Close company surcharge

J

JamesBM

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Myself and my wife own a small company that provides somewhat specialised consulting advice to banks and other FIs. We are in a position where we currently don't need to take substantial salaries. The company has reasonable non distributed profits for 2022 and 2023 and I am trying to understand whether the Close Company Surcharge needs to be paid on these in light of the Tax Appeals ruling on this issue (76TACD2021).
The services I provide do not require me to be a member of a professional body nor have a specific qualification. There is no regulation by a supervising regulatory entity.
These seem to be the key criteria on which the Appeals' judgement note above was based?
I am aware that I should obtain professional advice but any guidance would be appreciated as if the risk is above moderate it might be better to pay the surcharge rather than incur substantial professional fees (and stress).
What is Revenue's attitude in such situations? I don't believe they challenged the judgement quoted.
Other facts that may be relevant:
1. The company was set up over 12 years ago, it traded continuously for about 18 months but then had infrequent business until the beginning of 2022 (I was working abroad during that time).
2. I did not engage in the same business as a "sole trader" prior to setting up the company.
 
Brendan Burgess said:
Would life not be a lot simpler if you took out the profits for 2023 as salary or as pension contributions thus avoiding Corporation Tax and Surcharges?
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Thanks Brendan. I am reasonably well funded in terms of pension and not that far from retirement age. My thinking is that either:
1. I could take dividends in the future when I am taxable at a lower rate/not liable to PRSI.
2. I might be able to avail of Entrepreneur's Relief? Assuming 10% CGT rate the total after tax take would be 78.75% without CT surcharge and 72.85% if it did apply.
3. Leave the company as part of my estate. Either my wife could get it CAT/CGT free or children at 33% CAT.

Sorry if that looks like "amateur hour" tax planning!
 
JamesBM said:
Thanks Brendan. I am reasonably well funded in terms of pension and not that far from retirement age. My thinking is that either:
1. I could take dividends in the future when I am taxable at a lower rate/not liable to PRSI.
2. I might be able to avail of Entrepreneur's Relief? Assuming 10% CGT rate the total after tax take would be 78.75% without CT surcharge and 72.85% if it did apply.
3. Leave the company as part of my estate. Either my wife could get it CAT/CGT free or children at 33% CAT.

Sorry if that looks like "amateur hour" tax planning!
Click to expand...
You probably need a engage a professional advisor because otherwise you're at high risk of a making a big mess on foot of a basic misconception.
 
T McGibney said:
You probably need a engage a professional advisor because otherwise you're at high risk of a making a big mess on foot of a basic misconception.
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Thank you, yes I understand that. Is there a specific misconception evident in the above?
 
My problem is that even if a tax advisor gives you the green light, there is nothing to stop Revenue penalising you in the future and you having to take an appeal case. Where due to the vagueness of the legislation you could be found liable for the tax.
You have to weight up is the tax savings worth the potential hassle.

From this link
The following have been deemed to be a profession – an accountant, an actor, an actuary, an archaeologist, an architect, an auctioneer, a barrister, a computer programmer, a dentist, a doctor, an engineer, a journalist, a management consultant, an optician, a private school, a quantity surveyor, a solicitor and a vet.
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The following have been deemed not to be a profession – a photographer, a stockbroker, an insurance broker, a pharmacist, a public relations company and a tax agent (who was not a member of a professional body).
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I don't understand the logic behind the profession decisions. For example how is a pharmacist considered not a profession but an optician is??
 
Savvy said:
My problem is that even if a tax advisor gives you the green light, there is nothing to stop Revenue penalising you in the future and you having to take an appeal case. Where due to the vagueness of the legislation you could be found liable for the tax.
You have to weight up is the tax savings worth the potential hassle.

From this link




I don't understand the logic behind the profession decisions. For example how is a pharmacist considered not a profession but an optician is??
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Thanks Savvy. I would have been fairly firmly of the view that the company was liable before the outcome of the 76TACD2021. It seems to suggest specific tests to determine what is and isn't a profession or the provision of professional services, for purposes of the surcharge.
 
JamesBM said:
2. I might be able to avail of Entrepreneur's Relief? Assuming 10% CGT rate the total after tax take would be 78.75% without CT surcharge and 72.85% if it did apply.
Click to expand...

Does Entrepreneur's Relief apply to non-trade assets? For example, the cash you have built up in the company?

I doubt it, but I don't know.
 
JamesBM said:
3. Leave the company as part of my estate. Either my wife could get it CAT/CGT free or children at 33% CAT.
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Explain how that works ?

You leave your children shares in a company which is stuffed with cash.

They could pay 33% on the value of the shares if they are over the lifetime exemption.

But the cash is still in the company.

Can they liquidate it free of tax?

Brendan
 
You should have a written tax plan from your tax advisor which backs up your strategy.

Any such plan should have an overwhelming financial advantage and not just 78% instead of 72%.

And compare it with taking the money out now and paying tax on it.

Brendan
 
Brendan Burgess said:
You should have a written tax plan from your tax advisor which backs up your strategy.
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You keep saying this Brendan. But no tax advisor will provide such a plan, except possibly at vast cost, to cover the inherent risk whenever the customer fails to follow through on their recommendations, tax rules or wider circumstances change, or something else gets lost in the mist.
 
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Brendan Burgess said:
Explain how that works ?
You leave your children shares in a company which is stuffed with cash.
They could pay 33% on the value of the shares if they are over the lifetime exemption.
But the cash is still in the company.
Can they liquidate it free of tax?
Brendan
Click to expand...
Highly unlikely.

Besides if the OP lives say another 25 years, annual compliance costs will decimate the value held within the company. And if things go awry and the company gets struck off, the entire value could be lost.
 
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Brendan Burgess said:
Explain how that works ?

You leave your children shares in a company which is stuffed with cash.

They could pay 33% on the value of the shares if they are over the lifetime exemption.

But the cash is still in the company.

Can they liquidate it free of tax?

Brendan
Click to expand...
Brendan, I suspect that I may be missing something but as follows:
1.Say the company is valued at 500k for CAT purposes and there is just one beneficiary of the will (non-spouse).
2. Only asset is cash.
3. No remaining CAT exemption so CAT liablility of 165k.
4. Company is liquidated for 500k (ignore costs for now). Disponee has acquired it for 500k so no CGT liability?
 
I don't know enough to know if you are missing something or not.

But assuming you are right...
The company is paying 12.5% Corporation Tax on its profits. And probably a surcharge.
Then the beneficiary is paying 33% CAT.

So that is about 41%.

Is it worth avoiding Income Tax today to get the money into your hands for a potential savings in the distant future?

Brendan
 
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