For all those individuals currently preparing his/her own 2015 Tax Return, please be aware of the significant changes in Finance Act 2014, especially in the areas of:
R&D Tax Credit
Up to 1st January 2015, Section 766 TCA 1997 provided that the 25% tax credit applied to the amount of qualifying R&D expenditure incurred by a company in a given year that was in excess of the amount spent in 2003 (i.e. the base year).
For accounting periods beginning on or after 1st January 2015, the base year restriction has been removed which means the credit is now available on a volume basis as opposed to an incremental basis.
Capital Allowances for the Provision of Specified Intangible Assets
This provides capital allowances for expenditure incurred by a company on the provision of certain intangible assets for use in a trade.
Up to 1st January 2015 the use of such allowances in any accounting period was restricted to a maximum of 80% of the trading income from the “relevant trade” in which the assets were used. Another way of wording this is, for accounting periods ending on or before 31st December 2014 only 80% of the income from the “relevant trade” could be sheltered by the capital allowances and interest.
Finance Act 2014 introduced an amendment to this rule stating that for accounting periods beginning on or after 1st January 2015 the restriction has been removed meaning all the “relevant trade” income can now be sheltered.
Finance Act 2014 also introduced the following:
Three Year Relief for Start-up Companies
This relief from corporation tax on trading income (and certain capital gains) of new start-up companies in the first three years of trading has been extended to new business start ups in 2015.
Employment and Investment Incentive
The EII is being amended as follows:
Previously income tax relief was given for 30/41 of the investment made. The remaining tax relief of 11/41 was given in the year after the holding period ended. Finance Act 2014 amended the income tax relief which will now be 30/40 and 10/40 respectively.
Finance Act 2014 introduced amendments to the corporate tax residence rules to address concerns about the “double Irish” structure.
The new rules state that an Irish-incorporated company will be regarded as Irish tax resident here unless it is deemed to resident in another country under the terms of a Double Taxation Agreement. Therefore if, under the provisions of that treaty, an Irish-incorporated company is considered to be tax resident in another jurisdiction then the company will not be regarded as Irish tax resident.
These changes are in addition to the existing “central management and control test” which means that the new legislation does not prevent a non-Irish incorporated company that is managed and controlled in Ireland from being considered resident for tax purposes in Ireland.
The new provisions take effect from 1st January 2015 for companies incorporated on or after 1st January 2015.
For companies incorporated before 1st January 2015, the new provisions will come into effect from 1st January 2021.
As an anti-avoidance measure, however, the new legislation take effect for companies incorporated before 1st January 2015 where there is (a) a change in the ownership of the company as well as (b) a major change in the nature or conduct of the business of the company within the time-frame that begins one year before the date of the change of ownership and ending five years after that date i.e. occurring within a period of up to six years.
The aim of this anti-avoidance provision was to restrict the incorporation of companies between 23rd October 2014 and 31st December 2014 to 1st January 2015 where the primary intention was to avail of the extension.
It is always essential to keep up to date with changes to the Finance Act especially if you are preparing your own tax returns.