teaches advanced financial accounting and advanced taxation. Edel also delivers continued professional development (CPD) courses for the ACCA.

Corporation Tax Compliance

Preliminary Tax

Is your company a small company for preliminary tax purposes?

A small company is one whose prior year corporation tax liability was less than €200,000. A small company is required to pay preliminary for the year, one month before the year end. A small company can either pay 100% of the prior year's income tax liability or 90% of the current year's liability.

As most businesses certainly suffered the effect of the recession in the last year, you should estimate what you believe you current year corporate tax liability is and pay 90% of that amount as opposed to paying 100% of the prior year liability. Thus, you will avoid overpaying corporation tax for the year. This is certainly more efficient for your business as this money could be earning interest in a deposit account as opposed to holding the money with Revenue for a number of months.

Filing Tax Returns

Have you overpaid your preliminary tax for the year and are you due a refund of corporation tax?

Do not leave it until the due date to file your corporation tax return. The earlier you file your return, the earlier you will receive your refund from the Revenue Commissioners.

Late Filing of Tax Returns

Are you in the habit of filing your tax returns late? Revenue imposes interest and penalties on you for late payment and filing of returns. Ensure you file your return on time and do not waste cash on unnecessary interest and penalties.

Close Companies

Is your company paying an unnecessary close company surcharge of 20% on undistributed investment and rental income every year?

As the rate of corporation tax is generally less than the rate of income tax, there is an incentive for individuals who have no immediate requirement for income, not to extract those profits arising within a company. Instead they could allow them to accumulate within the company, suffer corporation tax rather than be distributed to the shareholders and attract income tax at the higher rate.

Close company legislation was primarily designed to counter this form of avoidance of income tax by imposing a surcharge at a rate of 20% on the undistributed after-tax investment and rental income.

This surcharge is an unnecessary tax cost to the company especially when there are ways we can shelter this cost. If the company were to pay a dividend to its shareholders for the amount that is subject to the surcharge, this dividend would provide a shelter against any surcharge payable.

If you are concerned about the close company legislation, please give us a call at O’ Connor Pyne & Co and we will be delighted to discuss with you the various disadvantages of close companies and how are they affecting you company.

Capital Allowances

There is no tax deduction available for capital expenditure or depreciation of fixed assets in arriving at tax adjusted trading profits.

However, a separate tax deduction is available for certain types of capital expenditure called capital allowances. Capital allowances are not available on all capital expenditure.
The expenditure must fall into the category of plant and machinery, industrial buildings or other type of capital expenditure approved under various Finance Acts and Urban and Rural Renewal Schemes.

Are you concerned that your company might not be availing of all the capital allowances that should be available to it?

It is important that you maximise capital allowances, which are available on plant and equipment at 12.5% per annum. Review your fixed asset register and ensure that you have claimed all available capital allowances.

At O’Connor Pyne we can review expenditure your company has incurred in particular on buildings to ensure that any plant element has been identified