Taking Low Salary + Expenses from New Ltd Company

I think pByrne is also thinking of the close company surcharge. This only applies to companies that are earning non-trading income or are providing professional services.
 
Nige said:
I think pByrne is also thinking of the close company surcharge. This only applies to companies that are earning non-trading income or are providing professional services.
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Exactly Nige - close company surcharge is what I was thinking of. Isn't it something close to 20% of the retained profit after corporation tax.
 
From the revenue:

Close Companies
  • Most Irish resident companies are what are called 'close' companies.
  • A Close Company is a company that is controlled by five or fewer participators or is controlled by any number of participators who are directors.
  • The definition of a Close Company includes a company where, on distribution of its full income, more than 50% goes to five or fewer participators or participators who are directors.
  • A participator is a person having an interest in the income or capital of the company.
Close Company provisionsThe Close Company provisions set out in the Taxes Consolidation Act 1997 have four main implications for a company and its participators/directors.
  • Certain benefits-in-kind and expense payments to participators or associates will be treated as distributions.
  • Interest in excess of a specified rate paid to directors or their associates will be treated as distributions.
  • Loans to participators or their associates must be made under deduction of tax and, if the loan is forgiven, the grossed-up amount is treated as income in the hands of the recipient.
  • A surcharge of 20% is payable on the total undistributed investment and rental income of a close company. Close "service" companies are also liable to a surcharge of 15% on one-half of their undistributed trading income.
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Looks like an extra 20% to me??...
So in my case (IT Contractor) I'm better off getting all the money out of the business as Pension/bonus/Wages.. right??

Mik
 
capall said:
Yes,you should be filing zero profits each year in your CT return
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Frankly, I wouldn't go this far. There is no necessity to cut profits to zero every year. I would argue the doing so only complicates matters, for example in relation to the EGM needed under the 1986 Companies Acts if the company is insolvent.

The service company surcharge is not a problem if profits are extracted from the company within the specified period allowed. Once the company is not building up sizeable reserves, then there should be no problem.
 
I wouldn't presume that an IT Contractor is caught by the close company surcharge provisions. Talk to your accountant about what, exactly, your company does and take it from there.
 
Nige said:
I wouldn't presume that an IT Contractor is caught by the close company surcharge provisions. Talk to your accountant about what, exactly, your company does and take it from there.
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From reading the revenue site it looks like I am, but I will check with my accountant

Mik
 
You are definitely a "close company". However, you will not be subject to a surcharge on your trading profits unless the company's business consists of carrying on a profession or the provision of professional services, or exercising an office or employment.

While the Revenue have tried to have IT services deemed to be "professional" services, this doesn't really tie in with the case law on this issue.
 
Nige said:
You are definitely a "close company". However, you will not be subject to a surcharge on your trading profits unless the company's business consists of carrying on a profession or the provision of professional services, or exercising an office or employment.

While the Revenue have tried to have IT services deemed to be "professional" services, this doesn't really tie in with the case law on this issue.
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Nige,

That is very interesting - my accountant is certainly of the view that we would be hit with that close company surcharge if we retained profits in the company. I am an IT Contractor also. (admittedly I have a few staff also so perhaps the definition changes then?)

Is there any way to get a definitive answer on this - how would it work in practice, you would not pay the surcharge and then if challenged by revenue you would engage a solicitor to argue the point on the case law you refer to?

Cheers,

pbyrne
 
The precise nature of the services provided by the company should influence whether or not the surcharge applies.

The number of staff employed by the contractor company shouldn't make any difference.

The best way to get a definitive opinion is through a specialist tax consultant, either via your accountant or directly. Most solicitors would have zero experience of dealing with issues like this.
 
ubiquitous said:
Frankly, I wouldn't go this far. There is no necessity to cut profits to zero every year. I would argue the doing so only complicates matters, for example in relation to the EGM needed under the 1986 Companies Acts if the company is insolvent.

The service company surcharge is not a problem if profits are extracted from the company within the specified period allowed. Once the company is not building up sizeable reserves, then there should be no problem.
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If you don't clear the company profits down to zero then you pay corpo tax unnecessarily,if you are going to extract the money after the year end why incur this cost ? Having zero profits is not the same as being insolvent

Also I would not like to take on the revenue as regards IT consulting not being covered by the service company surcharge
 
capall said:
If you don't clear the company profits down to zero then you pay corpo tax unnecessarily,if you are going to extract the money after the year end why incur this cost ? Having zero profits is not the same as being insolvent

Also I would not like to take on the revenue as regards IT consulting not being covered by the service company surcharge
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Hi capall,

I think the theory in retaining the profits is that after , paying the corporation tax and the surcharge you can accumulate money in the company - which could then be distributed to shareholders (ie: you) upon liquidation.

I keep meaning to look at a worked example of this but it would go something like this:

(NB: I am in no way a tax specialist - just trying to remember how somebody explained it to me)

[broken link removed]

For scenarios like this people would need to consider though what they could be doing with the money if they drew it down each year (ie: paying their mortgage! - then from my calculations it works out better to take the salary as normal)

pbyrne
 
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