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Tax relief for new start-up companies

  1. Overview
  2. Can you claim for tax relief for your start-up company
  3. How is the relief calculated?
  4. How do you apply for tax relief for your start-up company?

How is the relief calculated?

The amount of employers' Pay Related Social Insurance (PRSI) you pay determines how much relief you can claim. Your relief will be limited to the total amount of employer’s PRSI you pay. This amount may be reduced if you pay over the relief limit of €5,000 per employee or the total PRSI limit of €40,000. For example, if you pay employer’s PRSI of €6,000 for one employee, only €5,000 will be considered for relief.

  • Example 1

    Your company’s accounting period ends on 31 December 2014. Your Corporation Tax (CT) liability is €25,000. This is less than €40,000, so you can claim the relief.

    Your employer's PRSI payments
    Employee 1  €2,000
     Employee 2  €4,000
     Employee 3  €6,500
     Total PRSI  €12,500

    Your qualifying employers’ PRSI payment is €11,000 (Employee 3’s PRSI is capped at €5,000, so €1,500 is not considered for relief).

    The relief available to you under section 486C is €11,000. You can claim for a deduction of €11,000 in your CT return.

Partial relief

If your CT due is between €40,000 but not over €60,000 you may be entitled to partial (also known as marginal) relief instead of full relief.

  • Example 2

    Your company’s accounting period ends on 31 December 2014. Your CT liability is €55,000. You can claim for partial relief.

    Your employer's PRSI payments

    Employee 1

    		  €2,500
    Employee 2  €1,000
    Employee 3  €5,000
    Employee 4  €5,000
    Employee 5  €4,000
    TOTAL  €17,500

    Your qualifying employers’ PRSI payment is €17,500

    The amount of CT due can be reduced to the greater of A or B below:

    A. 3 × (T-M) × ((A+B)÷T)

    T = total due Corporation Tax, in relation to qualifying trade and capital gains, in accounting period, that is, €55,000.

    M= lower relevant maximum amount, that is, €40,000.

    A= due Corporation Tax in relation to qualifying trade only in accounting period.

    B= due Corporation Tax in relation to capital gains only in accounting period.

    3 × (€55,000 - €40,000) × ((€55,000 + €0) ÷ €55,000) = €45,000.

    B. Corporation Tax – Qualifying employers’ PRSI

    €55,000 - €17,000 = €37,500.

    The greater amount is achieved with formula A: €45,000.

    Your CT due of €55,000 can be reduced to €45,000. Therefore, the partial relief you can apply for is €10,000. (€55,000 - €45,000 = €10,000).

Carry forward of unused relief

Since 2013, it may be possible for your company to carry forward any unused relief from:

  • the first five years of trading where the qualifying trade commenced on or after 1 January 2018
  • or
  • the first three years of trading where the qualifying trade commenced before 1 January 2018.
  • Example 3

    This company has been entitled to full relief.

    Tax paid and reliefs from 2013-2017
     Year2013 20142015  20162017 
     Trading profits

    8,000

    7,000

    20,000

    76,000

    80,000
    Corporation Tax (12.5%) 

    1,000

    875

    2,500

    9,500

    10,000
     Employers PRSI payment  9,000  9,000

    9,000

    9,000

    		  9,000
    Tax due after relief applied   0 0 0  500  0 
    Unused relief   8,000 8,125  6,500  n/a   n/a
     Total relief to be carried forward after three years      22,625    
    Relief claimed after three years         9,000 9,000 
     Amount to carry forward        13,625 4,625 

    Your company may have been entitled to marginal relief. If your total employers’ PRSI payment was more than the CT due in the accounting period, you may be able to carry forward the unused relief. The amount to be carried forward is equal to the additional marginal relief available if the CT due and PRSI payment had been the same.

    There are three steps to the calculation:

    Step 1: Calculate the marginal relief in the usual way.

                    3 × (T-M) × ((A+B)÷­T)

    Step 2: Calculate the marginal relief as if the Corporation Tax and employers’ PRSI payment were the same.

                    C- [3 × ((T-M)÷T) × C]

                    C is your total employer's PRSI payment

    Step 3: Deduct the Step 1 amount from the Step 2 amount for the marginal relief that can be carried forward.

Next: How do you apply for tax relief for your start-up company?

Published: 14 November 2024 Print this page

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