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Accounting Question re Corperation Tax

  • 06-11-2013 12:24pm
    #1
    thomasm
    Registered Users, Registered Users 2 Posts: 1,503 ✭✭✭


    Hi There, not sure if this is the right location but wondering about the following. If a company has for example 100k sitting sitting on its books at the end of the year and they pay corp tax of 12.5% what happens if that money is still there the following year. Is it now free from a tax hit or liable again. Sorry if this does not make sense or is not clear. Basically once taxed do they become 'cleared' funds in that they can sit on the books until the business owner decides to do what he wants with them.


Comments

  • #2
    barneystinson
    Registered Users, Registered Users 2 Posts: 4,685 ✭✭✭barneystinson


    Companies pay tax on their profits for the year. If you make 100k in profit this year then you pay 12.5% tax on it. It doesn't matter whether you've got all, or none, of that profit sitting in the bank account at year end.

    Having cash in the bank doesn't mean you've made a profit, nor does not having money in the bank mean you've made no profit.


  • #3
    thomasm
    Registered Users, Registered Users 2 Posts: 1,503 ✭✭✭thomasm


    barneystinson wrote: »
    Companies pay tax on their profits for the year. If you make 100k in profit this year then you pay 12.5% tax on it. It doesn't matter whether you've got all, or none, of that profit sitting in the bank account at year end.

    Having cash in the bank doesn't mean you've made a profit, nor does not having money in the bank mean you've made no profit.

    Thanks for interpreting my garble. That's what I was hoping to clarify


  • #4
    littlemiss123
    Registered Users, Registered Users 2 Posts: 452 ✭✭littlemiss123


    thomasm wrote: »
    Hi There, not sure if this is the right location but wondering about the following. If a company has for example 100k sitting sitting on its books at the end of the year and they pay corp tax of 12.5% what happens if that money is still there the following year. Is it now free from a tax hit or liable again. Sorry if this does not make sense or is not clear. Basically once taxed do they become 'cleared' funds in that they can sit on the books until the business owner decides to do what he wants with them.

    Just to expand on what barneystinson said. If you assume that in fact your profit does equal your cash, i.e. you operate a simple market trade cash business and made a (very impressive!) €100k profit, which is also €100k cash in your bank, then you will be liable to tax on the €100k profit of 12.5%. This leaves you with a net profit after tax, and also a bank balance of €87.5k.

    In the following year, the revenue cannot touch this €87.5k when calculating your corporation tax, HOWEVER, this does not mean it will never be liable to tax again.

    Firstly, if you leave this amount in your account you will likely receive interest income which will be liable to DIRT.

    In addition, the biggest problem you will face is how you will eventually get that €87.5k out of the corporation. There are multiple ways you could extract this cash: salary/bonus, dividends, retirement, pension contributions. All of these methods will incur tax, but it will be up to a tax advisor and your personal circumstances to devise the most tax-efficient way to do so.

    Hope this made sense!


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