Tax Exempt Payments for Business Owners

When the business costs start to increase, company owners can quickly become overwhelmed. 

Last year, the Small Firms Association (SFA) stated that small businesses accounted for 85% of companies that ceased trading in Q1 2024.

The various business components, especially taxation and compliance, can be extremely tricky to navigate. Many business owners aren’t aware of the tax reliefs and supports available to reduce their financial burden.

While groups such as the SFA push for more favourable conditions for Irish businesses, SMEs should be aware of the immediate reliefs and allowances available to them.  

This article highlights some areas of importance that employers should note if they apply to their business. More details can be found at citizens information.

The supports we discuss in this article vary in form, including tax relief, staff incentives, credits, and allowances. 

These supports are not just beneficial to company owners and directors for building their wealth. 

High staff turnover or difficulty hiring the right people is also a significant challenge for Irish companies. When used, several of the support strategies discussed below can also assist company owners with attracting and retaining key staff. 

Pension Contributions 

With the introduction of auto-enrolment next year and recent legislative changes after the 2024 budget, pensions are becoming more important for employers and employees to understand. 

Employer pension contributions have several benefits, including:

• increasing retirement savings
• tax advantages
• employee well-being 
• enhancing an employer’s offering

Quite a significant plus is that employer contributions to an employee’s pension fund are not considered part of their taxable income. 

Employer contributions to pension schemes are also tax-deductible for corporation tax relief. Employers may also reduce their PRSI liability when contributing to employee pensions, making this an even more attractive incentive.

Employees have the bonus of claiming tax relief on their pension contributions at their marginal tax rate.

Small Benefits Exemption 

As an employee incentive, a tax-free bonus payment on top of your salary is a massive attraction for staff and employers. A change in Budget 2025 increased the allowance for this benefit from €1,000 to €1,500. 

Employers can provide employees (including directors) with up to five tax-exempt annual benefits that do not exceed the €1,500 limit. 

For employers, the benefit is tax-deductible as a business expense.  Employers do not have to pay PRSI on the benefit, a significant tax saving due to PRSI increases in the last budget and predictions that it will continue to rise. 

The benefit does not impact employees’ salaries and is seen as an additional positive reward for work completed within the company. 

It is important to note that the benefit must be in a non-cash form (i.e. a gift card) and it cannot be exchanged for cash. Any amounts paid over the €1,500 limit will be subject to tax. 

While the incentive is non-taxable, employers must still report the payment to Revenue under the Enhanced Reporting Requirements. 

While a cash bonus might seem more attractive at first glance, it is important to highlight that when taxes such as Income Tax, PRSI, and USC are deducted, the net sum will be substantially reduced. 

Travel & Subsistence Expenses

Businesses can pay their employees’ expenses when they travel for business purposes. This includes journeys abroad, within Ireland, or to somewhere other than their ‘normal place of work’. 

You can pay mileage at civil service rates (linked here) or reimburse actual travel costs with vouched receipts.

Another added benefit for employees is the reimbursement of the cost of meals and accommodation incurred during work-related activities. Within Ireland, these payments can be made similarly: using the current civil service rates or repaying the actual cost based on vouched receipts. 

Employers also have the option to pay staff a daily remote working allowance. You can pay an employee up to €3.20 per day without deducting Income Tax, PRSI, or USC. 

If a company does not pay a daily working allowance to staff, they can claim this through their online revenue account. 

Termination Payments 

Should an employer need to make an employee redundant, the employer must be aware and notify the staff member of how a lump sum payment may be treated.  

A lump sum payment to an employee on redundancy may qualify for tax relief. 

Tax may only need to be paid above the limits of:

• A ‘Basic Exemption’ – €10,160 plus €765 for each full year you worked for that employer.
• An ‘Increased Exemption’ – an additional €10,000 on top of the basic exemption, should you meet additional criteria.
• Also, there is the Standard Capital Superannuation Benefit (SCSB), a payment calculated based on salary and years of service. The SCSB is a Revenue-approved formula that often applies to long-serving or higher-paid employees, potentially increasing their tax-free entitlement.

Note that any lump sum payment received tax-free is limited by the €200,000 threshold, which also covers pension lump sums. It is important to be aware of pension payments that will be accepted now or in the future, and if your termination payment will exceed the threshold 

Retirement Relief

Retirement Relief is a valuable Capital Gains Tax (CGT) exemption available to business owners in Ireland when disposing of qualifying business assets, including shares in a family company. 

Despite the name, it’s not just about retiring. Relief can be an important part of succession planning, especially for business owners in their 50s or 60s who are considering passing on or selling their business.

Under current rules, Retirement Relief allows business owners aged 55 or over to transfer or sell qualifying business assets without triggering CGT, provided certain conditions are met. 

The relief can be full and unlimited when the business transfer is to a child. 

The relief is capped at €750,000 for transfers outside the family if you’re between 55 and 65. A lower cap of €500,000 applies from age 66 onward. These thresholds apply per individual, not per transaction.

To qualify, the individual must have owned the business or shares for at least 10 years, and in most cases, must have been working full-time in the business. Company shares must generally be in a trading company (or the holding company of a trading group), not an investment company.

Because many business owners are asset-rich and cash-poor, a significant tax bill could erode the value of their personal wealth without proper planning. Retirement Relief can significantly reduce or eliminate CGT, preserving wealth and freeing up funds for retirement.

Entrepreneur Relief

Entrepreneur Relief is an important Capital Gains Tax (CGT) incentive for business owners selling all or part of their business in Ireland. 

It reduces the rate of CGT from 33% to just 10% on the first €1 million of qualifying gains. For business owners who’ve spent years building their company, this can translate to a significant tax savings of €230,000 on exit.

To qualify, you must:

• Be a qualifying individual, a director or a sole trader
• Have owned the business assets for at least 3 years
• Dispose of qualifying business assets, such as shares in a trading company where you held at least 5% of ordinary share capital and were a working director for 3 out of the last 5 years.
• Be actively involved in running the business.

This relief benefits owners selling their business to a third party (rather than transferring it within the family), especially where Retirement Relief may not be fully available due to age or thresholds.

Entrepreneur Relief v Retirement Relief

Entrepreneur Relief and Retirement Relief cannot be claimed on the same disposal. You must choose the relief that gives you the better outcome.

However, there may be situations where different parts of a disposal qualify for different reliefs. For example, if you sell part of your business to a third party (possibly using Entrepreneur Relief) and gift the remainder to a child (claiming Retirement Relief). 

Research & Development Tax Credit 

The Research & Development tax credit system greatly benefits companies and SMEs throughout Ireland. 

Examples of this activity: 

• development of raw materials
• advancements in product packaging
• new pharmaceutical products
• medical device design 
• software development. 

Qualifying Expenditure:

• direct costs such as salaries & raw materials
• plant and machinery 
• qualifying buildings used for the R&D activity
• indirect and ancillary costs

A potential refund of 30% of costs incurred can be claimed in addition to the 12.5% corporation tax deduction for any of the qualifying expenditure. Therefore, a total tax relief benefit of 42.5% can be claimed under this relief. 

A wide range of R&D activities can qualify; it’s worth exploring if you’re solving a technical or scientific problem.

Capital Allowances & Deductions

Capital allowances are a great tool for reducing your company’s Corporation Tax. They let you write off qualifying capital expenditure against taxable profits over specified periods.

Common Capital Allowances in Ireland:

• Plant & machinery – claimed over 8 years at 12.5% per year
• You can claim a 100% tax deduction in year one for qualifying energy-efficient equipment approved by SEAI and Revenue.
• Industrial Buildings – claimed over 25 years at 4% per annum

These capital allowances can assist with boosting cash flow and supporting reinvestment. They are great for startups and growing businesses. The reliefs encourage sustainable investments and modernisation of facilities. 

Government Grants 

When running a business in Ireland, especially a start-up or SME, it’s easy to overlook the financial supports available beyond tax reliefs. Tapping into government grants can be a game-changer, helping you to innovate, expand and train your staff. 

Your Local Enterprise Office is often the best starting point for early-stage businesses and micro-enterprises (typically 10 employees or fewer). LEOs offer various start-up grants and assistance with funding consultants. They also offer networking opportunities, workshops, and free mentoring.

Enterprise Ireland supports companies that export and want to scale. The support is often aimed at breaking into international markets, fast growth, and innovation. 

Many grants and supports are co-funded, meaning the company must match some of the investment. 

Grant applications are competitive, and firm business plans and projections are essential. It’s worthwhile asking your accountant or preferred consultant to assist with preparing the submission.

Employment Investment Incentive Scheme (EIIS)

The Employment Investment Incentive Scheme (EIIS) is a tax relief scheme encouraging individuals to invest in Irish SMEs. 

It allows eligible investors to claim income tax relief of up to 40% on investments of up to €500,000 per year. 

For business owners seeking to raise capital, EIIS can be a great assistance. It’s attractive to investors and helps fuel growth. 

To qualify, the business must meet certain criteria, such as being unquoted and carrying out a qualifying trade. Professional advice is essential, but EIIS can offer a compelling funding alternative without sacrificing full control of the business.

Employer PRSI Savings on Staff Incentives

When business owners offer benefits like pension contributions, the Bike to Work scheme, or the Small Benefit Exemption, they’re not only supporting their staff but also reducing tax costs. 

These incentives are exempt from Employer PRSI, which is currently charged at 11.05%. That means a €1,500 gift card or pension top-up avoids both income tax for the employee and PRSI for the employer. As PRSI rates continue to rise, planning your remuneration strategy around tax-efficient benefits is a great way to enhance your team’s package without inflating payroll costs.

Conclusion

As with all tax and reporting obligations, company owners and directors should stay up to date with any changes to the relief and grants, specifically regarding the obligation to file and declare claims. 

We recommend reviewing your business financial plan to ensure you’re taking advantage of all relevant allowances, reliefs, and exemptions.

Schedule a free 30-minute strategy review here.