If you have recently started a new company, you may be able to apply for tax relief for start-up companies. This relief reduces corporation tax that may be due in the first five years that the company is trading, subject to certain conditions. The relief can be applied to profits earned from the trade of the company or on chargeable gains made on assets sold by the company that have been used for the purposes of the trade.
The main conditions for start-up relief include:
- The company must be setup between 1 January 2009 and 31 December 2026,
- The company must be carrying on a qualifying trade (excluded from this is trades inherited from previous owners/companies and land development but this is not exhaustive),
- The company must pay employers PRSI on the salaries of employees, restricted to €5,000 per employee, and
- The company’s corporation tax liability must not exceed the specified levels, i.e. Corporation tax of €40,000 in a tax year. Reduced relief may still be available if the company’s corporation tax liability is less than €60,000 in a tax year.
If a company qualifies for start up relief, then no corporation tax will be due from the company where the calculated corporation tax liability for the year in question is less than €40,000. Where a company’s corporation tax liability is between €40,000 and €60,000, then marginal relief may be available to the company to reduce their corporation tax bill.
Example:
Sexton Ltd is an Irish company setup on 1 January 2020 and prepares its accounts to 31 December. It is carrying on a new qualifying trade (of selling sandwiches).
Year 1: In 2020, it earned €10,000 in profits and employed three individuals. Tax due on these profits at 12.5% is €1,250.
As the company paid €4,000 in employers PRSI, it is entitled to claim a full relief for the corporation tax liability of €1,250.
Year 2: In 2021, the company earned €100,000 in profits and still employed three individuals. Tax due on these profits at 12.5% is €12,500.
As the company still paid €4,000 in employers PRSI, it is entitled to claim €4,000 of a deduction against it’s corporation tax return.
So in 2021, the company will be liable to pay €8,500 in corporation tax (€12,500 liability less start up relief of €4,000 via employers PRSI).
Start up relief can be quite valuable from a cashflow perspective for recently set up companies and it is important to remember to make a claim this relief in the company’s corporation tax return.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact us on 083 087 5936 or info@phairandco.ie.
