Finance September 2, 2014 Last updated January 11th, 2022 1,607 Reads share

Top 5 Tax Tips For Small Businesses

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Running a business can be tough, particularly if you’re running a small business and juggling 100 things at once. It’s understandable how some small business owners allow themselves to fall behind when it comes to filing and payment of taxes. These simple, easy to follow tips will ensure that you keep on top of things.

#1. File on Time

Ensure that you file VAT and PAYE/PRSI/USC returns accurately and on time. Tax returns filed late can lead the Revenue Commissioners to select your business for tax audit plus late filing and payment of tax returns incur interest charges by the Revenue commissioners. Where a business updates its records on a regular basis, filing of its tax returns on time should not be difficult. Updating business records on a monthly basis will also ensure that errors or omissions can be identified at an early stage.

#2. Record all Bank Lodgements

Record all bank lodgements and payments carefully and accurately because in the event of a tax inspection or tax audit the Revenue Commissioners will pay great attention to these areas of the business. Payments of personal expenditure should be classified as “drawings” in the case of a Sole trader or “directors’ loans” in the case of a Company.

Regular recording of lodgements and payments assists the correctness of such records because knowledge of the details are fresh in one’s mind. Where updating of these records are delayed it can often lead to inaccuracies due to forgetfulness.

#3. Clearly Identify all Remuneration to Employees

Small businesses sometimes classify the payment of an employee’s personal outlay as business expenditure instead of salary or benefit-in-kind. An example of this type of payment could be the payment of an employee’s personal mobile phone bills or motor fuel expenses.

This can be a costly mistake if it is picked up during a PAYE inspection or tax audit. The Revenue Commissioners take such payments in the tax year concerned and gross up the amount at marginal tax and universal social charge rates. They then calculate the payroll taxes (including Employers share of PRSI). Interest and penalties are then added to the tax due on foot of these payments.

#4. VAT on Sales

If you account for VAT on sales through issuing sales invoices, you should ensure that these invoices contain all details required under VAT legislation. In particular the sales invoice must include the following:-

  • Full business name, address and VAT registration number.
  • It must state clearly the name and address of the customer.
  • It must state details of the ex-cost of the goods or service,
  • the VAT rate applicable to the sale,
  • the amount of VAT and the VAT inclusive amount of the invoice.
  • If the invoice is to a VAT registered business in another EU Member state and the EU VAT reverse charge system is being availed of, then the VAT registration number of the customer must also be stated on the invoice.

#5. VAT  on Purchases & Expenses

To reclaim VAT charged on business purchases and expenses the following criteria apply:-

  • The expense must be a business trading expense,
  • it must be allowed as a VAT input deduction under VAT legislation.
  • There must be a valid VAT purchase invoice/ receipt for the purchase/expense, containing the name, address and VAT registration number of the vendor.

VAT cannot be reclaimed on purchases of personal items by the business. Such purchases must be recorded as “Drawings” or “Directors Loans”. Where goods are purchased from a business outside of the EU (China/USA/Australia etc’) VAT is not charged by the vendor. Instead the purchaser must account for the VAT which must be paid to the Irish government at the point when the goods enters the country. This is known as VAT at point of entry. A specific tax document (SAD form) is issued by the Revenue when the VAT is paid, usually through the shipping company, and this document must be used in order to claim an input credit for this VAT in the business VAT return.

Please note: this post mainly applies to Irish Tax Law however it can be used as a base example for other countries’ revenue legalities.

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