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Bonus & Tax

  • 13-08-2007 7:08am
    #1
    Closed Accounts Posts: 61 ✭✭


    Hello,
    Im self employed with a limited company. Both myself and my wife are directors but im the only one with shares claiming a directors salary.

    I have recently recieved an annual bonus from the firm I contract myself to and Im not sure what I should/could do with it to avoid paying as much tax as possible. If i leave it in the account I will be liable to corporation tax. Can I invest it in a pension or something else that would be tax free??
    All suggestions welcome.


Comments

  • Closed Accounts Posts: 61 ✭✭Finneganjp


    Anyone?????


  • Closed Accounts Posts: 2,290 ✭✭✭ircoha


    Finneganjp wrote:
    Hello,
    Im self employed with a limited company. Both myself and my wife are directors but im the only one with shares claiming a directors salary.

    I have recently recieved an annual bonus from the firm I contract myself to and Im not sure what I should/could do with it to avoid paying as much tax as possible. If i leave it in the account I will be liable to corporation tax. Can I invest it in a pension or something else that would be tax free??
    All suggestions welcome.

    am a bit confused by the words in italics, but assuming u are a director in receipt of a diirectors salary, the bonus can be paid gross directly to ur pension fund by the company.

    It seems from ur post that u are both a director in receipt of a salary and also self employed in receipt of income from the same company: tricky one from a Revenue perspective as it is a close company so the revenue may well decide that the self employed bit is a smoke screen for reducing your tax bill.
    see
    http://www.revenue.ie/services/foi/s16_2001/pt13.pdf


  • Closed Accounts Posts: 21 mckers


    Finneganjp

    While you can put the whole bonus into a pension, this may not accomplish what you are looking for...i.e avoiding a tax liability in the current year.

    There are specific rules on the tax deductibility of amounts paid by a company into a pension. Essentially, where exceptional payments are paid into a pension during a year, it is possible that you will only be able to claim tax relief for this over a number of years.


  • Closed Accounts Posts: 2,290 ✭✭✭ircoha


    mckers wrote:
    Finneganjp

    While you can put the whole bonus into a pension, this may not accomplish what you are looking for...i.e avoiding a tax liability in the current year.

    There are specific rules on the tax deductibility of amounts paid by a company into a pension. Essentially, where exceptional payments are paid into a pension during a year, it is possible that you will only be able to claim tax relief for this over a number of years.

    Good observation/comment by mckers

    The detail is in chapter 4 at this link
    http://www.revenue.ie/index.htm?/press/pr_250707_pensions_manual.htm

    OP: as u are in effect employer and employee you have the power to manage both the employee contributions and the employer contributions.

    What is not clear to me is that when a payment that exceeds the revenue annual limit is made by the employer to the fund and it ends up being spread over say the 5 years as described in cht 4 of the above link, if it creates a tax liability for the employee.

    My opinion is that it does not, but scuppers the opportunity to make any 'one' off contributions in the following years: u in effect fill your quota.

    The key here from personal tax perspective is that if the bonus is paid to u as an employee, it will be taxed and any part of it u pay into the fund will be part of your contributions.


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