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According to the Taxes Consolidation Act 1997, a non-resident vendor may be assessed and charged with income and capital gains tax (“CGT”) in the name of a representative in respect of the disposal of an Irish property. These representatives can take the form of the accountant representing the vendor.
The proceeds of such a sale should be withheld by the solicitor until notice of intention to distribute sales proceeds to the non-resident vendor has been given by the accountant to the Revenue and also until clearance has been furnished by the Revenue Commissioners that all tax affairs are in order.
The Process
This process is set out in the Tax and Duty Manual (TDM). This TDM outlines how the clearance request application should be submitted and the necessary documentation that must accompany a valid clearance request.The documents required to be submitted to Revenue are as follows:-
- 1. Form in Appendix 1 to the TDM declaring non-residence status and confirmation of how the property was used during the period of ownership
- 2. Tax Advisory Notification signed by client to confirm representative is acting on their behalf
- 3. Form CG1 for the tax year in which the disposal takes place
- 4. GT computation
- 5. Full payment of CGT liability (if any)
- 6. Contract for Sale
If Revenue do not respond within 35 working days, sales proceeds can then be distributed to the non-resident vendor. No further specific letter of clearance is required before distribution can take place.
Contact us
At Malone & Co, our dedicated Tax Team has extensive experience in managing all areas of tax accounting and planning for clients. If you would like to discuss managing your return filing obligations or any planning matters, please contact a member of our Tax Team, or your usual Malone & Co. contact.Every year, hundreds of businesses are bought and sold in Ireland. But if you have decided the time is right to exit your business, how do you do it while ensuring you receive the best value for it? Our guide shows you how.For most people owning their own business is a dream come true, but there inevitably comes a time to move on. There are many reasons entrepreneurs sell their business; it could be they have taken it as far as they can and need the resources another business can provide to take it to the next level; they may want to retire, or they may want to set up another business, to name but three.
But whatever the reason for wanting to sell, it is crucial that the deal gives the exiting owner(s) the maximum value for their business. This means the business needs to be prepared for sale in the right way to achieve this, while maintaining focus on the everyday running of the business.
Achieving a successful sale can take time, but with thorough and careful planning it can achieve the value the owner seeks.
Plan an exit strategy in advance
It is advisable to have plans for how you want to exit a business in place at an early stage – even if you are not thinking about selling up in the near future. This means that when you do come to sell, you already have a good idea of what you want to do.
It is also important to speak to a business adviser, who can advise on what you need to have in place to make a successful sale – including what sort of deal would be the best for you and the business, what criteria you look for in a potential buyer, when the right time to sell is, and how to structure a deal in the most tax-efficient way.
Prepare the business for sale
If you are thinking of selling the business, then it makes sense to ensure it is in the best possible shape to attract potential buyers. This needs to be thought about well in advance of any sale – perhaps up to one or two years. It is worth trying to look objectively at the business and think about what could put off any buyer, then rectifying it. For example, it can include resolving any outstanding legal actions, or ensuring that contracts are in place that make it clear which assets the company owns – be they property, equipment, stock etc. It could be worth looking at restructuring the business to ensure there are no unnecessary costs that could affect the profitability of the business and its value.
Decide a valuation for the business
This crucial element of the sale process is often one of the most difficult. Business owners, for whom the company is their life’s work, have been known to have unrealistic expectations of what it is worth, which can derail a sale process when it is nowhere near what a buyer is prepared to pay.
Matters have been complicated by the effects of COVID in the past two years. This has affected the accounts of all businesses, meaning it can be difficult to get a true picture of the value and profitability of a business. Again, a business adviser can help, as they can provide an independent view of the business and provide analysis of where its value lies.
Find the right buyer
This is one of the most important elements. While sometimes a seller may have a buyer in mind – such as an existing management team or a complementary business – it can still be worth trying to identify other potential acquirers.
Finding the right buyer is about more than the highest bidder. You need to assess if the potential buyer’s business is a good fit with yours, or if they have similar values and philosophies that will chime with employees, customers and suppliers. Business advisers such as Malone & Co can help and screen out any bidders that lack credibility.
It is also important to keep plans for a sale confidential. If employees, suppliers or customers get wind of plans for a sale it can bring uncertainty and can even affect the value of the business.
Negotiate the deal
Once potential buyers for the business have been identified, you can invite bidders for the business. Sellers should always have a price in mind for their business – including the lowest they could accept – but this should never be revealed.
In cases where there are several bidders for the business, there may be more than one round of bids made before a preferred bidder is identified. When a preferred bidder has been found, then negotiations are exclusively with them and they can access more information about the business to evaluate their price for the business.
When negotiating it is always worth having more than one person involved – while one will lead, the other can be a sounding board and bring in a different perspective. Other advisers, such as accountants and solicitors should also be involved in the negotiation process from the beginning.
Structure the deal
Another key part of negotiations is the structure of the deal. While price is important, it is only one part. Each deal will have its own considerations and should be structured in the most advantageous way for the buyer and seller from a legal, tax and stamp duty perspective. There are also various types of tax relief that may be applicable, for example, retirement relief or transfer of business relieve.
In addition, consideration needs to be made to whether the deal is for the entire business. Some businesses have assets such as property that are not core to its operations and could be sold off separately, for instance.
Complete the legal documents
Once a deal has been agreed, then certain legal documents must be drawn up. The most important is the purchase agreement, which set out the terms of the deal. Other documents that can be required include non-competition agreements – where the seller commits to not set up a rival business within a set time – or earn-outs, where the seller stays with the business and receives a set amount if the business hits certain financial targets within an agreed period.
Close the deal
Finally, the deal must be closed – and it is important to maintain the day-to-day running of the business to ensure the buyer doesn’t have the opportunity to try to negotiate the price down.
Once the deal has been completed, then it is worth seeking advice on how to invest the profits from the business and ensure that they are placed in the most tax-efficient structures.
Get advice
Selling a business can be a complex process that needs to be carefully planned if it is to deliver the value that the business owner hopes for. At Malone & Co, our financial advisers have in-depth knowledge how to prepare a business for sale and can advise all sides on how to get through the process. Our team can help business owners to ensure their business is sold to the right buyer for the right price.Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects of raising funding, including the risks involved, as well as anything from setting up a company and ensuring it is as tax efficient as possible to providing diligence services as part of an M&A deal or funding round in the sector. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset. Growing businesses may seek external funding through issuing shares – but if you’re doing this it’s advisable to draw up a shareholder agreement first. This guide outlines what ought to be included in the agreement.
For owners of small to medium-sized businesses, to achieve their growth ambitions with their company takes funding. While this can be done through internal investment of profits, businesses often seek external funding to achieve this as they can generally raise more money, which is needed to take the company to that next level. One of the most common ways to do this is through issuing shares in the business to third parties for a set price.
While this can bring in the funds needed to scale the business, it does mean there are more people who can have a say in the running of the business. With this comes greater potential for conflict, which is why it is strongly advised for any company to draw up a shareholder agreement. That that everyone knows their rights. This guide provides an overview of what a shareholder agreement should contain.
Shareholder agreement – what is it?
As the name suggests, a shareholder agreement is an agreement involving those who own shares in the company – be they individuals or organisations such as venture capitalists and the directors who run the business.
The agreement, which is legally binding, should encompass the rights and obligations bot for the company and those who hold the shares, including who has control of what, how profits are distributed and how shareholders can leave the business by selling their stake or when and how the company can be sold.
While shareholder agreements are not a legal requirement in any business, if there are two or more shareholders it is recommended to have one to avoid potential for future arguments.
A shareholder agreement is legally binding, so all aspects must be understood by all parties before pen is put to paper. If necessary, take advice from your accountant and/or lawyer before committing to anything.
Relationship between the company constitution and shareholder agreement
The shareholder agreement also has a key relationship with the way the company is constituted. A constitution is a legal requirement when establishing a business in Ireland, and it should be ensured the shareholder agreement is consistent with this and no conflicts can be found between them. If it is later found there is a conflict between the two, then a clause ought to be put into the shareholder agreement stating that in conflict situations the shareholder agreement is given primacy.
Please note, a company’s constitution can be viewed by the public, but a shareholder agreement is private.
What should be included in a shareholder agreement?
There are four main criteria that ought be set out in a shareholder agreement.
Firstly, focus should be given to how the directors conduct themselves and how the business is run. It is recommended that this includes specifics such as how many directors there are, who has the right to appoint them and how many directors meetings should be held in a year.
Other details commonly included are the number of directors needed in attendance for a meeting to take place and any rights for observers to attend and contribute to these meetings, but not have a vote. It can also cover issues such as weighted voting, where a director can cast more votes than others on the board, but this is relatively uncommon.
Secondly, a catalogue of shareholders rights should be set out in the agreement, along with guidelines on what the company can and cannot do without the advance agreement of a set number of stakeholders.
Thirdly, an agreement should define how shares can be transferred, such as whether there can be an outright veto on them or which transfers can be made.
Finally, it should cover the mechanics of how shareholders can leave the company. This encompasses which people are able to start a sale process and who is eligible to receive what from the business when it is sold, especially if there are more than one class of share in the business.
A shareholder agreement normally includes specific rights, such as ‘drag along’ – in this case, an agreed percentage of shareholders – above 50% – want to offload their stake, they are able to compel the minority to sell their stake to the same buyer for the same price. Similarly, ‘tag along’ rights allow for a when a set majority is selling its stake, but elect not to compel a minority to also sell, tan minority can choose to compel themselves to sell, again to the same buyer and at the same price.
Some pre-emption rights are also often included in an agreement. for instance, in cases were a shareholder is selling their stake, they are obligated to give all other shareholders the chance to buy them – even if they want to sell their shares to an external party, they have to give current shareholders first refusal.
Likewise, if a business is seeking to sell new shares to an external buyer, current shareholders have to be given the chance to buy them first. These new shares can only be offered to the external buyer if those current shareholders do not want to buy them.
Backup
A shareholder agreement is most useful when there is a conflict between the shareholders and the directors running the business. Without it, there is potential for disputes to escalate, but an agreement can outline – in a legal document – what is expected of whom, meaning disputes can be often swiftly resolved. It is also means it is important when the agreement is being drafted that it is written in a way that doesn’t block the directors from running the business.For companies at the early stages of growth that may want more outside investment in the future, then it is advisable to ensure that the constitution and shareholder agreement are clearly documented and understood as any future investor will want to see these.
Get advice
As this guide shows, shareholder agreements can be important documents for growing businesses and, while not a legal requirement, there are many benefits of putting one in place. If you want to create one, it is always advisable to seek expert advice from a financial adviser such as Malone & Co. At Malone & Co, our financial experts have in-depth knowledge of the financial aspects of a shareholder agreement, and what should be included to best fit with your business.Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects of raising funding, including the risks involved, as well as anything from setting up a company and ensuring it is as tax efficient as possible to providing diligence services as part of an M&A deal or funding round in the sector. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset. Ends The deadline for submitting income tax returns is looming, but what are the income tax brackets in Ireland and how can you ensure you only pay what you are supposed to? Our guide shows you how.
It was Benjamin Franklin, one of the founding fathers of the USA, who uttered the line: “In this world nothing can be said to be certain except death and taxes.” It is a truism that is as relevant today as it was then; taxes must be paid – but it is important to ensure that you only pay what you owe.
In this article, we discuss what a tax bracket is, who needs to be pay what and how this should help you when filing your income tax return.
2022 tax deadlines
The deadline for filing your income tax return – and paying it – for income earned in 2021 is October 31.
Those whose tax is paid at source through PAYE must submit a Form 12, but if their income through non-PAYE means is more than €5,000 then they have to register for the Self Assessment Income Tax system and file a Form 11.
Meanwhile, the ROS extended income tax return and payment for 2021 income deadline is November 16. This is for those who file a Form 11 for their 2021 income tax and make payment through ROS for their 2021 tax due and preliminary tax for 2022. Note that this only applies for people who file and pay through ROS – if it is only one, the extension is not applicable and it needs to be paid by the end of October. If this doesn’t happen, the taxpayer is liable for a late filing surcharge.
Finally, for those who want to top up their pension contributions for 2021 to take advantage of income tax relief, the Form 11 needs to be filed and paid online by November 9.
Tax brackets in Ireland
In simple terms, you pay a portion of your earnings in tax and that percentage is decided by how much you earn.
For 2022, a single person who earns up to €36,800 pays 20% tax. If their earnings exceed that, they pay the balance above €36,800 at 40%. The 20% tax band has been increased by €1,500 on the amount it was levied at in the years 2019-2021.
For example, a single person who earns €40,000 will pay this amount of tax: 20% of €36,800 = €7,360 + 40% of €3,200 = €1,280. Total tax paid: €8,640.
However, if the single person is also a parent, their 20% tax rate rises to €40,800, with the balance paid at 40%.
Meanwhile, a married couple/civil partners with one income will pay tax at 20% up to €45,800 in earnings, with the balance charged at 40%. Again, the 20% rate is €1,500 higher than it was in the years 2019-2021.
Finally, a married couple/civil partners with two incomes can earn up to €73,600 before they must pay tax at 40%. This is an increase of €3,000 on the limit in 2019-2021.
Nevertheless, the rules for married couples/civil partners with two incomes are slightly more complex than this. The 20% rate is calculated thus: one part of the couple can earn up to €45,800 at the 20% tax rate, with the balance taxed at 40%. Meanwhile, the income of the other partner is tax at 20% up to €27,800 or the amount of the spouse/partner with the smaller income. The standard rate is not transferable between spouses/partners.
For example, if a couple earn €80,000 per year between them, with one earning €50,000 and the other €30,000, they would be taxed like this: the higher earner will pay tax at 20% on €45,800 of their earnings (€9,160) and €4,200 at 40% (€1,680). The lower earner will pay 20% tax on their first €27,800 of earnings (€5,560) and €2,200 at 40% (€880). This means their total tax payable will be €17,280.
Tax credits and relief
But there are ways that your tax can be reduced. Certain people can claim tax credits or relief. These are a sum of money that are taken from your tax bill after it has been calculated – which means it is worth the same to everyone who claims it.
Tax credits or relief can be claimed depending on personal circumstances. There are a wide range of tax credits and reliefs that can be claimed. This includes people who work at home, who can claim relief on the additional costs that this incurs in terms of electricity use etc. Relief can also be claimed for certain medical expenses, as well as private health and long-term care insurance.
Unemployed people who start their own business can claim relief from income tax for two years under the Start Your Own Business Scheme.
Tax allowances
In addition, certain tax allowances can be claimed that can lessen your tax burden. These allowances are taken from your earnings before tax is applied, which means how much it reduces your tax bill by is contingent on which income tax bracket you fall into.
Tax allowances available include for the cost of employing a carer for yourself or another family member (i.e. spouse/civil partner, child or relative). There is also relief available on pension contributions, although this does depend on the type of pension – your financial adviser can tell you more about this – and things like using a trained guide dog if you are blind or visually impaired.
Calculating your tax
This is vitally important and must be done with care. When calculating how much income tax you must pay, there are various things you have to consider.
Firstly, there are items than can be deducted from your earnings before you begin to work out how much tax you need to pay. This includes pension scheme contributions, any tax allowances you are eligible for, and expenses incurred that were needed for you to be able to carry out your role and contributions to a permanent health benefit scheme (up to 10% of your income).
Once those have been deducted, your pay, up to the cut-off points discussed above, is taxed at 20%. If you earn any more above the 20% cut-off, it is taxed at 40%. Then, if you have any tax credits, they are then subtracted from your tax bill.
The cut-off point for paying tax at 20% can vary, depending on your situation. Some tax allowances can raise the 20% cut off, while other factors – such as income outside of your main job from which tax has not been taken – can lower the level.
Ambitious entrepreneurs are always looking to grow their business, but might not want to use traditional methods of funding – so what are the alternatives?
When SMEs want to grow, sometimes that growth cannot be funded through profits alone – certainly to achieve the ambitions of the directors at the pace they want to develop. In these cases, outside funding is needed to put the resources in place.
Still one of the most common forms of outside funding for growth is a bank loan. These have been around for centuries and are largely trusted, but bank loans need to be paid back, with interest. Sometimes, understandably, entrepreneurs don’t want to go down that route, especially as interest rates are currently rising.
Other forms of investment involve outside interests such as venture capitalists, taking a stake in a business in return for investing a set sum. Again, while this is popular, it does mean the outside investor can have a say in the running of the business and will look to make an exit, and a return on their investment, in a set timescale. Often, entrepreneurs can be reluctant to cede control in such a way.
But there are other forms of investment that growing businesses can seek which provide an alternative to the established methods. Here is our guide to some of the most popular:
Peer-to-peer lending
Peer-to-peer (P2P) lending is growing in popularity in Ireland as a method of funding. P2P lending is where the public can invest a sum – anything from €50 upwards – with a P2P lending company, which then lends amounts to businesses seeking finance. The business then pays that amount back, plus interest, in monthly tranches for an agreed time – usually from six to 60 months.
For growing businesses, while P2P lending is similar to taking out a loan, it has advantages in that the application process is much swifter – often involving an online application form, which is approved (or not) within 24 hours. There is also a lot less paperwork to deal with in a P2P lending scenario compared to a traditional bank loan.
Businesses can borrow anything from a few thousand euros to hundreds of thousands through P2P lending.
P2P lending is also popular among investors. Often, investors can put in relatively small sums; sometimes they may just want to put back into their community or put their money to use rather than leaving it in a bank account. This solution offers healthy returns in the form of monthly interest payments – often between 5% and 20% – which can then be taken out or reinvested.
Crowdfunding
While crowdfunding in its current form is relatively new – having developed quickly in the past 20 years, along with the widespread adoption of the internet – its principles are hundreds of years old.
Businesses seeking funds for growth or to develop a new product or technology can post online about it. They tell potential investors what they want to achieve with the funds on one of the many crowdfunding sites based in Ireland – a quick Google search will show the popular ones – along with how much they want to raise. Anyone can pledge an amount, large or small, towards that goal.
Crowdfunding is rather like traditional cooperative movements, where communities or groups pooled their resources towards a common goal such as purchasing equipment.
A criticism of crowdfunding is that it was unregulated, but that was rectified last January when the Central Bank of Ireland announced a new regulatory regime for Crowdfunding Service Providers under EU Regulation.
A number of provisions of the Consumer Protection Code 2012 now apply to advertising by crowdfunding service providers in Ireland. Among other requirements, any advertisement must be fair and clear, and must not mislead or seek to influence consumers unduly in their investment decisions.
Crowdfunding service providers must display a prominent warning message on all advertisements that investment in crowdfunding projects entails risks. This includes the risk of partial or entire loss of the money invested and that any investment is not covered by a deposit guarantee scheme or by an investor compensation scheme.
Advantages for investors include that they can get exclusive access to test a new product or preference to buying it when it comes to market.
Angel investors
Another source of funding can be from angel investors. These are usually wealthy individuals – often successful businesspeople themselves – or groups that invest money into start-ups or early-stage businesses in return for involvement in the management of the business and/or a percentage of the company’s future profits, which is called an equity stake.
Angel investors can bring benefits above and beyond their money, such as experience running businesses and industry contacts that can help boost a business faster than the management could have done on their own.
Asset financing
Asset financing will be familiar to many people who have purchased assets as part of their personal finance plans and paid for them over a specified number of months. Asset finance works in a similar way and is often used to buy large pieces of equipment – such as machinery or commercial vehicles.
A lender, such as a bank, provides the funds up front to buy the asset then the business repays the money owed over an agreed time. Once that period is up, the business owns the asset. The asset is used as security by the lender. Some lenders may require a deposit up front, which will be a percentage (e.g. 10%) of the net cost of the asset, but sometimes alternative arrangements can be made.
Invoice financing
For growing businesses, getting paid is the aim of the game. But as any business owner – or member of the accounts team – knows, getting those invoices paid in a timely manner can be difficult. Nevertheless, there is a way to free up the funds that are sitting in unpaid invoices through invoice financing.
Invoice financing can help businesses to manage their cash flow more effectively, but it is also often used to help businesses to grow, through investment in people or equipment or acquisition. In essence, you submit your outstanding invoices to an invoice finance provider. They then send you the bulk – usually 90% – of the value of those invoices within the next day. The invoice finance provider then chases up the invoices on your behalf and sends you the remainder of the outstanding invoices when they are paid, minus their fee. After setting up a new limited company in Ireland the directors have certain obligations that they must fulfil to ensure the business is run legally. This article explains those obligations.
There are many advantages to setting up a business in Ireland as a limited company. For instance, it limits the liabilities that the directors are subject to if the business fails – which isn’t the case for sole traders – and it provides certain tax incentives for the directors and shareholders. But when a limited company has been formed in Ireland, the company has certain obligations that it needs to fulfil.
While you may be busy running the business and building up its customer base, you shouldn’t neglect the obligations that it has: if you do it could land you in legal trouble later that could harm the business in terms of fines and reputational damage.
Annual returns
One of the most important obligations is to file an annual return to the Revenue. As the name suggests, this has to be done on a yearly basis. If the annual return isn’t submitted on time, it can result in a hefty fine.
The first annual return is due six months after the business was incorporated – although it is not required to submit accounts with this. Thereafter, an annual return must be submitted every year, along with an abridged version of the company’s accounts to the Registrar of Companies.
Annual general meetings
Another obligation for limited companies in Ireland is to hold an annual general meeting (AGM). This is where the company directors and shareholders come together and is often a chance for the directors to present their annual report to shareholders, who can then question directors on the business’ performance and future direction.
A first AGM must be held within 18 months of the business being incorporated, and then annually thereafter. These meetings should occur in Ireland, whether at the company’s premises or elsewhere. Minutes of every meeting – including key points discussed, decisions made and the reasons for them and any actions taken – must be recorded and stored for other directors and shareholders to view.
It is possible to do away with the requirement of holding an AGM by signing a resolution to that effect. But most businesses do hold one every year.
Directors’ obligations
Directors of limited companies also have certain legal obligations, which were set out in the Companies Act 2014. The Act stipulates that directors must act in the interest of their business alone and no other parties – and this includes shareholders. Even if the company has a sole director, they must put the considerations of the business ahead of their own interests. While this is subjective to a point, it encompasses what the director thinks is in the company’s best interest.
Other obligations include:
• A duty to act honestly and responsibly when conducting the affairs of the business • Avoiding conflicts of interest – where a director’s personal interests’ conflict with their duty to the company • Maintaining the confidentiality of any information they are party to in their role as a director • Performing their duties with skill and care – this means adhering to standards that may be expected of someone with their knowledge and experience • Not using the business property, information or opportunities for their own or anyone else’s benefit.
If a director breaches any of those obligations – other than having to act honestly and responsibly – the Companies Act stipulates that the person has to account to the business for any gains they have made through it or indemnify the company for any loss or damage resulting from the breach.
Tax returns
Another obligation for proprietary directors is to file a Form 11, which is a directors’ tax return. The first time this self-assessed form must be submitted is before October 31 in the year following the formation of the limited company. So, if the business was established in June 2022, the first Form 11 will need to be filed on or before October 31, 2023.
This form must be submitted even if the only income the director has is through PAYE or if the business is inactive. If the deadline for submission is must, there can be penalties and fines imposed, which can affect cash flow.
Maintaining statutory registers
Directors also have an obligation to maintain various statutory registers relating to the business.
This includes a register of members, which shows who owns shares in the business and includes the name and address of each member, along with details of ownership. This is a public document and must be updated within 28 days of a new member agreeing to join or leaving the business.
Another important document is the register of directors. This includes details such as the name, address, nationality and business occupation of each director, along with any other directorships they have held in the past five years. Again, this is a document that the general public can access. It must be updated within a fortnight of any change of director.
Other registers include secretaries, disclosures of interests, beneficial ownership and more.
All registers must be kept in Ireland – usually at the business’ registered office. If the address where the registers are kept is changed, or is anywhere other than the registered office, the CRO must be informed.
Other obligations for directors
There are various other obligations directors have to their business. This includes ensuring that the company secretary has the skills required to successfully carry out the role. A limited company must have a secretary, who can be one of the directors, but in the case of businesses with a sole director, they cannot be the secretary too – in those cases an outside secretary can be appointed and there are plenty of advisers who provide such services.
Directors also must disclose any interests they have in any contracts signed by the business. They also have an obligation to consider the interests of its staff and any other members of the business.
Finally, directors must confirm they are aware of their obligations by signing a declaration to that effect and ensure that the business and its directors comply with all of the provisions set out in the Companies Act.
Get advice
As this article shows, there are many obligations that directors of limited companies have to deal with following the incorporation of their business. While some are straightforward, others are more complicated and can potentially trip up some entrepreneurs, especially those who haven’t run a business before.
At Malone & Co, our financial advisers have in-depth knowledge of directors’ obligations and can advise entrepreneurs on how to ensure that these are complied with at all times, which means you can focus more on running your business.
Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects of raising funding, including the risks involved, as well as anything from setting up a company and ensuring it is as tax efficient as possible to providing diligence services as part of an M&A deal or funding round in the sector. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset. In the past, the COO was a strategic role that was typically filled by someone with a finance or accounting background. Today, however, this position has evolved into an essential one for companies to be successful. This is because the COO is responsible for maximizing company profits and ensuring that the company is on track to grow.
Derek Duff is Malone & Co.’s chief operating officer. In this article, he discusses what that role entails and his plans to help develop the firm in the coming years.
When Derek Duff walked into the Dublin offices of Malone & Co. on his first day as the company’s chief operating officer (COO), he was struck not only by the growth and success the firm has achieved in recent years despite the challenging economic environment but also the opportunity and potential for the further growth of the company.
Malone & Co. now boasts 30 professionals in its ranks, providing a wide range of services. But Derek admits success does not come easy – and potential is nothing unless it is converted and maximised.
He admits he’s not afraid of hard work and is determined to play his part in ensuring Malone & Co, and its employees, reach their potential in the years ahead.
What were your initial priorities when you joined Malone & Co?
“As soon as I was on board I looked at how the firm worked and what the expectations of senior management and employees were – and from there I started to assess what was needed to get the company to achieve its goals.
“I was impressed with how well-rounded the team was; it comprises people from various backgrounds and experiences, which gives a breadth of insight to its work”
What does your role as COO entail?
“As COO, I have a crucial role in ensuring Malone & Co’s success going forward. While a COO’s job is traditionally seen as a background strategic role, this has evolved to be an essential one for ambitious firms. Above all, these days a good COO is responsible for maximising profits and ensuring the business is on track to grow and develop.
“COOs carry out a variety of tasks in an accounting firm, including overseeing financial planning and budgeting, managing human resources, leading business development initiatives and implementing efficient processes and procedures.
“It is a varied role; I manage the day-to-day tasks of the office and ensure that all employees are communicating effectively between departments.
“In short, the three actions that drive the purpose of my role are to give feedback to the CEO, provide leadership and guidance and help the team succeed.”
What did you do before you joined Malone & Co.?
“Before I joined Malone & Co, I spent 15 years in a variety of senior management positions in companies in Ireland and in Europe, and I have more than 30 years’ experience in sales and marketing.
“In my time in senior management, I have been responsible for some notable successes, including the profitable management and development of an extensive product range across varied supply channels. This included responsibility for the profit and loss sheet, change management, business process reengineering, restructuring, corporate branding, commercial development of new products, technical marketing, cross functional management across all business functions – including human resources, finance and supply chain – and regularly interacting with key accounts, national buying groups, suppliers and customers.”
What challenges have you experienced as COO and how have they been overcome?
“When taking on such an important role, there are many challenges that need to be addressed if you are to make a success of the role and the business. In accountancy firms one of the challenges is to manage a diverse range of people – employees and clients.
“I am responsible for making sure that the entire team – from senior management to the most junior recruits – are all pulling in the same direction. This requires everyone communicating effectively with each other and working together, not in silos. While this can be challenging, as we have a team with lots of different – and strong – opinions, we always find a consensus.
“Likewise, good negotiating skills are required to ensure the team are kept happy, but still meet or exceed their goals.
“A key part of this is about managing expectations: you have to be aware of what the teams need and understand their ways of working and what makes them tick. But also ensure they maintain their work towards their individual and team goals.”
How important is it for the COO to think strategically?
“Another necessary skill for a COO is to be able to think strategically to create new opportunities while managing the risk. One of my priorities as COO has been to devise a strategic plan for the company, which will ensure Malone & Co’s goals are achieved.
“The plan has included developing a clear vision, creating a strong team culture and implementing processes and procedures that will help improve the firm’s performance.
“Part of this has involved developing the positive culture that was already present within the company, to ensure it is aligned with the company’s strategy and helps to motivate employees and encourage innovation, all of which should help to continue Malone & Co to grow.
“An important part of this culture is the way that difficult reviews are dealt with and ensuring there is no blame attached to one person. While negative feedback – which does occur occasionally – is not easy to handle, and can be a blow to the business, it must be faced and actioned immediately. It is important to communicate this feedback to the employee in a way that does not make the person feel bad about themselves or their work or affects their confidence in their ability to do their job going forwards. If you can do that, then hopefully you can give them the knowledge they need to avoid a similar situation arising in the future.”
What are your hopes for the future?
“I will continue to focus on doing the best for the business to help it achieve its goals. This includes ensuring staff are hitting their targets and taking action if not, which means finding out why and addressing any issues or barriers they may be experiencing.
“I want to build on the impressive growth the firm has experienced recently, despite the challenging economic environment of the past few years. Malone has added significantly to its team in that time to cope with the demand for its work, and there is no reason for this growth to slow and I will do my best to ensure it does continue.”
About Malone & Co.
Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects of raising funding, including the risks involved, as well as anything from setting up a company and ensuring it is as tax efficient as possible to providing diligence services as part of an M&A deal or funding round in the sector. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset. Rising costs and inflation are having an impact on businesses across Ireland. As a result, controlling costs is more important than ever and accountants will be playing a key role.
Inflation levels in Ireland are running at levels not seen since the early 1980s and this is causing a significant squeeze on domestic and business finances alike. While the media has largely – and justifiably – focused on the effect this is having on the Irish people, the effect on businesses should not be underestimated.
With inflation at 9.1%, driven largely by increasing energy, fuel and food costs, and no sign of any immediate relief in the coming months, businesses should be planning for the short-term and looking at how their costs can be reduced or at least managed in the coming period. This will help them focus on their longer-term goals and should be done in conjunction with their accountants.
At Malone & Co we are seeing increasing numbers of clients looking for advice on how to manage and mitigate rising costs.
The firm has grown strongly in recent years and recruited an experienced and talented team who are skilled in helping businesses – of all sizes and in all sectors – to keep costs to a minimum and maximise their revenues and, of course, profits. The Malone & Co team now comprises 20 accountants from three professional institute bodies, four tax advisors, a solicitor, two bankers and accounting and payroll technicians.
Experienced team
Many of the team have been recruited from top accountancy firms and bring with them a wealth of knowledge in business. For example, we have Dave Hickey, FCCA, and a fellow of the Institute of Chartered Accountants Ireland. He is experienced in dealing with all aspects of accountancy, audit, book-keeping, payroll, personal and corporate taxes. He plays a hands-on role assisting clients with their day-to-day accounting requirements and is extremely capable and well renowned at solving complex financial issues that arise in his client portfolio.
There is also Louise Fisher, FCCA, and another fellow of the Association of Chartered Certified Accountants Ireland. She works closely with private clients across a wide range of sectors and industries and has extensive experience in accounts preparation, business and personal taxes.
As with all the team at Malone & Co, she enjoys building lasting relationships with clients, and ensuring they receive excellent care and service.
It is by building relationships and gaining a deep understanding of our client, their businesses and how they work that we can deliver incisive information and advice to them to help them to grow their business.
As every client is different, it means the approach taken has to be individual to them – which comes from that deep understanding we build up.
That said, advice can be split into two broad categories – action that is in line with the long-term goals of the business, or more short-term actions that can help to cut costs in the business quickly and ensure it has the best chance of achieving those longer-term goals.
Of course, some companies could require a combination of those approaches, and this is where accountants can add value by analysing the effects of inflation and other rising costs on businesses. They look at the likely impact of inflation in the future and then advise business owners accordingly on the strategy to take.
Finding efficiencies
Then, it is a case of focusing on different aspects of the business to see where efficiencies can be made, or opportunities capitalised on.
A spending review is a good place to start, going across the business. While this is something that should be done periodically anyway, whatever the prevailing economic climate, to ensure the business is running as efficiently as possible, it is more important now.
This should look at all spending and costs in the business. Sometimes, there are quick wins that can be achieved by switching to a cheaper energy supplier, or supplier of goods or materials, or renegotiating rates with existing suppliers. It may be that some costs can be cut out altogether, which is why it is important for all costs to be looked at in a review.
Streamlined businesses that operate to maximum efficiency are much more like to achieve their long-term strategic aims.
Alongside spending reviews, businesses should also be analysing efficiencies. Today, one of the core aims should be looking at how certain business processes can be automated. Automation is developing quickly and it can be of benefit to many workplaces, saving on time and labour costs, both of which can be redirected into other tasks within the business.
Allied to this, all labour and time costs should be investigated to ensure that employees’ time is being used in the most effective way. Could refocusing some employees onto other tasks help the business to improve? Some businesses use contractors, rather than having contracted staff – that needs to be assessed to see if it is the most effective way to use resources.
With rising costs, there is an impact on the price of the goods and services that business’ offer – only so many increases in costs can be absorbed, or internal efficiencies implemented, before it has to be passed on to the end user. What margin businesses want to earn must be considered – and stuck to. How any price rises are communicated to customers also must be carefully considered – and honesty is the best policy: rising costs are affecting everyone, so they are likely to understand.
Finally, and this may sound obvious, there should be focus given to profit. Specifically, businesses should assess which of the revenue streams in their business are the most profitable, an/or those that can withstand rising cost pressures most effectively. Focusing resources onto the more profitable elements of the business can help it to be more resilient to the economic turbulence ahead.
Opportunities
Rising costs are also creating opportunities for businesses looking to make acquisitions. Acquiring a business in the same sector can help to bring about efficiencies, such as in purchasing and merging the back office, that can bring much-needed cost savings to the enlarged business and help increase margins and add to the bottom line.
At Malone & Co we know that due diligence is crucial and assessing the target business’ financial performance is key. Many acquisitions don’t add value, but it shouldn’t have to be like this, and ensuring the financial aspects – including future earning potential – have been fully scrutinised before any contracts are signed gives more chance of a deal succeeding.
All these issues and more are addressed daily by Malone & Co’s team of experienced tax and accounting professionals. Malone & Co’s efficiency and quality of advice and services can be seen in how much the company has grown in the past couple of years. The staff offer clients a simple approach that is focused on the customer and constantly looks to add value to their business and improve their profitability.
Malone & Co. provides a range of accounting, auditing, bookkeeping, VAT, payroll, company secretarial services, and corporate services. This includes tax evaluation and planning for business, personal and family, tax residence planning for internationally mobile clients, tax efficient remuneration of owners and key staff, and revenue audits and investigations. The firm has offices in Rathcoole West Dublin and Naas in Co. Kildare. Many people look to set up and run their own business in Ireland with the aim of becoming wealthy – but how do you pay yourself? Our article guides you through.
As a business owner in Ireland a question that must be addressed early on is how you receive payment. The three most common methods are through a salary, dividends or contributions to a pension. Of course, you can elect not to receive any payments, for instance if you are building the business up and want to plough any profits back into it.
All the main options come with advantages and drawbacks – as well as differing corporate rules and tax burden.
If you are deciding on which payment type to take, it pays to get advice from an accountant that is expert in financial matters such as this. The team at Malone & Co are experienced advisers on tax issues – call us today for more information.
How much to pay yourself?
This is an important question and depends on the growth stage of the business. At the start-up stage it may not be making a profit, or you may want to put profits back into the company to grow it.
If you want to take an income for the business, consider its cash flow to see how much – if any – you can take for yourself. It is also worthwhile keeping some funds aside as a cushion in case of any unexpected expenses or loss of income.
Another consideration is how much tax will have to be paid – and that can influence what form the business takes.
Sole trader
Many entrepreneurs start off on their own as sole traders and in their case all earnings count as income, and any money taken out for personal reasons is known as ‘drawings’.
Sole traders cannot take a salary or dividends, but they can employ another person and give them a salary. Sole traders’ tax is worked out by deducting expenses from their complete income during a 12-month period.
If the business has grown to such an extent that you are earning more than €70,000 per annum, it could be time to consider making it a limited company. Sole traders must pay more than 50% tax on earnings after expenses when they exceed €70,000. But in limited companies there is more scope for tax planning, which can bring down an owner/director’s tax liability.
Limited companies
In limited companies, the rules for directors and shareholders are different to those for sole traders. This includes being able to claim a salary, dividends and pension payments and there are advantages to all of these, but which is right depends on the business and personal circumstances.
A salary is a set amount paid regularly and is subject to being taxed through mechanisms such as PAYE. Directors can claim tax credits and relief on their salary.
However, it should be noted that if you aren’t taking a regular salary, it still needs to be reported monthly to the Revenue.
In addition, a business’ Corporation Tax is reduced to account for directors’ salaries.
Paying a dividend
Meanwhile, dividends are paid to shareholder(s) from its net profits. But a dividend cannot be paid if the business is loss making. There is also the option of not paying a dividend and ploughing profits back into the business.
If a dividend is awarded to shareholders resident in Ireland, the business must deduct Dividend Withholding Tax – charged at 25% – on whatever is paid, which goes to the Revenue.
Shareholders are given a tax credit for dividend withholding tax, which is taken from their personal income tax amount.
This isn’t the only tax dividend receiving shareholders could be liable to pay. When filing an income tax return, directors’ income is subject to tax of 20% or 40%, depending on how much they have made in that 12-month period. This ensures the shareholder pays the same amount of tax on their dividend as they would if they received a salary.
Dividend Withholding Tax rules are different for shareholders that do not live in Ireland. They are exempt from Dividend Withholding Tax, but they must submit a V2A form to claim this, and it must be verified by the tax authority of the country they live in.
Tax credits for directors
Generally, directors who receive a salary are treated the same as employees in that they are taxed through PAYE.
But the rules are different in Irish limited companies with proprietary and/or non-proprietary directors.
Proprietary directors – sometimes known as controlling directors – own in excess of 15% of the company’s shares, and they can benefit from an earned tax credit and employee tax credit. These are applied on payments, through the Revenue Online System.
Meanwhile, non-proprietary directors – those who own up to 15% of the business – can take advantage of the employee tax credit.
To qualify for the earned tax credit and employee tax credit the director has to fulfil various eligibility criteria, and it should be noted that they cannot exceed €1,650 in total. Therefore, it is advisable to seek advice an accountant to assess your eligibility for these and, if so, how to apply for them.
Pension contributions for directors
Directors with a stake in a business of more than 5% can benefit from pension contributions, with two available – employer or personal contributions.
Employer contributions sees the business put into the director’s pension on their behalf, which turns it into an expense and helps to bring down the total corporation tax the business has to pay. Elsewhere, personal contributions are as they sound – directors put money into their pension and are able to claim 20% or 40% tax relief on them. How much this amounts to depends on how much their total income is.
All tax relief can be claimed on a Director’s Tax Return, which is filed annually when the tax year ends.
A Director’s Tax Return must be filed annually by proprietary directors, even if they take a salary and tax is taken through PAYE. Likewise, even if a director doesn’t take any cash out of the business in a year through a salary or dividend, a return must still be submitted.
Get advice
As this article shows, paying yourself when you run a business, and ensuring your arrangements are as tax efficient as possible, can be complicated. This is why it is always best to seek advice from accountants such as Malone & Co. Our team of experienced tax and accounting professionals offer expert advice based on a simple approach that is focused on the customer and constantly looks to add value to their business and improve their financial standing.
Malone & Co. provides a range of accounting, auditing, bookkeeping, VAT, payroll, company secretarial services, and corporate services. This includes tax evaluation and planning for business, personal and family, tax residence planning for internationally mobile clients, tax efficient remuneration of owners and key staff, and revenue audits and investigations. The firm has offices in Rathcoole West Dublin and Naas in Co. Kildare. If you are thinking about growing your business and taking out a business loan to do so, follow our tips to ensure you have the best chance of making a successful application.
For many businesses, from start-ups to established companies, business loans are one of the most common ways of raising finance to help the business to grow.
Loans come in many forms, depending on the size of the company and what the money will be used for – such as moving to new premises, buying equipment, acquiring another business or just buying up stock. The only constant is that the loan will need to be paid back by the business over a period of time.
Getting a loan is not always easy, and business owners – especially entrepreneurs starting up a business – need to be careful in how they make their applications to give themselves the best chance of success.
This article will outline some hints for businesses when making an application for a loan. Of course, it is always a good idea to get advice from professionals when you are planning to do this. Malone & Co have experts that can advise businesses small and large on loan applications – contact us today to find out more.
Loan options
Traditionally, banks have been the first port of call for entrepreneurs and businesses that want a loan to grow their business.
For many, banks still are one of the top options, and there are a range of banking groups across Ireland that provide loans for businesses from seed funding to significant investment, depending on the business’ requirements.
But banks are not the only options for businesses today. There are various other types of finance providers in Ireland that will provide traditional loans to small and growing businesses, as well as other types of financial products.
However, whoever the finance provider is, they will still require certain information and documents from you during the loan application process, and there are strategies you can employ to give your business the best chance of securing the finance you want to help to grow your business and achieve your ambitions for it.
Make sure the business is ready
Before making an application for a loan, you should ensure that your business is ready for the financial injection and that you have clear plans in place for how it will be used.
Your chances of having your application approved will improve if you can demonstrate how you have taken steps to ensure your business is keeping its costs under control. For instance, showing that you have taken advantage of any government grants that are available – there are many government schemes available to businesses of varying sizes and in a multitude of sector – and that costs such as rent are comparable for the area you are based in.
Having several revenue streams will also help an application. The more revenue streams you have – even if it is just a range of regular customers – shows that the business will be resilient if a major customer or revenue stream was to end suddenly.
It can also help to outline what the loan money will be used for by the business. Banks and finance providers will have specialists who can advise on your plans and how the money can be used to the best effect for the business.
It is also advisable to have a detailed financial plan in place to show how you intend to grow the business. If your business is a start-up, then a detailed business plan will be required.
Ensure the business can make the repayments
This might sound obvious, but banks and finance providers will want to see evidence that you will be able to make the monthly loan repayments without putting the business under stress.
There are a variety of things that will be considered when you make an application, including:
• The business is receiving regular payments into its account from customers • The turnover of the business is growing, or at least stable over recent months • That if you have a business overdraft it is not used consistently – it should be in credit for at least 30 days per calendar year • That the business makes its tax payments to the Revenue on time, as well as paying suppliers and repaying any existing credit cards or borrowing promptly • That there is enough money in the business account to ensure that any cheques and direct debits are paid and don’t bounce • In the case of applying to a bank, those sole traders that have a personal account with that bank will have their personal account reviewed too. In limited companies, accounts of the owners and/or directors may also be reviewed.
Finally, it should go without saying that all figures submitted in the application are accurate – such as the turnover of the business – the bank or loan provider will check things like this before approving or rejecting a loan application. Likewise, be transparent about any other loans you may have.
Documents required
While individual banks and funding providers may have varying requirements for what will need to be provided along with an application, in general this is what they will require:
If you are applying for a business loan from a bank that you are already a business customer of, then it may be that you just need to complete an application form, although some additional documents may be asked for.
But if you are making an application to a bank or finance provider that you are not already a customer of, then more documents will be required. For established businesses this usually includes certified accounts for the business for the past three years, six months’ worth of business bank statements and of personal bank statements.
In the case of start-ups, the requirements are somewhat different. As well as the completed application form and bank statements – if the business has any yet – the bank will want to see a detailed business plan, and a Statement of Affairs for the business owner – or for each person that owns the business if there is more than one person involved. Templates for Statement of Affairs can be found online.
Gathering the documents together for the loan, such as bank statements, accounts, tax records etc, can take time, so it is advisable to meet regularly with your accountant, so that these can be collated quickly.
Get advice
As this article shows getting a bank loan can be a complicated process, so it is always advisable to seek expert advice from a financial adviser such as Malone & Co. At Malone & Co. Our financial experts have in-depth knowledge of how to apply for business loans, and what is right for your circumstances.
Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects of raising funding, including the risks involved, as well as anything from setting up a company and ensuring it is as tax efficient as possible to providing diligence services as part of an M&A deal or funding round in the sector. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset.