© M.K.Brazil

Cost Management in Challenging Times:

The Tax Aspects

Waterford City Enterprise Board

26 March 2009

The Tower Hotel, Waterford

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I n t e r e s t P e n a l t i e sA g g r e s s i v e

R e v e n u e

P u n i t i v e C o m p l e xA d m i n

B u r d e n

I r i s h T a x S y s t e m

A n o m o l i e s I n c e n t i v e s R e l i e f s

R a i s e C a s hM a n a g e C a s h -

f l o w

R e d u c e

C o s t s

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Overview:

<> Avoid the Negative

- Prevent Arrears => Sanctions

- Don’t pay unnecessary tax costs

<> Embrace the Positive

- Avail of Planning Opportunities

- Maximum Tax Efficiency

<> Questions & Answers

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Prevention

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Avoid Tax Problems:

• Back to Basics– Keep Books & Records in Order

– Financial Information = Resource (not a Cost)

• Revenue not a Bank– Penalties 3% -> 100%

– Annualised Interest 10% -> 12%

– Statutory Fines - per offence

– Other Consequences, e.g. no C2, no TCC, etc

• Avail of advice and help

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Costs

&

Cash-Flow

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Costs & Cash-flow:

• VAT– If Possible, Switch to Cash Receipts Basis

– If Not - Payment Requests v Invoices

– Monitor DD - Falling Sales / Permanent Refunds, etc

– Switch back to Bi-Monthly if Refunds

– W/O Bad Debts and seek Refund

– Forfeited Deposits - Refund - Prior Years?

– Monitor Supplier’s Invoices - Multiple v Composite

– If Property Involved (e.g. lease) => Seek Advice

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Costs & Cash-flow continued…

• Payroll / Staff

– Flexible Remuneration Packages

• Job insecurity, Childcare Costs, etc

=> part-time, reduced hours, work from home, etc

• 3-day week => DSW for remaining days?

– Exploit Anomalies in Payroll System e.g. < €352 no Income Levy, no PRSI, < €500pw = no 2% Levies, etc etc, for example switch 10 Employees from €505pw to €495pw

=> No net loss for Employees,

=> Employer Saves €5,600+

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Costs & Cash-flow continued… Payroll / Staff cont...

– Tax Efficient Remuneration Packages

• Medical Insurance

• Share Schemes• Travel Passes / Car Parking

• Implement Expense Scheme

• Training Courses / Exams

• Phone / Lap-top

• Pool Vehicles v BIK (Car v Van)

• Exploit ‘Small BIK Exemption’ - €250

• New BIK-Free Bike Scheme

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Costs & Cash-flow continued… Payroll / Staff cont...

– Revenue Job Assist Scheme• New Employees only

• May change in April Budget

– Switch Bonuses from Turnover to Receipts

– Temporary lay-off rather than Redundancy

– If Redundancies - Get Advice and Do It Right

– Employees can also provide funding - see below

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Costs & Cash-flow continued...

• Owners - Directors

– Director’s Loan v Repayment of Loan

– Family Members

• Must be Bona Fide

• Use Tax Credits and/or SRCOP

• Termination Payments

– Mileage & Subsistence

– Pension Position (payment without a plan)

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Costs & Cash-flow continued...

• Various Other Considerations

– Complete Structural Review• Sole-trade v Company etc

– Adjusting Accounting Year End

– Rental Income• Sub-letting of Office Space

• Pre-Letting v Between Letting

• VAT implications

– Green Tax Incentives• e.g. Electric Car = Lower BIK = Increased Allowances, etc

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Cash Injection /

Raising Funds

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Cash Injection:

• Traditional– BES - Seed Capital - Grants etc

• Owner - Directors– Loan Interest Deduction

• Private Investors– Share Option Agreements - Complicated but possible

– Private Loan Agreements - Standard-Rated Income etc

– Exempt Patent Dividends

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Cash Injection cont...

• Employees

– S.479 - Once Off Investment• €6,350 per employee

• Ord shares for minimum of 3 years

– Loan Interest Deduction• Money to buy shares or to loan to employer company

– Share Schemes - e.g. PSS in lieu of Bonus

– BES - if Employer qualifies

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Tax Planning

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Tax Planning:

• Restructuring– Expansion – Mergers – Rationalisation, etc

– Tax Planning - Group – Trade Sale - etc

• Retirement Planning– Fund Retirement

– Facilitate Hand-over

• Succession Planning– Family Company - Investment Assets – House

– On-going financial assistance

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Tax Planning cont…:

• Event / Transaction Planning

– Purchase / Sale of Property or Assets

– Purchase / Sale of Business – Whole or Part

– Inheritance - Gift

– MBO, Bonuses, Retirement, Termination etc

• Routine / On-going Planning– Rental Income – S.23, Loan Interest, etc

– Property Development

– BES, Remuneration Packages etc

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Miscellaneous

&

Summary

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Sundry Other Considerations:

• New Company Exemption– Restrictive Conditions, but...

• R & D Credit – Complex but very valuable

• Losses– Consider how best utilised

– Cash Flow v Tax Efficiency

– Patents - Significant Tax Breaks

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Sundry Considerations cont...

• Class S v Class A– Take part-time role = PAYE Credit = Stamps

• Rental Losses– Can they be utilised, e.g. Storage

• Pre-Budget Planning– Income & Capital Taxes to Increase

– Trigger Tax Charge pre-budget?

– e.g. Director’s Bonus, CCS Dividends, Retirement Plan, Gifts to Children, Extracting Property, Liquidation

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SUMMARY:

• Irish Tax system can help businesses– Raise Funds, Cut Costs, etc

• Watch Budget Changes

• Tax Planning requires Time and Information– Tax is only part of the picture but often a critical part

• Get Advice Regularly

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O’Connell Court, 64 O’Connell Street, Waterford.

Tel:051 840800 / Fax: 051 - 874504

E-mail:brendantwohig@mkbrazil.com

Thank you for your attention.

QUESTIONS?