We have had a few queries on the general rules applicable to “close” companies at Gilroy Gannon so this article examines the main rules which are relevant to these companies.
Close companies comprise the vast majority of SME’s as these have less then 5 controlling shareholders. The first thing to note is the 20% surcharge on all non-trading related income after taxes. This is generally taken 18 months from the end of the companies year end however can be offset by paying out dividends which reduce or negate the taxable amount.
Where directors make loans to the company and receive interest on the loan, the interest is taxed at 12.5%. There are certain exceptions. In the case where shareholders receive a loan from the company, the company is required to lodge a deposit of 25% of the loan amount with revenue to cover basic taxation. The deposit is returned on full repayment of the loan. A cap on loans of 10% of the company’s net assets applies and breach of these limits can result in prosecution. Any other expenses incurred on the companies behalf by directors are taxed at a rate of 12.5% on payable expenses and cannot be offset against trading income Where a professional services company doesn’t distribute income accrued within 18 months 50% of this income is taxed at a rate of 50%. So if €10000 were retained after 18 months then 15% would be levied against 50% or €5000 = €750
As these are only some of the main accounting and taxation issues relevant to SME’s it is important to understand the full range of regulations to allow for effective business planning.
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