How to reduce your Corporation Tax Bill

Have you a financial year end approaching?  Have you considered making a pension payment by the Company to reduce your Corporation Tax Bill?  Here is some information on Corporation Tax Filing deadlines and how it can be lowered by a pension contribution?

Corporation tax for Irish Companies

All Irish companies and non-resident companies who trade in Ireland through a branch or agency pay Corporation Tax (CT) on the taxable profits they make. A Corporation tax rate of 12.5% applies to all corporate trading profits.  A rate of 25% applies to non-trading (passive) income

Payment and filing of Corporation Tax

Your company must use the Revenue Online Service (ROS) to file its return and pay any tax due under Mandatory e-Filing.

Your company has to:

• calculate and pay preliminary tax by the specified due date
• complete and file a CT1 Form and a 46G Form (Company)
• pay any balance of tax due by the return filing date.

Your company must file its return and pay any tax due nine months after the end of the accounting period (and on or before the 23rd of the ninth month). Companies that fail to pay and file electronically must submit their return and pay any associated tax due on or before the 21st of the month.

Note: Interest is due at a daily rate of 0.0219% on late payments or payments that are not made in full. The interest is calculated by multiplying the amount of tax a company has paid by the number of days the tax is late by the interest rate.

When is preliminary Corporation Tax (CT) due?

Large companies can pay their preliminary CT in two instalments when their accounting period is longer than seven months. The first instalment is due on the 23rd of the sixth month of the accounting period. The amount due is either:

50% of the CT liability for the previous accounting period

45% of the CT liability for the current accounting period.

The second instalment is due on the 23rd of the eleventh month. This will bring the preliminary tax up to 90% of the final tax due for the current accounting period.

The company must pay 90% of the preliminary tax in one instalment if the accounting period is less than seven months.

Small companies must pay their preliminary tax in one instalment if they have a CT liability of less than €200,000 in their previous accounting period. This must be paid 31 days before the end of their accounting period, and before the 23rd of that month.

Pensions to Reduce your CT Bill

A Pension Contribution or Additional Voluntary Contribution (AVC) at your year end is still one of the most effective ways to get tax relief and reduce your corporation tax bill. You can use retained profits in your company and contribute directly into a pension, which reduces their corporation tax charge as there is less money left in the business.

As the payment is an allowable business expense it will have the effect of reducing your firms assessable profits, which means a lower corporation tax bill.

Two very important points to be aware of are:

1)   The payment needs to be made before the year end and

2)  There are limits regarding how big the payment can be. These limits are a function of your age, length of service in the company and the value of any existing pension plans already in place. However, in most cases there is considerable scope to not only build your pension value for retirement but also to reduce your company corporation tax bill for 2018.

If you wish to learn more please contact Jim Doyle on 053 9170507 jim@rda.ie and we can calculate what company payment would be allowed.