Gallagher Keane - Newsletter

Can I Claim Entrepreneurial Relief if I Liquidate My Company?

Are you considering liquidating your company or disposing of your business assets? Understanding the tax implications of such actions is crucial for any entrepreneur. One important relief to be aware of is Entrepreneurial Relief, which offers favourable tax treatment for qualifying individuals.

Entrepreneurial Relief 

Entrepreneurial relief is a tax relief scheme designed to encourage entrepreneurship and reward business owners for their hard work and investment. Under ER, eligible individuals may benefit from a reduced rate of Capital Gains Tax (CGT) on the disposal of qualifying business assets. Specifically, entrepreneurial relief imposes a tax rate of 10% on gains, subject to a lifetime limit of €1 million.

Liquidation of a Company

One scenario where entrepreneurial relief can apply is during the liquidation of a company. To qualify for ER in a liquidation scenario:

1. The company must have been carrying on a qualifying business up to the time the liquidator was appointed.
2. The liquidation must be completed within a reasonable period of time, with Revenue considering a period of 2 years as reasonable.

Normal Disposal:

Entrepreneurial relief also applies to normal disposal scenarios, subject to certain requirements:

1. The qualifying business assets must have been owned by the individual for a continuous period of 3 years in the 5 years immediately prior to disposal.
2. The individual’s shareholding must be greater than 5%.
3. The individual cannot remain connected to the company following the disposal.
4. The individual must have been a director or employee who spent not less than 50% of their time in the service of the company.

Exclusions:

It’s important to note that certain assets are excluded from ER eligibility, including:

• Shares or securities held as investments.
• Development land.
• Assets on the disposal of which no chargeable gain would arise.
• Goodwill disposed to connected companies.

Entrepreneurial Relief offers a valuable tax advantage for entrepreneurs looking to liquidate their company or dispose of their business assets. By understanding the eligibility criteria and requirements for claiming ER, individuals can optimize their tax position and maximise the rewards of their entrepreneurial endeavours. If you’re considering company liquidation or disposal, it’s advisable to seek professional advice to ensure compliance with tax regulations and to explore available relief options.

For further information on Entrepreneurial Relief and its application to your specific circumstances, please reach out to us at Gallagher Keane Chartered Accountants .

How Long Do I Have to Claim R&D Tax Credits?

Irish companies have twelve months from the end of their financial year to claim R&D Tax Credits (RDTC). So companies with, for example, a year-end of 31 May, have just over a month to submit an amended CT1 for the year ending 31 May 2023, including details of the RDTC claim for that same period.

However, it is much better to submit RDTC claims with the CT1 that is due within nine months of the year-end. This is cleaner, more efficient, and less costly. In addition, submitting the RDTC generally makes preparing the R&D Tax Credit report more efficient. It’s better to prepare the claim numbers and report when the R&D activities are fresher in the minds of those performing them and also for the accountant.

Preparation:

For companies with a year-end of 31 December and intending to submit their RDTC claim with the CT1 in September, now is the time to start planning the RDTC claim. With the 2024 R&D Tax Credit increasing to 30% (from 25% currently), this year provides an opportunity to get a robust RDTC system in place.

How do I Prepare for a Revenue Compliance Check or Audit?

In recent months, an increasing number of businesses have found themselves on the receiving end of random compliance check letters from Revenue. But what exactly is a Revenue audit or compliance check, and how can you prepare for it effectively? 

Understanding Revenue Audit or Compliance Check:

A Revenue audit or compliance check is a thorough examination of your company’s tax returns in comparison to your tax records. It’s essential to maintain meticulous accounting and tax records to ensure compliance in the event of such checks. Keeping accurate records not only facilitates seamless compliance but also minimises the risk of missing filing deadlines.

Contents of the Revenue Audit Notification Letter:

Upon initiation of a Revenue audit, you’ll receive a notification letter informing you of the impending visit by a Revenue official. If you have a tax accountant or agent, they’ll also receive a similar notification. Typically, you’ll be given 21 days’ notice, although Revenue often accommodates date changes if necessary. The letter will outline the periods to be audited and specify the type of tax under scrutiny.

Reasons for Being Chosen for a Compliance Check:

There are three primary reasons why your business might have been selected for a compliance check:

1. Random Audit: You may have been chosen as part of Revenue’s routine random audits conducted each year.
2. Industry-Specific Focus: If your business operates in an industry with a high rate of non-compliance, Revenue may target it for scrutiny.
3. Specific Information from Revenue: Revenue might have received specific information prompting your selection, often through its Risk Evaluation Analysis and Profiling (REAP) system.

Preparation Is Key:

Once notified of an impending audit, it’s crucial to utilize the time to prepare diligently. If you identify any tax discrepancies, prompt voluntary disclosure and payment of tax and interest are imperative. While an audit typically focuses on one year, Revenue can legally review records for up to four years and even further in cases of suspected fraud or neglect. Companies must retain financial records for six years to comply with legal obligations.

Direct Communication with Revenue:

Maintaining open and direct communication with Revenue throughout the audit process is essential. Revenue officials may issue an audit notice, determine no issues exist, or issue an aspect query seeking clarification on a tax matter. Prompt and transparent responses can often resolve queries satisfactorily, averting further action.

In conclusion, while the prospect of a Revenue audit may seem daunting, thorough preparation and cooperation can streamline the process and ensure compliance with tax regulations. By maintaining accurate records and engaging proactively with Revenue, businesses can navigate audits with confidence and integrity.