Tax Planning Exempt Income

Exempt income

Life is full of decisions one of the ones you can decide to make is whether you try to minimize the amount of tax you pay. This leads to a further decision of whether you do this legally or illegally.

Legally this is called tax avoidance or tax planning depending on the scale of how you organize your affairs. Both are perfectly valid means of minimizing your tax

Illegally this is called tax evasion, the shadow economy or sponging of the rest of society. It has high penalties for detection including hefty fines and prison sentences. Each time you evade tax then you end up driving the amount taken by other people to higher levels as they have to compensate for the amount you are not paying.

One of the ways to avoid income tax is through exemptions.

Within the Irish tax code there are various exemptions to income tax.

(1)   Exemption Limits:

Once you reach the grand age of 65 then any income you earn below €18000 is exempt from income tax. Once you reach 66 then you also avoid PRSI. If you are over 70 then you are charged a reduced rate of Universal Service Charge

 (2) Personal injury settlements (s 189), payments from the Haemophilia HIV Trust (s 190), Hepatitis C compensation (s 191), and payments in respect of thalidomide victims (s 192).

(3) Income of artists, writers and composers, subject to an overall annual limit of €50,000 (s 195).

(4) Interest on savings certificates (s 42) and instalment savings schemes (s 197).

(5) Income of recognised charities (s 207, 208).

(6) Income of amateur sports bodies (s 235).

(7) Rent from letting farm land (s 664). A claimant must be aged 55 or over, or unable through physical or mental incapacity to carry on farming. Exemption is given for the lower of:

(i) the farm rental income surplus, or

(ii) €40,000 where the lease is for more than 14 years, €30,000 where the lease is for 10 to 14 years, €22,500 where the lease is for seven to 10 years, or €18,000 in any other case.

(9) Rent-a-room relief (s 216A). Income from lodgers is exempt provided your gross income from such letting does not exceed €12,000 in the tax year.

(10) Home childcare earnings of up to €15,000 in the tax year (s 216C).

(11) Earnings of special assignees (s 825C). 30% of income above €75,000 in the case of employees assigned from a tax treaty country to work in their employer’s Irish operation.

(12) Start Your Own Business relief (s 472AA). Where a person previously long-term unemployed sets up a business, the first €40,000 of profits in a tax year are exempt. Expires 31.12.2016.

Frank McGivney www.meathaccountants.com 0469293891

Advice for setting up your new business

Frank McGivney & Co. Ltd

Chartered Management Accountants

Useful steps for when you set up your new business

Written by Frank McGivney BA ACMA CGMA

Before you decide to set up your new business

(1)   Market Research Carry out market research and investigate the business you are proposing to start

(2)   Pick the right name which will reflect the service or product you want to sell

(3)   Prepare projections to forecasts to determine whether the business is likely to make money

(4)   Decide what structure is most appropriate, i.e should you operate as  company or  sole trader/ Partnership

When you are setting up business

(1)   incorporate a company with the companies registration office if you have decided to operate as a company

(2)   or register a sole trader business name with the companies registration office if you are going to be a sole trader or partnership

(3)   register with revenue commissioners for relevant taxes such as corporation tax, income tax, vat, paye employer and relevant contract tax

(4)   set up bank account, this may take up to ten days

(5)   advertise and market your product or service to your target market

Once you have set up your business you need to establish

(1)   Sales control this involves having an invoice book , setting up a system for sending out monthly statements, setting credit limits for customers and having a system for collecting money

(2)   Purchase Control: this involves choosing suppliers of goods and services, putting in place payment schedules for paying your bills, setting up direct debits for some bills such as electricity, telephone etc

(3)   Financial management. This involves controlling your finances, you need to ensure you get in all the money that is owed to you in a timely manner and then controlling your spending so that you can pay important bills when they fall due

(4)   Control expenses you need to find the best value for the goods and services you purchase that gives you the quality you need at the best price

(5)   Keep records. You need to establish a system to record purchases and sales. You have to keep all your invoices. You should file your bank statements. Make sure you fill out all your cheque stubs legibly

(6)   Do your tax returns on time. Make sure you meet all relevant deadlines for filing returns and pay all taxes as they fall due

I have more detailed articles on most of these subjects on http://frankmcgivney.blogspot.ie/ or you can ring me Frank McGivney on 0469293891 or email me on fmcgivney@live.com for more detailed advice on any of the above. I offer  full accountancy and tax service. 

 Frank McGivney & Co. Chartered Management Accountants Kells, Co Meath