Taxation
| Type | Deductable expenses | Non-Deductible Expenses |
| Advertising | Materials for marketing the business and agency and designer costs | Office holiday parties and non-branded gifts |
| Business insurance | Insurance for business protection | Health insurance and auto insurance and disability insurance |
| Rent and lease expenses | Machines, vehicles and equipment not owned by you | Car lease payments (standard mileage rate) |
| Home office deduction | Expenses related to home office | Expenses using simplified methods |
| Meals | Meals expenses in business discussions or business trips | Meals for yourself |
| Office expenses | Office expenses | Home office costs |
| Supplies | Used and replaced supplies | Office decorations |
| Travel | Travel costs associated with business trips | Personal costs of travelling |
| Other expenses | Any necessary expenses like education to employees, association dues, banking fees, business gifts and industry magazines | Own expenses that are not necessary and ordinary |
| Entertainment | Reasonable entertainment costs related to business | Personal costs of entertainment |
| Depreciation | Depreciation is a tax-deductible business expense | |
| Employee benefit programs | Health and life insurance, education support, accident or liability insurance | Own health and retirement benefits |
| Employee wages | Wages paid to workers | Employee benefits to yourself |
| Legal expenses | Related to business | Services offered by employees |
| Commission and fees | Paid to nonemployees for increasing sales | Paid to employees |
| Taxes and licenses | Business taxes | Self-employment tax or income tax |
| Utilities | Office related | Home related |
| Repairs and Maintenance | business machines, equipment or offices | Car-related repairs |
| Interest on loan | Mortgage loan on business property | Primary home |
| Interest on car | Business related | Personal loans |
(Source: Bristow, 2004; Haccius, 2004)
2. Opinion is it worth John incorporating and calculation
In the business of Coffee For You, Join is sole trader. It is getting the advantage of the sole trading activities in the Ireland. It is because to set the business as the sole proprietor is one simple way in doing business. At the same time, the closing of the business is also simple in the sole training business. In the sole trader business, there is no need of annual return in the Ireland company registration office. John is also getting the benefit of free business from the audit activities. On the other hand, if John concerns as the incorporate business then it can also get some kind of the advantage. It is a kind of the business structure that also offer the various benefit to the traders. In this, it is found that it will provide the some taxation benefit to John and some liabilities protection benefits. The consideration on the incorporate business will also allow john to raise the capital form the outsourcing activities (Accounting Notes, 2018).
According to the Irish taxation law, the incorporate tax rate is 12.5 on the operating profit of the company. But, John is now doing business as the sole trader. In the context of the sole trader, it is found that John is married but it has not any child yet. In Irish taxation system, under the Irish single self employed person who is not having any child can pay tax accrodign the different slabs .
| Gross Income | % tax rate | Income tax | Net Income |
| 13000 | 8% | 1070 | 11930 |
| 15000 | 11% | 1610 | 13390 |
| 20000 | 15% | 2993 | 17007 |
| 25000 | 18% | 4468 | 20532 |
| 35000 | 22% | 7658 | 27342 |
| 45000 | 28% | 12608 | 32392 |
| 55000 | 32% | 17558 | 37442 |
(Accounting Notes, 2018)
Beside of this, the incorporate tax rate is 12.5% in Ireland. In concerning of this, the below scenario can be calculated
First Scenario – €125,000
This scenario shows that the net profit of Coffee For You is €125,000. In order to calculate the gross profit, the below calculation can be followed:
Net profit = 125000
Tax rate = 12.5%
Gross Profit = 125000 * 100 * 87.5
= € 1,42,857.14
Second Scenario – €250,000
This scenario shows that the net profit of Coffee For You is €250,000. In order to calculate the gross profit, the below calculation can be followed:
Net profit = € 2,85,714.29
Tax rate = 12.5%
Gross Profit = € 2,85,714.29 * 100 * 87.5
= €2,85,714.29
Third Scenario – Loss of €10,000
This scenario shows that the loss of Coffee For You is €10000. In the business scenario a business entity is not liable to pay tax if it faces loss. Hence, there is not liability on Coffee For You regarding the tax.
3. Steps to incorporate the business
A corporation in Ireland requires for having branch in Ireland and has a separate management structure. Business in Ireland is obliged by law for the registration with the Companies Registration Office. In addition, the firm needs to file its account publicly each year in the Companies Registration Office. It is liable to Irish corporation tax on profits. To incorporate the business in Ireland, it is required for the firm to have following documents:
- The memorandum and articles of association of the company,
- A list with all shareholders, directors and secretary of the company,
- A statement of the authorized and issued share capital of the company, if the case,
- A statement of the company’s registered office,
- A statement of the business activities and the location
All these documents including list with trading activities need to be submitted with the Trade Register in Ireland. The incorporation process in Ireland can take from 5 to 20 days that depends on the fulfilment of all required documents by the party.
If the firm is intended to incorporate the business as Irish limited liability Company, a minimum number of shareholders at least 1 for private company are needed. In addition, a minimum number of 2 directors (one from EEA (European Economic Area) and 1 secretary is needed to incorporate the business in Ireland. However, the company is private as it does not need to deposit the minimum share capital. Irish company limited by guarantees can be incorporated with or without share capital (Sheehan and Mc Namara, 2015). Partnerships in Ireland are limited as two or more partners with equal rights and liabilities are required to incorporate the business. The company is intended to start business as sole trader as it does not require a minimum share capital and the individual will be personally held liable for the liabilities of the business. In addition, it is also required for the business to complete a declaration confirming that it will carry on an activity in Ireland and file this with the incorporation documentation in the Companies Registration Office (“CRO”). In order to start the business as sole trader, it is necessary for the business to have PPSN (Personal Public Service Number) a unique reference number, while registering as a sole trade in Ireland. Through PPSN, the firm can access social welfare benefits, public services and information in Ireland (Enterprise Ireland, 2018). The company needs to register as a ‘self-employed person’ on the Revenue Online Service (ROS). This service can be useful to file and pay income tax, VAT and Employers PAYE returns.
4. Tax implications of incorporation
Incorporating has income tax implications as the sole trader will cease and apply the income tax cessation provisions. Due to this, possible balancing charges may arise regarding tangible and movable assets including fixtures, fittings and plant and machinery. Such charges may raise the amount of income tax. Apart from this, if loss incurs in the 12 months of cessation, a terminal loss relief claim may be made. At the same time, any unutilized trading loss cannot be carry forwarded into the firm on incorporation (Barrera and Bustamante, 2018). On the other hand, company gain taxes can be considered on transferring of the trade including chargeable assets like premise and goodwill. In addition, non-chargeable assets for CGT purposes include inventory and trade receivables (O’Connor et al., 2015).
The market value is used to compute the liability to CGT. On the incorporation of a sole trade, the business may claim Transfer of Business Relief that allows for deferring any CGT because of asset disposal. At the same time, there are also VAT implications of incorporating the business in Ireland. Generally, transfer of movable assets causes VAT at 23%, while transfer of business premises would raise VAT at a rate of 13.5%. However, transfer of assets not to be a supply for VAT purposes provides exempt for VAT. In order to get relief from VAT, transferred assets should be part of undertaking which is efficient to operate on independent basis (Slemrod, 2016). At the same time, there should be VAT registration of purchaser with full input credit. There are also corporation tax implications of the incorporation of the business in Ireland. There may be impact of close company provisions if it is owned by the sole trader. There is no relief available from corporation tax on the incorporation of a sole trade.
5. EIIS and SURE and advise whether these are appropriate investment
(EIIS) – EIIS is acronym form of the employment and investment incentive scheme. It is a kind of the business expanding scheme. It is also able to provide the tax relief to the entrepreneur. But, under this scheme, the investment money should for 30 years least (Revenue, 2018).
Start-up refund for entrepreneurs (SURE) – Sure is a kind of the taxation relief for the entrepreneur. It allows refund to the tax that is paid by the entrepreneur at the end of the financial year. There are general some rules of sure which determine that there should be a new company in the market. It should be involved in the share trading activities for at least four years. In the company, there should full time director and employees (Financial, 2018).
Hence, it can be said both such EIIS and SURE are appropriate investment scheme for John.
6. Ways to minimise tax liability
Linda could minimise her tax liability by making a charitable contribution because charitable contributions are tax deductible. It can be helpful to get tax benefits from the income. At the same time, Linda could investment in different schemes like life insurance premiums, fixed deposits, PPF investments, etc. that also provide tax benefits under different tax sections. In addition, Linda could contribute to a Health Saving Account (HSA) that can provide tax benefits along with medical care. In addition, the financing through bank loans can be significant for Linda to reduce tax liability because credit financing helps the firms to reduce taxes (Slemrod and Bakija, 2017).
Apart from this, Linda can get tax benefits through employee benefits programs including health and life insurance, education support, retirement plans, accident or liability insurance. There are tax-exempt benefits that should be considered by Linda to reduce her tax liability. It may be quite beneficial for Linda to develop a retirement plan for its employees. In addition, Startup Refunds for Entrepreneurs (SURE) is a tax relief that could be useful for Linda to get refund of income tax. However, to qualify benefits of this relief requires specific conditions that are required to meet by the firm. Apart from this, the Employment and Investment Incentive (EII) is also a tax relief that can be useful for Linda to attract equity-based risk finance from individuals (Pomeranz, 2015). Further she can get benefits of abandoning property rather than selling it. The firm can get benefits of abandoning rather than selling the property that does not have any value to the business. It can allow Linda to take a loss which is completely deductible. So it can be stated that all these ways can be effective for Linda to reduce her tax liability and increase its profitability significantly.
7. Advise Gloria as to her residency status from 2015 to 2019
The liability of Advise Gloria in Ireland can be influenced the number of days in which it is living in the Ireland and number of the days in which it is living out of the Ireland. In this, it is also concerning aspect whether the candidate is living in Ireland or not. In Ireland taxation system, there is a specific definition of residence for tax. In this, it is determined that tax liabilities are depending on the how many days you spend in Ireland. If persons have not spent the particular days in the country then it can still as ordinary residence Citizens (Information, 2018).
In the Irish taxation law, a person is considered as Irish citizen when it meets the some special parameters of the Residence. In this, it is determined that a person should live for 183 days in a year in Ireland then it will be considered Citizen of the country. In the context of the two years then its total should 280 days in the two year. In the context of Gloria, it is found that it lives out of Ireland in the most of the Occasions due to some health issue of its Mother. The calculation of the number of the days when Gloria was out of Ireland is 151. It means that Gloria was in Ireland for 214 days between 1 January 2017 to 31 December 2017. Hence, Gloria can be considered as the Irish Citizen and able to pay tax liabilities. But, situation is indicating that Gloria will leave Ireland in future. In this condition, its residency in Ireland will expire if it will not stay more than 183 days minimum in Ireland. Hence, it should try to leave at least 183 days in Ireland in one year.
8. What income will Gloria be assessable on
The income information of Gloria is showing that that it is generating €6,000 as the rental income that can be considered in the income from Ireland. Beside of this, Gloria is generating €10,500 as the Spanish deposit income. At the same time, another income of Gloria is dividends from Spanish bank that is €216,850. The given information is also showing that Gloria is working as in Gloria also works in the local Spanish hospital that is salary is €200,000. Hence, the below table shows the income tax liabilities of Gloria:
9. Advise of the tax consequences
The given information is showing that John is Irish citizen. John is married from Gloria that is Spanish. Both, John and Gloria are young aged and they have no any child yet. John is running a coffee shop that is named Coffee For You. At the same time, Gloria is a Senior Consultant Paediatrician in Ireland. But, Gloria’ mother health is not well due to this, it hat s to travel lots of time Spain. It life schedule is very business in the context of the travelling. As concerning of the provided information, it is found that in the least financial year 2017, Gloria was in Spain for 151 days. The remaining days 214 days, Gloria was in Ireland. It shows that Gloria is able to pay the tax liabilities under the Ireland taxation system. At the same time, it is also found that Gloria is also working in Spain in a local Spanish hospital. However, they both are living in Ireland. But, John is Irish person and Gloria is Spanish. Gloria also has the bank account in the Spanish bank. In this accounting, Gloria get the dividend of its investment. Along with this, salary of the Gloria is credited in its Spanish bank account.
John and Gloria are going to build or to expand home in Ireland. In this, they required €75,000. For this, it decided that Gloria will withdraw from its Spanish account. As concerning of the provided information, it is found that the main issue of the taxation liabilities of Gloria if it withdraw the amount from it Spanish account. However, In this kind of the case, the tax liabilities depends of the four major things. In this, the first factor is source of the fund. It determines which kind of the source is using by the person. In this, it is found that Gloria is using saving in the bank account that is in Spanish bank. Another significant factor is tax laws of the both counties. In this, the tax law of Ireland as well as tax law of Spain are considered. Furthermore, it is found that amount of withdraw is also important in the tax law. In Gloria case, the withdraw amount is €75,000 that is considered as in the taxation liabilities. The last one factor is residency status of the person. In this, it is evaluated that residence status of Gloria is Spanish. But, it is going to invest in Ireland. This factor is effective evaluated because there is great role of this factor in tax liabilities.
But, in this case, subject is transferring the money in the Irish account. Gloria can open a bank account in Irish bank. It will be helpful for Gloria to save the money as the taxation liabilities. In Ireland taxation law, there are no tax liabilities on the people during the transfer of their assets. This law helps the
Accounting Notes (2018) Accounting and taxation information. Available at: http://taxaccounts.ie/ireland/self-employed-small-companies/how-much-tax-is-irish-sole-trader-paying/ (Assessed: 8th Feb 2018)
Barrera, R. and Bustamante, J., 2018. The Rotten Apple: Tax Avoidance in Ireland. The International Trade Journal, 32(1), pp.150-161.
Bristow, J., 2004. Taxation in Ireland: An Economist’s Perspective. Institute of Public Administration.
Citizens Information (2018) Tax residence and domicile in Ireland. Available at: http://www.citizensinformation.ie/en/money_and_tax/tax/moving_country_and_taxation/tax_residence_and_domicile_in_ireland.html (Assessed: 8th Feb 2018)
Enterprise Ireland 2018. Start A business in Ireland. https://www.enterprise-ireland.com/en/Start-a-Business-in-Ireland/Startups-from-Outside-Ireland/
Financial (2018) Available at: http://www.iqf.ie/news/eiis/ (Assessed: 8th Feb 2018)
Haccius, C., 2004. Ireland in international tax planning. IBFD.
O’Connor, B., Hynes, T., Haugh, D. and Lenain, P., 2015. Searching for the inclusive tax grail: THE DISTRIBUTIONAL IMPACT OF GROWTH ENHANCING TAX REFORM IN IRELAND. OECD Economic Department Working Papers, (1270), p.0_1.
Pomeranz, D., 2015. No taxation without information: Deterrence and self-enforcement in the value added tax. American Economic Review, 105(8), pp.2539-69.
Revenue (2018) The employment and investment incentive for companies. Available at: https://www.revenue.ie/en/starting-a-business/initiatives-for-startup-businesses-and-smes/the-employment-and-investment-incentive-eii-for-companies.aspx (Assessed: 8th Feb 2018)
Sheehan, M. and Mc Namara, A., 2015. Business Start-Ups & Youth Self-Employment in Ireland: A Policy Literature Review.
Slemrod, J. and Bakija, J., 2017. Taxing ourselves: a citizen’s guide to the debate over taxes. MIt Press.
Slemrod, J., 2016. Tax compliance and enforcement: New research and its policy implications.
