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Increase in Tax for Limited Companies?

January 13, 2010

There’s a report on the front page of the Sunday Business Post this Sunday that the government are going to clamp down on sub-contractors and consultants who offer their services through a limited company.

The use of a limited company has been a tax-saving device that has been used for years. Limited companies are taxed at 12.5%.  I know that the government is aiming to catch individual sub-contractors / consultants.  But how do you distinguish between one person who is, say, a software engineer who trades via a limited company and two (or three) people who are software engineers who trade through a limited company?  Both sets of people could even be supplying services to the same customer. Will Revenue insist on seperate Income and Expediture accounts being submitted? Will it be necessary to apportion overheads – rent, rates, electricity – between them? Or will Revenue leave them alone because, with two or three individuals, it becomes more complicated?

It may be easy to get behind the ‘veil’ of limited liability in the case of one person, but much more difficult in the case of three people.  Will there be a constitutional challenge from an individual who operates through a company?  A barrister friend of mine thinks there will.  Or will there be some simple other way to reduce his/her tax?  Probably the latter, maybe by joining with two other software engineers!

 Denise Ryan

 

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