If you are a sole trader looking to become a limited company, it is worth knowing that one of the first major tasks to be completed upon formation is to register for tax.

The topic of limited company tax can be difficult to understand, so if you’ve just set up shop, let us help you out with this simple guide to limited company tax.

What Tax Do I Have To Pay As A Limited Company

What Tax Does A Limited Company Pay?

The following list is a few of the types of tax a limited company has to pay. It is important to note that these may not be relevant for all limited companies.

  • Corporation tax
  • VAT
  • PAYE/PRSI/USC
  • Capital gains tax
  • Relevant contracts tax
  • Dividend withholding tax
  • Professional services withholding tax

What Is Corporation Tax For A Limited Company?

Corporation tax is the most well-known type of tax a limited company has to pay and is charged on profits made by the company. The standard rate of corporation tax is 12.5%. This is much lower than European counterparts which on average charge over 20%.

Limited Company Tax Calculator (Corporation Tax)

There are 2 rates of corporation tax that a business could pay:

  • 12.5% (standard rate), which applies to trading income.
  • 25%, which applies to non-trading income (e.g foreign income or rental income on land)

Be sure to check out the Revenue Commissioners website for corporation tax calculation

How To Work Out Limited Company Tax For A Director

To generate a rough estimate of what tax a director is expected to pay, use taxcalcs tax calculator or take a look at FOKs tax and loan calculator resource.  

How To Do A Limited Company Tax Return

To pay limited company tax return, you are required to use the Revenue Online Service (ROS). Once you have created an account, the required steps in this process include

  1. Calculating and paying preliminary tax by the date specified
  2. Completing and filing both CT1 form and 46G form
  3. Paying any final amounts of tax by the cited return filing date

When Is Limited Company Tax Due

Revenue payment and filing explains that “a 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).”

For tax payments that are late, Revenue points out that “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.”

It is important to note, that there is also a late filing surcharge of 5% for pay payments that are up to 2 months late and 10% for each month thereafter. This amount is based on the corporation tax liability calculated.

How Long To Keep Tax Records For Limited Company

According to Revenue, you need to keep all business records, books and documents for 6 years. If you wish to shorten the length of time you hold onto your business records, you must get permission in writing from the appropriate Revenue office.  

Limited Company Tax Relief

For the first 3 years of business, all new start-up limited companies can apply for corporation tax relief. This tax relief is known as Section 486C tax relief and applies if

  • Corporation tax due is €40,000 or below
  • Employers PRSI is at most €5,000 per person and €40,000 in total

How To Reduce Limited Company Tax

As well as corporation tax relief, there are quite a few of other ways to reduce limited company tax, some of which are listed below:

  • Pre-trading expenditure: Certain expenses sustained in the 3 years prior to launching the business can be deducted
  • Business expenses: Any daily expenses encountered as part of business carried out can be deducted. E.g – vehicle running cost
  • Research & Development (R&D) Expenditure: Receive tax credits for R&D
  • Capital allowance: Long-lasting capital goods such as medical equipment are tax deductible
  • Intellectual property: Intangible assets like publishing titles or copyright can be claimed against tax.
  • Pension reductions: Directors can take away their pension contribution from the company profits before tax.

Tax When Your Limited Company Gives To Charity

Your limited company can claim a tax deduction on the amount donated (annual donation amount must be over €250).

This is possible as the donation is perceived by Revenue as a trading expense.

What Expenses Are Tax Deductible For Limited Company

Generally, the rule for claiming tax-deductible expenses is that they must be directly connected to operating the business. The expenses a limited company can claim are:

  • Purchased goods that are to be resold
  • Pay for employees
  • Business establishment bills (e.g rent, phone)
  • Vehicles or machines used on a daily basis for your business (includes vehicle lease payments)
  • Account Fees
  • Interest payments on money used to originally finance the business
  • Pre-trading expenses
  • Protective clothing

How To Claim Expenses On Tax Return

Expenses can be claimed using Revenues Online Service and completing a form 11 or form CT1.

Dividends Limited Company Tax

When a company is calculating its trading profits, it cannot deduct company dividends to its shareholders.

How are dividends from a limited company taxed?

  • Dividends are not subject to corporation tax when being paid by one resident Irish company to another.

Dividends are subject to dividend withholding tax for most resident Irish companies looking to pay out dividends

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