No, your logic is spot on.
If you leave profits in the company, they will be taxed twice.
Brendan
Why not T McGibney? As I see it the logic presented by Brendan and the OP is exactly correct albeit in my opinion unfair level of taxation considering the risks many SME owner directors take to employ and keep their businesses running.
The profits could very well be taxed 3 times!No, your logic is spot on.
If you leave profits in the company, they will be taxed twice.
Brendan
As far as I understood this relief only applies if you sell the business to some a totally unrelated person? Is this not the case?There are some ways to get money out of company tax free over the long term. This would include items such as lump sum termination payments and retirement relief.
If you need to take the full amount of money out of company every year these options are not available so are only suitable for longer term planning.
As far as I understood this relief only applies if you sell the business to some a totally unrelated person? Is this not the case?
No, your logic is spot on.
If you leave profits in the company, they will be taxed twice.
Brendan
How is paying CT and then a subsequent Tax not double?
Because directors' salary & pension payments are allowable deductions against corporation tax.
Hi T McGibney
Sorry for being a bit slow on the update but I'm struggling to follow the logic here - would you mind elaborating please?
How do you want me to elaborate? What I said is basic fact. Directors' salary & pension payments are allowable deductions against corporation tax - so the company doesn't pay Corporation Tax on earnings and PAYE/PRSI on salaries paid out of those earnings.
The point of the OP and others is that if one makes a profit in a given year and one leaves this profit in the company in that year, CT is payable on the profit (Tax 1). And that if you subsequently take this money out of the company as income in a later year - you will then pay tax on such withdrawals (Tax 2). Do you agree with this?
The point of the OP and others is that if one makes a profit in a given year and one leaves this profit in the company in that year, CT is payable on the profit (Tax 1). And that if you subsequently take this money out of the company as income in a later year - you will then pay tax on such withdrawals (Tax 2). Do you agree with this?
I understand how the 12.5% corporation tax rate is attractive to multinationals. However, is it really so useful to small owner-managed private companies? If a company makes a profit of €20,000 after director's (100% shareholder) salary €75,000 and maximum pension contribution, the profit will be taxed at 12.5% (€2,500). Isn't this dead money? Is the director better off receiving a bonus of €20,000 despite it being taxed at 52% and therefore leaving no company profits taxed at 12.5%? At least the net salary (€10,400) is his own rather than the company paying €2,500 in corporation tax. Is my logic flawed and am I missing something?
Instead consider an example where company makes a profit of €20,000 in Year 1 (per its bank balance) before director's salary/pension/remuneration etc. The company can either increase directors remuneration (by extension, reducing profits) by c€20,000 and obviate need to pay CT @12.5%. Or else pay 12.5% on the profits of €20,000. Assume also that the company breaks-even each following year with no remuneration to the directors.
In Year 2; the company is either 1) carrying forward cash of c€17,500 (after payment of CT) or 2) Nil-cash. But the Director will have received either Nil in the first example or gross c€20,000 in the second example. It is true that in Year 2 or 3 or 4 the company can pay a bonus and claim a deduction for same - but if we are talking cash, it can only pay a bonus of 17,500 and not 20,000. The director will pay tax on the 17,500. If the director 'owns' the company, ultimately he is at a loss.
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