Ways to reduce PAYE tax

Yes, there are some companies where the relief is being denied or at least delayed.

So even worse, instead of losing €60,000 when the company goes bust or management steal your money, you lose €100,000!
 
Hi

Most of the previous comments above are accurate. I've had a small amount of money in the Davy scheme every year since 2014- except for last year when they were oversubscribed by early December and wouldn't take my contribution. So there's obviously a demand for it.

Over the years there have been examples of companies going bust (eg Maximum Media), companies failing to grow fast enough to meet the criteria for the second tranche of tax relief, companies taking several years to get to a point where they can repay the EIIS investment (ie cash out the investors) etc. There have been a couple of big winners where the company was taken over by a multinational which resulted in a nice return.
Keeping tabs on the tax due is a bit of a pain, but I guess its fine if you can outsource that to your accountant. Im starting to wonder if its worth the hassle though.

The types of companies are widest spread of SMEs you could think of- sandwich makers, tool designers, guys with a couple of petrol stations, nursing homes, wind farms, etc. The fund every year usually splits the investment into 4-5 different companies, so the risk is spread, but caution, not that broadly! 5 Irish SMEs isnt diversification:)

Davy/BDO publish the prospectus around December 1 usually, and if last year is anything to go by, you'll need to get your application in quickly.

Goodbody/Baker Tilly have their own fund, I think its more recent than Davy/BDO, and the min investment was/is 20k. Too rich for my blood.

Hope that helps people.
 
nest egg said:
Isn't there some on going issue regarding the paperwork each company needs to complete with the tax man, before you can get your tax rebate?

Open to correction but I recall hearing there were people waiting a long time for their rebate, which can be compounded when there are multiple companies involved in a fund?
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That can absolutely happen when investing in individual companies, once they have your money there isn’t anything extra in it for them to process the paperwork, other than keeping you happy for future funding rounds. Even with the best of intentions these are small companies where things like this may not get priority. Investing directly in micro cap companies is not for the causal investor, EII or otherwise!

I’d be surprised if it’s an issue in the funds, my experience of them is that they are extremely rigorous on the legal/compliance side of things, perhaps after some hard lessons, but I could be wrong.
 
Have done a little EII also, like anything, you need to do your homework/research, but only started in last few years. The “basket” of companies, seems to be the best approach, as it limits risk, and assuming the research is done, the upfront 40 % tax refund, is extremely attractive, 5 years before it matures.

Theres some risk with everything.
 
ArthurMcB said:
Deed of covenant
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But these are extremely restrictive, and very limited circumstances, in practice, since the rules , totally changed in the ‘90’s.

Also limited to 5% of your gross income to an adult over 65,
And that amount, is further limited to a 20% refund, of that restricted amount.

The only real circumstance, where there is meaningful benefit of a covenant, is in the case of helping out, incapacitated minors.
 
Gordon Gekko said:
A wise man once said to me re EIIS/BES:

1) These are companies to whom everyone else has said “No”.

2) When you invest a hundred grand in one of these dogs’ dinners, get forty grand back in tax relief, and then lose the other sixty grand when these desperate fools to whom everyone else has said ‘No’ either run the business into the ground or steal your money, you’ve just lost sixty grand.
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In most cases direct investments in companies like these are because others have said no, but I think it’s a little unfair to put this down to the companies being ‘dogs dinners’, that the owners are completely incompetent or out to steal your money.

Banks will have said no because they say no to all small businesses, outside of small overdrafts/loans. The companies are too small for private equity. Angel investors are looking for opportunities that might return x10 their investment or more, eg. a software business. If you run a less sexy business you want to grow, the only way to get capital is small equity investments.

I think it’s completely fair to say most of these investments will fail because most startups fail, they are extremely high risk. But if you have the means to properly diversify and want to support the growth of small Irish businesses, EII reduces your risk in doing so.
 
Gordon Gekko said:
Proper diversification doesn’t need to involve EIIS or small Irish businesses.
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Absolutely! To be clear I’m in no way suggesting that anybody should have micro Irish companies in their portfolio for diversification. It’s for high net worth individuals who have money to spare and would like to support the growth of Irish businesses.
 
fayf said:
But these are extremely restrictive, and very limited circumstances, in practice, since the rules , totally changed in the ‘90’s.

Also limited to 5% of your gross income to an adult over 65,
And that amount, is further limited to a 20% refund, of that restricted amount.

The only real circumstance, where there is meaningful benefit of a covenant, is in the case of helping out, incapacitated minors.
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Are my sums correct?

Gross salary of say 100k
5% is 5k
Tax refund is 20% to both you and the covenantee so 1k each?

If those sums are correct then its worth doing in my book.
 
ArthurMcB said:
Are my sums correct?

Gross salary of say 100k
5% is 5k
Tax refund is 20% to both you and the covenantee so 1k each?

If those sums are correct then its worth doing in my book.
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Not possible unless the beneficiary is an incapacitated minor.

Hasn't been for almost 30 years.
 
T McGibney said:
Not possible unless the beneficiary is an incapacitated minor.

Hasn't been for almost 30 years.
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This is not correct. A covenant can be made to any person over age 65.
It is very beneficial to any person taxed at 40% with a parent on income of state pension only. The parent has scope to have extra earnings tax free up to the tax exemption level of 18000 euro. For every 1000 euro made by covenant the parent gains 200 euro in tax refund and the covenantor makes a saving of 200 euro in income tax savings and also saves USC at their marginal rate (if they are on 8% this is an extra saving of 80 euro).

This is a viable tax saving measure for many people.
 
bstop said:
This is not correct. A covenant can be made to any person over age 65.
It is very beneficial to any person taxed at 40% with a parent on income of state pension only. The parent has scope to have extra earnings tax free up to the tax exemption level of 18000 euro. For every 1000 euro made by covenant the parent gains 200 euro in tax refund and the covenantor makes a saving of 200 euro in income tax savings and also saves USC at their marginal rate (if they are on 8% this is an extra saving of 80 euro).

This is a viable tax saving measure for many people.
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Thanks for clarifying. You make a good point.
 
T McGibney said:
Not possible unless the beneficiary is an incapacitated minor.

Hasn't been for almost 30 years.
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As an accountant, im surprise that you thought this tommy.

Many threads on AAM related to providing a DOC to an elderly parent, for example.
 
bstop said:
This is not correct. A covenant can be made to any person over age 65.
It is very beneficial to any person taxed at 40% with a parent on income of state pension only. The parent has scope to have extra earnings tax free up to the tax exemption level of 18000 euro. For every 1000 euro made by covenant the parent gains 200 euro in tax refund and the covenantor makes a saving of 200 euro in income tax savings and also saves USC at their marginal rate (if they are on 8% this is an extra saving of 80 euro).

This is a viable tax saving measure for many people.
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A very viable tax saving measure and one which I avail of.
 
ArthurMcB said:
A very viable tax saving measure and one which I avail of.
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Yes, I have availed of this for about 15 years. The parent can gain extra tax free income and still remain below the means tested level for the receipt of fuel allowance.
 
ArthurMcB said:
As an accountant, im surprise that you thought this tommy.

Many threads on AAM related to providing a DOC to an elderly parent, for example.
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I haven't seen it done in 30 years Arthur. I'm not that sure that many OAP recipients need the additional money while in most cases their working-age children certainly do.
 
T McGibney said:
I haven't seen it done in 30 years Arthur. I'm not that sure that many OAP recipients need the additional money while in most cases their working-age children certainly do.
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In many other cases the parents do indeed need extra income and their offspring have very large incomes taxed and USCed at rates of 48% and more. In many cases these offspring have paid off their mortgage and have working age children themselves.
 
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