What tax/accounting returns do I need to make for my business?

This is a common question?

To answer it, the first thing we have to do is to identify the form of your business.  Are you a sole trader, a partnership or a limited company?

This table summarises the key reporting areas.

Sole Trader

Partnership Company
Income Tax

Yes

Yes

n/a

Corporation Tax

n/a

n/a

Yes

VAT

Yes if thresholds exceeded

Yes if thresholds exceeded

Yes if thresholds exceeded

PAYE

Yes, if you have employees

Yes, if you have employees

Yes, if you have employees

Relevant Contracts Tax (RCT)

If involved in Construction, Forestry or Meat Processing – most likely YES

If involved in Construction, Forestry or Meat Processing – most likely YES

If involved in Construction, Forestry or Meat Processing – most likely YES

We have a note on each business type below to help you identify which business type you have.  We also have a short note on each tax type below.

Sole Trader

A sole trader is the simplest business structure where an individual directly owns and operates a business.

A sole trader must register for Income Tax, may have to register for VAT, may have to register for PAYE and may have to register for RCT.

Partnership

A partnership is where two or more individuals jointly own and operate a business.

A partnership must register for Income Tax, may have to register for VAT, may have to register for PAYE and may have to register for RCT.

Limited company

A limited company is a separate legal entity that is owned by its shareholders.  If you operate a business as a limited company, you, and possibly others, will own shares in the company and the company is a separate legal person that operates the business.

The main advantage of a limited company is that the liability of the shareholders is limited to the amount they invested in the shares of the company.

A limited company must register with the Companies Registration Office (CRO) and must file an Annual Return to the CRO.  A limited company must register for Corporation Tax, may have to register for VAT, may have to register for PAYE and may have to register for RCT.

 

CRO and Annual Returns

A Limited Company must register with the CRO and file annual returns.

The annual return mainly confirms or updates key information about the company.  For most companies, this will just cover the address of the registered office of the company, the officers of the company and the shareholders of the company and includes accounting information for the company.

The first annual return is due six months after the registration date.  Accounts are not required with the first annual return.

The second and subsequent annual returns are due six months after the previous one and will include the accounts information.

There is an option to change the date of the annual return.  This option cannot be used more than once every five years.

Each company has a Next Annual Return Date (NARD).  The annual return must be filed electronically no later than 28 days of the NARD.  Accounts and any other attachments are due with 28 days of the actual electronic filing date.

VAT

If you exceed certain turnover thresholds then you will have to register for VAT

The thresholds are as follows.

For sales of services only, you must register for VAT if your turnover is over € 37,500 (in any twelve month period) and for sales of goods only you must register if your turnover is over € 75,000 (in any twelve month period).

If you sell both goods and services (for example if you sell carpets (goods) and install carpets(service) the threshold is €75,000 but only if the goods element is 90% of the total. If goods element is less than 90% then the € 37,500 threshold applies.

Note that if you are not registered for VAT then you cannot recover VAT on your own purchases of goods or services.  If you sell mainly to VAT registered business, who themselves can recover VAT, you are likely to be better off registering for VAT.

If you are mainly selling to consumers or other non-vat registered businesses, then being registered for VAT increases the cost to them.  In this scenario, in most cases it will be better not to register for VAT until you exceed the threshold.

Depending on the amount of VAT payable you will have to file a VAT Return, called VAT3, either on a bimonthly or four monthly or six monthly basis depending on how much VAT you  have in the year.  The VAT3 must be filed by the 23rd of the following month.

You will also have to file an annual Return of Trading Details.  This show the figures for Sales and Purchases on which VAT was applied during the year.

 

PAYE

You must register as an employer if you have an employee.  There are exemptions low paid workers but in most cases these will not apply.

You must advise Revenue that you are making these employee payments within nine days from the employee’s starting date. You will need to include your name and address.

All employers are required to issue payslips to their employees the gross wage and details of all deductions.  To do this employers either have payroll software or outsource the payroll processing to either their accountant or a payroll bureau.  Its possible to do payroll manually but few businesses are doing that now.

Depending on the size of your business you will have to file a P30 monthly or quarterly.  The P30 tells Revenue how much PAYE, PRSI, USC and LPT have been deducted from employees in the reporting period.  Revenue will then take payment for the reported amount.

Each year, the business must file a P35 report which informs the Revenue the total wages and payroll deductions for each of the employees.  This must be filed by Mid Feb and any Payroll Taxes over/under paid will be paid or received by mid-late February.

The employer must issue each employee with a P60 which shows their total wages and payroll deductions for the payroll year.  The figures on the P60 should be the same as the figures on the P35 for that employee.

A company must register as an employer and operate PAYE on the income of directors even if there are no other employees.

If you are a director of an Irish incorporated company you must pay tax (PAYE) on your income as a director. This is the case regardless of your residency status, or where you perform your work duties.

Income Tax

Individuals and Partnerships must file an Income Tax Return, for each calendar year, by 31 Oct of the following year.  When filing that return, you will have to pay any balance of tax owing that year and pay an estimate of the income tax (preliminary tax) for the current year.

Partnerships must file a Tax Return for the Partnership showing the profits/losses for the partnership and how those profit/losses are shared by the partners.  Then, on the partners individual Income tax returns, they report their share of the partnership profits but not the detail of how that profit was made up.

Corporation Tax

Companies must file a Corporation Tax Return for accounting periods.  The maximum accounting period is 12 months.

The corporation tax return must be filed with 8 months and 23 days of the end of the reporting period.  So, for a Dec 31 date, the return must be filed by the following Sep 23.

Companies must pay preliminary tax payments as well as balancing payments by certain deadlines.

For companies with taxable profits of less than € 1.6M (ie most companies) preliminary tax must be paid by the 23rd of month before the end of the accounting period.  For example, if the accounting period is 30 June, then preliminary tax for the current year must be paid by 23 May.

The balancing payment for the previous tax period is due on the day the Corporation Tax must be filed.

The Corporation Tax return includes details of share ownership.  It also includes details of salaries and expense payments to Directors and, also includes details of any loan balance due to/from Directors.

Relevant Contract Tax.

RCT is a withholding tax that applies to certain payments by principal contractors to subcontractors in the construction, forestry and meat-processing industries.

The rates of withholding tax are 0%, 20% and 35%.  All RCT transactions are submitted through the Revenue Online System (ROS).  The rate applicable to each subcontractor is determined by their own tax compliance history and status.

You can find a list of construction, forestry and meat-processing operations subject to RCT on the Revenue Website.  We can help you understand if RCT applies to your business and what this means for your business.

If you are a principal contractor in the construction, forestry or meat-processing industries, you must make all transactions with Revenue electronically through the Revenue Online Service (ROS). You should:

  • Notify Revenue of all relevant contracts
  • Notify Revenue of payment details
  • Provide details to the subcontractor of the tax you will be deducting
  • Submit a deduction summary, which is a monthly or quarterly return
  • Pay Revenue the RCT deducted from payments made to subcontractors.

You are a subcontractor if you enter into a relevant contract with a principal contractor in the construction, forestry or meat processing industries. This contract is not a contract of employment.

You must give the principal contractor the details they need to register the relevant contract with Revenue. These details must include the name you have recorded with Revenue and your tax reference number. You will also provide proof of identity, which can include:

  • a copy of your passport
  • a copy of your driving licence
  • details of your tax registration.

Once the principal contractor notifies Revenue of the contract, Revenue will send you the details in a contract confirmation letter. This will also confirm your RCT rate of tax deduction. If any details regarding the contract are incorrect, you should contact the principal contractor to correct them. If they cannot correct the details, contact Revenue directly.

ROS

Revenue Online Services is Revenue’s internet facility which provides you with a quick and secure facility to pay tax liabilities, file tax returns, access your tax details and claim repayments.

Revenue’s strategy to establish the use of electronic channels as the normal way of conducting tax business.  The vast majority of Revenue’s business customers are legally obliged to both e-file and e-pay. If you do not use ROS to file your returns and make payments, you may have to pay a penalty of €1,520 in respect of each transaction.

Conclusion

Obviously, this can only be a summary of the various taxes.  If you require help understanding how all this applies to you, feel free to contact us by phone 086 2323525 or by email jim@accountsplus.ie

 

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