Taxes need not be taxing

There are many tax issues to be considered when trying to control cash in a more economically constrained environment. Careful tax planning can result in better budgeting controls and cash flows. 

From complete exemption from corporation tax for three years to fine-tuning your tax filing systems, I have set out some tax tips below that should help traders improve their cash flows and, in some cases, reduce their tax bills. While a good tax advisor who knows and understands your business will be able to alert you to any tax pitfalls and help you avail of tax opportunities that may crop up, below I have outlined some tax tips that should get you thinking about what your business can do to manage your cash flow more efficiently.

ALL TAXES

• Pay taxes on time to avoid late interest charges, which can amount to between 10-12pc per annum, depending on the tax in question. (Late payment of VAT and employer’s PRSI attract the highest interest charges.)
• File annual income and corporation tax returns on time to avoid late filing surcharges, which can be up to10pc of the total liability, and restrictions on loss relief, which apply to certain returns filed late. You also decrease the risk of incurring a time-consuming, and therefore costly, revenue audit.
• File VAT, payroll and RCT returns on time to avoid late filing penalties and the increased risk of a revenue audit.
• File returns early in order to obtain tax refunds early.
• Consider paying all taxes by direct debit to help budgeting for the business and to spread the payments evenly over the year.  Importantly, if turnover and profits are decreasing, remember to promptly decrease the direct debits where appropriate.

VAT TIPS

• Consider paying VAT and filing returns using the Revenue’s online system, ROS. While manual returns must be filed and VAT must be paid by the 19th of the appropriate month, returns that are filed online and their associated VAT payments can be delayed until the 23rd of that month. Administration time and costs should also decrease.
• Establish whether administration costs can be reduced by changing from the normal two-monthly VAT payment and filing deadlines to a system where VAT only has to be filed and paid on a four- or six-monthly basis, or even annually. Traders whose total VAT payments for a year are €3,000 or less can apply to file returns on a six-monthly basis. Traders who pay between €3,000 and €14,000 annually can choose to start filing and paying their VAT returns every four months instead.  This flexibility is obviously only of interest to traders in a constant VAT-payable position.
• For ease of administration and better budgeting, some traders pay VAT on a direct-debit basis. They only have to file an annual VAT return.
• Determine whether the business may be entitled to use the ‘cash-receipts’ basis for VAT purposes. This system, which allows traders to pay VAT to Revenue in connection with cash actually received rather than in connection with invoices raised, is extremely attractive from a cash-flow perspective. No VAT has to be paid to Revenue until the customer has actually paid. This basis is only available to traders who derive more than 90pc of their turnover from VATable supplies to non-VAT registered people, as well as to traders whose annual turnover does not exceed €1m.   
• Traders who cannot avail of the cash-receipts basis should monitor their bad debts carefully. As VAT will have been paid to Revenue in respect of invoices raised, VAT will be overpaid where the sales turn out to be bad debts. A VAT refund can be claimed where there is no doubt that a debt is bad.
• Hotels and restaurants should be particularly careful to monitor any deposits received where the customer does not turn up. In that case, no VAT need be paid to Revenue in respect of the deposit. Any VAT paid to Revenue in this regard during the past four years should be reclaimed. This could improve cash flow significantly in times of difficulty.
• Ensure all possible VAT credits are claimed. For instance, VAT on petrol is not reclaimable but VAT on diesel is allowed.
• In all cases, remember to promptly give non-Irish-based suppliers the VAT registration number to ensure no foreign VAT is incorrectly charged to you, resulting in long, potentially expensive, refund claims.

PROFESSIONAL SERVICES WITHHOLDING TAX TIPS

• Individuals and companies  providing professional services to government agencies, local authorities and semi-state companies regularly have cash-flow difficulties because the agency in question is obliged to withhold 20pc of the payment for the services and pay it to Revenue instead, as professional services withholding tax (PSWT). This tax is then subtracted from the person’s income tax or corporation tax bill at the year end, subject to conditions. The entities that are subject to this PSWT should remember to include this tax as ‘tax paid’ when calculating their preliminary tax for the relevant year.
• Revenue allow a refund (an ‘interim refund’) of this tax before the year end and before the income or corporation tax return is filed if the PSWT paid to date exceeds the total expected liability for the person that year and if all tax returns for the previous year were filed and the tax paid. Care should be taken to claim interim refunds where possible.
• Revenue will also allow interim refunds to start-up businesses and to ongoing companies in times of hardship in certain circumstances.

CAPITAL GAINS TAX TIPS

• Individuals will benefit from a longer time to pay their capital gains tax (CGT) in respect of disposals made in 2009.  Previously, CGT in respect of the first nine months of the year was payable by 31 October of that year. The CGT for the remaining three months of the year was payable by 31 January of the following year. From 2009 onwards, CGT will be payable by 15 December for the first 11 months of the year. The CGT for December will be payable by 31 January of the following year.