Business Taxes

 

 

Many Irish SMEs don’t realize they qualify for Research and Development Tax Credits.  Our goal is to demystify the technical requirements and qualify criteria.

 

 

Who can claim an R&D Tax Credit?

 

A company and not a sole trader is entitled to a tax credit for Research & Development.

 

It is equivalent to 25% of qualifying R&D expenditure incurred in a particular accounting period.

 

This can be offset against the corporation tax liability.

 

 

 

What about 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.

 

 

 

Is the 25% Tax Credit in addition to the normal Case I deductions for trading expenditure?

 

Yes, it’s in addition to the normal Case I deductions for expenditure incurred against trading income.

 

This may result in a corporation tax refund.

 

For a 12.5% taxpayer, this can result in a net subsidy of 37.5%.   In other words,  12.5% corporation tax deduction + 25% R&D tax credit.

 

It’s important to be aware, however, that certain restrictions apply to limit the extent of the refund.

 

 

 

 What are “Qualifying R&D Activities”?

 

Revenue guidelines state that qualifying R&D activities must:

 

• Be systematic, investigative or experimental in nature,

 

• Be carried out within a Revenue approved field of science and technology,

 

• Involve basic research, applied research or experimental development,

 

• Seek to achieve scientific or technological advancement, and

 

• Involve the resolution of scientific or technological uncertainty

 

 

 

 What areas are considered for “qualifying” R&D Activities?

 

• Natural sciences including food science, software development, chemical sciences, biological sciences.

 

• Engineering and technology including mechanical, material, electronic, electrical, and communication engineering, food and drink production.

 

• Medical sciences including basic medicine, clinical medicine, health sciences.

 

• Agricultural sciences including forestry, fisheries, veterinary medicine.

 

 

 

 

Points in relation to “qualifying” expenditure:

 

1. Expenditure covered by grant assistance received from the State (i.e. the EU or EEA) does not qualify for the credit.

 

 

2. Eligible expenditure includes expenses such as salaries, overheads, materials consumed, etc. which are allowable trading deductions for the purposes of computing corporation tax.

 

 

3. Expenditure incurred on plant and machinery may also qualify as R&D expenditure.   To do so, however, it must be eligible for wear and tear capital allowances and must be used for the purposes of R&D activities.

 

 

4. Expenditure incurred on R&D activities outsourced to a third-party or to third level institutions may also qualify as R&D expenditure for the purposes of the R&D Tax credit.  This is subject to certain conditions:

 

• Payment to a third party is limited to the greater of 15% of the company’s overall R&D spend or €100,000.

 

• The payment to a third level institution/university is limited to the greater of 5% of the company’s overall R&D spend or €100,000.

 

• Total amount claimed must not exceed the qualifying expenditure incurred by the company itself in the period. „

 

• The company must notify the third party provider in writing that it cannot also claim the R&D tax credit for the work it has been contracted to carry out.

 

 

5. Companies who build or refurbish buildings or structures for both R&D and other activities may claim an R&D tax credit in respect of the portion of the construction and/or refurbishment costs that relate to R&D activities.

 

• To qualify, the company must be entitled to claim industrial buildings capital allowances on the building. It’s important to bear in mind that the cost of the site is excluded.

 

• A minimum of 35% of the building must be used for conducting R&D activities for a four year period.

 

• The building must be used for R&D for a period of ten years.

 

• The relief will be clawed back if the building is sold or ceases to be used within ten years by the company for research and development activities or for the same trade as when the building is first brought into use.

 

• An R&D tax credit of 25% of relevant expenditure can be claimed in full in the year in which the building is first put into use for the purpose of the trade.

 

 

 

 

The order of offset of the R&D Tax Credit is as follows: 

 

1. Firstly against the current period’s corporation tax liability.

 

2. Secondly, where the company does not have sufficient corporation tax liability in the current accounting period, that company can make a claim to carry back the unutilised portion of the tax credit against the corporation tax liability of a preceding accounting period of corresponding length.

 

3. Thirdly, if any portion of the credit remains after making this claim the company can make a claim under Section 766(4B) for a cash refundpayment of this excess in three instalments. Please be aware that this payment is subject to a cap (see below).

 

4. Finally, any remaining portion of the R&D Tax Credit will be carried forward and offset against the corporation tax liability of the future accounting periods

 

 

The amount of cash refund that a company can claim under (Section 7664B) is limited to the greater of:

 

1. The corporation tax paid by the company during the period of ten years prior to the previous accounting period i.e. prior to the period in which Section 766(4A) TCA 1997 relief is claimed. It’s important to bear in mind that these payments are reduced by any claims already made under Section 766(4B)TCA 1997 in those earlier periods or

 

2. The sum of the payroll tax liabilities for the period in which the expenditure on R&D was incurred as well as the prior period’s payroll, subject to restrictions if the company has previously made a claim based on its preceding payroll.

 

 

 

 

Points to keep in mind

 

• The amount of any payment made by the Revenue Commissioners following a Section 766(4B) claim by a company will not to be treated as income of the company and therefore not included in the CT computation.

 

• Instead it will be deemed to be a refund of corporation tax.

 

• By doing this, Revenue Commissioners can offset the payment against any outstanding tax liabilities of the company.

 

• The company must make a claim for the R&D Tax Credit within twelve months of the end of the accounting period in which the expenditure was incurred.

 

• If possible the claim should be made when filing the corporation tax return of the relevant accounting period.

 

• Relief can be claimed for expenditure incurred prior to the commencement of the company’s trading activity.

 

 

 

For further information, please click: https://www.revenue.ie/en/companies-and-charities/documents/research-and-development-tax-credit-guidelines.pdf

 

 

 

 

 

For all technical taxation guidance and assistance, please contact us to make an appointment at queries@accountsadvicecentre.ie

 

 

 

 

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

 

 

The Minister for Finance Michael Noonan T.D. presented his 2016 Budget yesterday.   As you can appreciate, Accountants and Chartered Tax Advisors have widely anticipated this Budget.  In it, he outlined a wide range of changes to the Irish tax system with particular emphasis on:

(i) personal taxation,

(ii) initiatives to begin equalising the tax treatment of the self-employed and employees

(iii) as well as steps to support businesses in Ireland.

 

We will outline the key features of yesterday’s Budget below.

 

 

 

PERSONAL TAX

 

Universal Social Charge

 

The Government introduced comprehensive changes to the Universal Social Charge for 2016, aimed at reducing the tax burden on low and middle income earners.

 

The entry threshold for Universal Social Charge (“USC”) will be increased from €12,012 to €13,000.

 

Otherwise, rates of USC will be reduced as follows:

 

• For Income up to €12,012 – Rates reduced from 1.5% to 1%.

 

• Income from €12,013 to €18,668 – Rates reduced from 3.5% rate to 3%.

 

• The Income between €18,669 – 70,044 – Rates reduced from 7% to 5.5%

 

• Income between €70,045 – €100,000 – 8% (no change)

 

• PAYE Income in excess of €100,000 – 8% (no change)

 

• Self-employed income in excess of €100,000 – 11% (no change)

 

 

The top rate USC exemption will be retained for all medical card holders and individuals aged seventy years and older providing their total income does not exceed €60,000.

 

 

 

 Income Tax

There have been no changes to the income tax rates and bands.

 

 

 

 PRSI (Pay Related Social Insurance) 

 

Budget 2016 introduced a tapered PRSI tax credit for employees up to €624 per annum.

 

The entry point to the higher rate of employers’ PRSI of 10.75% will be increased to €376 per week.  This will be a welcome introduction by all employers.  The reason for this tapered PRSI credit being introduced, is to ensure low income earners benefit from the increase to the minimum wage, which will take effect in January 2016.

 

The credit applies to individuals earning between €18,304 and €22,048 per annum.  it will be subject to a maximum of €12 per week.

 

 

Earned Income Tax Credit

The government will be introducing an Earned Income Tax Credit of €550 per annum in 2016.  The aim is to equalise the tax treatment of the self employed with employees paid through the PAYE system.

 

This new tax credit will be available to individuals who are not eligible for the PAYE Tax Credit.  This includes:

 

(i) those earning self employed trading or professional income (subject to Income Tax under Cases I and II Schedule D)

 

(ii) individuals in receipt of Case III Schedule D income as well as

 

(iii) business owners who, up to now, didn’t qualify for a PAYE credit on their salary.

 

 

 Pensions

There was no reference made to tax relief on pensions in this Budget.

 

The “additional” pension levy of 0.15% will expire at the end of 2015.

 

Please be aware that the original 0.6% pension levy ended in 2014.

 

 

 

 Home Carer’s Tax Credit

The Home Carer’s Tax credit increased by €190 to €1,000 per annum.

 

The income threshold for the home carer claiming this allowance has been increased from €5,080 to €7,200. This Tax Credit can be claimed by a jointly assessed couple in a marriage or civil partnership where one spouse or civil partner cares for one or more dependent persons which include children, older persons, incapacitated etc.

 

 

 

 

Other Points of Interest

 

1. An income tax credit worth up to €5,000 per annum for five years was introduced for family farming partnerships to facilitate the transfer of family farms to the next generation.

 

2. There was an extension of general and young farmers’ stock relief for a further three years.

 

3. Profits or gains from the occupation of woodlands are being removed from the High Earners’ Restriction.

 

 

 

New tax measures aimed at encouraging and supporting entrepreneurs and small business owners:

 

• The introduction of a Knowledge Development Box to provide for a 6.25% corporation tax rate on profits arising to certain IP assets which are the result of qualifying R&D activity that is carried out in Ireland. The Minister stated today that the KDB would add “a further dimension to our ‘best in class’ competitive corporation tax offering, which includes the 12.5% headline rate; the R&D tax credit; and the intangible asset regime.”

 

• The Start-up Relief from corporation tax is being extended for new start-ups commencing to trade over the next three years.  This relief applies where the total corporation tax payable for a period does not exceed €40,000 and the amount of relief available is linked to employer’s PRSI.

 

• The amendments to the Enterprise and Investment Incentive Scheme (EII) announced in Budget 2015 took effect from midnight. They have been pending EU State Aid approval for the past year.  These included an increase in the annual limit companies can raise to €5 million and an increase in the lifetime cap to €15 million. Investments in the extension, management and operation of nursing homes will also qualify for the EII.

 

• The cap on eligible expenditure for Film Relief is being increased from €50 million to €70 million subject to State Aid approval.

 

• The entry point to the top rate of employer’s PRSI increases by €20 per week to €376 per month.

 

• The scheme of capital allowances for the construction of facilities used in the maintenance, repair, and overhaul and dismantling of aircraft is being amended to comply with State Aid rules. The scheme is also being commenced with effect from Budget night.

 

 

 

 

 CAPITAL TAXES

 

• A 20% Capital Gains Tax rate will to apply to the disposal in whole or in part of a business up to an overall limit of €1million in chargeable gains.

 

• Other than the reduced rate of CGT which applies to the disposal of a business, there has been no change to the Capital Gains Tax rate of 33%.

 

• The Group A threshold for capital acquisition tax will be increased from €225,000 to €280,000 with effect from 14th October 2015. The Group A threshold typically applies to transfers between parents and their children. The current Class B and Class C thresholds remain unchanged and there has been no change to the CAT rate of 33%.

 

 

 

 Local Property Tax (LPT)

 

The Budget has extended the Local Property Tax revaluation date for the Local Property Tax from 2016 to 2019. This follows recommendations in the “Review of the Local Property Tax” report which has also recommended exemptions for properties significantly affected by pyrite.

 

NAMA is to deliver 20,000 houses between now and 2020. 90% of these in the Dublin area and 75% of the overall total will be starter homes.

 

 

 

OTHER CHANGES 

 

1. The Home Renovation Incentive is being extended until 31 December 2016.

 

2. The existing €5 Stamp Duty on Debit/ATM cards is to be replaced with a 12 cent charge for ATM transactions.  This is subject to a cap of €2.50 or €5 depending on the card type.

 

3. The reduced 9% rate for the tourism and hospitality sector will be retained.

 

4. There will be no changes to the reduced VAT rate of 13.5% or the standard VAT rate of 23% in 2016.

 

 

 

FINAL POINT

This is the first time since the Budget in April 2009 that the marginal rate for middle income earners has fallen below the 50% rate.

 

 

 

When faced with a large tax bill and the administrative burden of having to file Tax Returns in two jurisdictions, people always regret not getting professional taxation advice BEFORE they completed the transaction.  Over the past number of years I’ve been contacted by several Irish citizens returning home from the UK where they’ve lived and worked for a number of years.  In the majority of cases, these individuals have had difficulty selling their UK homes and, as a result, may have rented them out for a number of years until a suitable buyer was found.  The main question they asked was “Do I have an Irish and a UK Capital Gains Tax liability?”

 

 

Up until 5^th April 2015 the UK domestic law did not impose a Capital Gains Tax liability on non residents which meant if you were Irish resident, for example, then you had no exposure to UK CGT on the sale or disposal of a UK asset.  Because the UK domestic tax law didn’t and couldn’t impose a charge to UK CGT on the disposal of the asset by a non-resident then the Double Taxation Treaty didn’t need to be consulted but the individual would have a CGT liability in their place of residence.  Under Section 29(2) Taxes Consolidated Acts 1997, an Irish resident individual only paid Capital Gains Tax in Ireland.

 

 

From 5^th April 2015 the UK Government amended the taxation of gains made by non-residents disposing of UK residential property.

 

 

The New UK Rules

The new CGT charge on non-residents deals with “property used or suitable for use as a dwelling” and will include residential property used for letting purposes.

There are, of course, exclusions for certain types of property in communal use which include boarding schools, nursing homes and certain types of student accommodation.

What differentiates this new charge from the existing ATED-related CGT charge is that all residential property falling within the definition comes within the scope of this new legislation regardless of the value of the property.

The existing ATED-related CGT charge limited the charge to properties where the consideration on sale/disposal exceeded a specified “threshold amount” which for all gains arising on or after 6^th April 2015 is £1m.

 

 

So, who will be affected by this new charge?

The charge will apply to gains made by

• Individuals

• Trustees

• Closely held non-resident companies

• Funds – to the extent that these gains are not within the ATED-related CGT charge

 

 

Who will not be affected by this new charge?

Companies and funds which are not closely-held as well as the majority of institutional investors.

 

 

 

Tax rates (UK)

The tax rates for the new CGT charge on non-residents are the same for UK residents who pay CGT at their marginal rate of Income Tax.

 

 

 

What does that mean?

For taxpayers paying at a Basic Rate, the rate will be 18%

For taxpayers liable at the higher/additional rate, it will be 28%.

For non-residents, the rate will depend on their total UK Income and Gains.

 

 

 

Is there an Annual Exemption?

The annual exempt amount for gains of £11,000 is also be available to non-residents.

 

 

 

Paying and Filing (UK)

In circumstances where the non resident person has an “existing relationship” with HMRC and providing the disposal is not exempt, they will be required to file a self-assessment Tax Return following the end of the tax year and make the relevant payment within the usual deadline dates.

A person who does not have an “existing relationship” must submit a Tax Return and make the appropriate tax payment within thirty days.

 

 

 

What about Tax Returns requiring Amendments?

Amendments or changes to these Tax Returns are allowable within the twelve months following the normal filing date for the tax year in which the disposal is made.

 

 

 

In Summary

• For non-residents disposing of UK residential property, Capital Gains Tax was not an issue up until 6th April 2015.

• With the introduction of the new legislation, which takes from 6th April 2015, non resident individuals, trustees and/or closely held companies or funds may be exposed to a UK CGT Charge.

• Non-resident individuals, trustees or closely-held entities can avoid a CGT charge on a disposal of UK residential property where the property qualifies for Principal Private Residence Relief.

• The new legislation governing Principal Private Residence Relief has prevented some non-residents from claiming the CGT relief.

• Under this new rule, a residence will not qualify for PPR for a tax year unless (a) the person making the disposal is tax resident in the country where the property is located for that tax year or (b) the person spent at least 90 days in that property in that tax year.

• Non-residents can defer the payment of the CGT due until the self-assessment filing date provided they register with HMRC.

 

 

 

 

For further information, please click: https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-calculating-taxable-gain-or-loss

 

 

 

 

 

If you have returned from the UK and you are looking for accurate and up-to-date UK Tax advice or you are seeking UK Tax Consultants with specific HMRC experience, please contact us at queries@accountsadvicecentre.ie

 

 

 

 

 

 

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

 

 

 

A number of Revenue Guidance Documents have been introduced.  This follows Finance Act 2014 being signed into law on 23^rd December 2014.  This article will be focusing on the following documents, with specific focus on Capital Gains Tax, Corporation Tax, Relevant Contracts Tax and CAT:

 

1. Transfer of a Business to a Company (Section 600 Taxes Consolidation Act 1997 Relief and Assumption of Business Debt) – eBrief no. 111/14 (24^th December 2014)

 

2. Deduction for Income Earned in Certain Foreign States (Foreign Earnings Deduction) – eBrief no. 106/14 (24^th December 2014)

 

3. Guidance on Compensation Payments under Section 2B of Employment Permits Act 2003 – eBrief no. 112/14 (24^th December 2014)

 

4. Guide to the Capital Acquisitions Tax Treatment of receipts by children from their parents for their support, maintenance or education – eBrief no. 109/14 (24^th December 2014).

 

5. Relevant Contracts Tax – Revised Penalties from 1^st January 2015 for the failure of a Principal Contractor to operate R.C.T. correctly on relevant payments to a contractor – eBrief no. 110/14 (24^th December 2014)

 

6. Capital Gains Tax – Finance Act 2014 – Vodafone Shareholders – eBrief no. 107/14 (24^th December 2014).

 

 

 

Transfer of a Business to a Company

 

Section 600 TCA 1997 provides that Capital Gains Tax on the transfer of a business and all its assets to a company may be deferred providing four conditions are met:

1. The owner must transfer the business as a going concern
2. The transfer is for bona fide commercial reasons and not for the purposes of tax avoidance
3. All the assets of the business, excluding cash, are transferred and
4. The consideration consists wholly or partly of shares in the company.

 

 

Any liabilities taken over are to be treated as cash consideration but in practice, Revenue may not enforce this rule in circumstances where:

1. The transfer is in exchange for shares only and
2. The liabilities are genuine trade creditors i.e. in cases where the business assets exceed its liabilities and the only other consideration is the assumption by the company of liability for bona fide trade creditors.

 

 

Revenue has clarified in this eBrief that bona fide trade creditors will not be treated as other consideration for the transfer.  By this, they mean genuine trade creditors who provide goods and/or services to the business.

 

 

The Revenue Concession does not apply to business debts such as bank loans or tax liabilities.

 

 

 

 

 

Deduction for Income Earned in Certain Foreign States

 

Finance Act 2012 introduced the Foreign Earnings Deduction (F.E.D.).

 

 

It was designed to encourage and incentivise individuals who perform their duties of employment in the specific countries Ireland was targeting for the purposes of business development and export growth.

 

 

In 2012 this tax relief applied to Irish resident employees who carried out significant duties in Brazil, Russia, Indian, China and South Africa.

 

 

From 2013 to 2014 the list of countries was extended to Egypt, Algeria, Senegal, Tanzania, Kenya, Nigeria, Ghana and the Democratic Republic of Congo.

 

 

According to this eBrief the number of relevant states now include: Japan, Singapore, South Korea, Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Indonesia, Vietnam, Thailand, Chile, Oman, Kuwait, Mexico and Malaysia.

 

 

 

What were the rules prior to Finance Act 2024?

 

Prior to Finance Act 2014 the rules for claiming the relief were as follows:

 

1. The individual must exercise the duties of his/her employment for at least sixty days in the above mentioned countries i.e. those listed from 2012 to 2014.

 

2. Each visit must consist of four days to be considered for F.E.D. Relief.

 

3. The formula to determine the deduction was as follows:

 

 

Employment Income   x  Qualifying Days

Total Days

 

 

4. Previous legislation capped the deduction at €35,000.

 

5. “Qualifying Days” related to days carrying out the duties of employment and did not include days travelling.

 

 

 

What changes did Finance Act 2014 introduce?

 

Finance Act 2014 introduced the following changes for the years 2015, 2016 and 2017:

 

1. The required number of qualifying days abroad dropped from sixty to forty days.
2. Legislation reduced the length of time spent working abroad from four days to three days.
3. The time spent travelling from Ireland to a relevant state or from a relevant state to Ireland or to another relevant state is deemed to be a “Qualifying Day.”

 

 

 

What is meant by “qualifying days”?

 

A day, the whole of which is spent in a relevant state for the purposes of carrying out the duties of an office or employment.

 

 

 

 

Other Points to Consider

 

1. Employment Income includes stock options but excludes pension contributions, tax deductible expense payments, benefits-in-kind, termination payments, etc.

 

2. There is no tax relief from PRSI.

 

3. No tax relief from Universal Social Charge is available.

 

4. Relief does not apply to those working in the civil and public services.

 

5. The Relief is not available in respect of income from an office or employment which is chargeable on the remittance basis.

 

6. The Relief is not available in respect of income which qualifies for:

 

•  Section 472D – Research and Development Credit

 

• Section 825C – Special Assignee Relief Programme

 

• Section 822 – Split Year Residence Relief

 

• Section 825A – Relief for Income Earned outside the State.

 

 

 

 

Guidance on Compensation Payments under Section 2B of Employment Permits Act 2003

 

The best starting point in relation to understanding the tax treatment of awards/settlements is Section 192(A) Taxes Consolidation Act 1997:

• If the award/settlement relates to a loss of wages/salary such as a Payment of Wages Claim or an Unfair Dismissal Claim then it is liable to tax.  In other words, if the award/claim relates to financial loss then it’s taxable.

 

• An award/settlement which relates to compensation for a breach of the employee’s statutory entitlements (i.e. which are not deemed to be remuneration or arrears of wages) is not taxable.  In other words, it’s exempt from tax if it relates to an infringement of the employee’s rights.

 

Now that we’ve established that the main distinction between a taxable award/settlement and a tax exempt award/settlement is the distinction between wages/salary and compensation, let’s look at Section 2B of the Employment Permits Act 2003.  This piece of legislation was introduced to prevent or at least deter employers from employing foreign nationals without a valid employment permit.

 

 

 

How does it work?

It allows the foreign national to take a civil action against his/her employer for compensation in relation to work done or services carried out even if there is no legal contract in place.

As the compensation is not deemed to be for an infringement of a right, rather, it’s considered to be the reimbursement of a salary or wages then it is liable to tax.

The compensation is calculated by a court order based on a national minimum hourly rate of pay (or any rate of payment which is fixed under, or pursuant to, any enactment).

 

 

What is the tax treatment?

The tax treatment of these compensation payments is covered by two new provisions:

1. Section 124A Taxes Consolidation Act 1997 and
2. Section 5A of Section 192(A) TCA 1997

which were introduced by Section 37 of the Employment Permits (Amendment) Act 2014.

 

If compensation payments are made to individuals under Section 2B of the Employment Permits Act 2003 they are liable in full to PAYE and the Universal Social Charge.

 

They will not be liable to PRSI as they are not treated as “reckonable emoluments” as defined in the Social Welfare & Pensions Act 2012.

 

 

 

 

Guide to the Capital Acquisitions Tax Treatment of receipts by children from their parents for their support, maintenance or education

 

Capital Acquisitions Tax is the tax levied on gifts and inheritances received by individuals where the value of the gift/inheritance exceeds that individual’s lifetime tax free threshold amount.

 

Section 82(2) of the Capital Acquisitions Tax Consolidation Act exempts from tax “normal and reasonable” payments (in money or monies worth) made by the disponer during his/her lifetime for the support, maintenance or education of their:

• Children or
• Civil Partner’s children or
• A person to whom the individual stands in loco parentis or
• A dependent relative of the disponer

 

 

While carrying out compliance programmes, the Revenue Commissioners identified ways in which this exemption was being abused.  As a result, Section 81 Finance Act 2014 amended Section 82 Taxes Consolidation Act 1997 to ensure that where there is a need to provide for the support, maintenance and education of children the exemption is confined to the following:

 

• A minor child of the disponer or of the civil partner of the disponer or

 

• A child of the disponer or of the civil partner of the disponer who is under twenty five years of age and is in full time education or

 

• A child, regardless of age, who is permanently incapacitate by reason of physical or mental infirmity from maintaining themselves.

 

 

 

So what do we mean by “normal and reasonable” payments?

 

Revenue’s view is that “normal” refers to the nature of the payment or expenditure.  Examples include the payment of fees and accommodation costs for a dependant child attending college.

“Reasonable” refers to the financial circumstances of the disponer.  Even though there is no ceiling on the value of what can be provided by way of maintenance or support, the exemption will not apply if the disponer makes payments which are disproportionate to his/her means.

 

 

 

Back to the eBrief:

 Section 82(2) does not cover all payments by a parent to a child.  Revenue does not accept that gifts to a child who is financially independent are exempt from Capital Acquisitions Tax nor does it accept that gifts of a capital nature are tax exempt.

 

Examples of non-exempt benefits/gifts/payments are as follows:

 

1. House purchase

 

2. Free use of a house

 

3. The deposit on a house in excess of €3,000

 

4. money if in excess of €3,000 per annum

 

 

 

 

 Summary

 

So what benefits/gifts/payments are tax exempt?

 

1. The non exclusive occupation of the family home by a child who is a family member.

 

2. Free use of a house by a child attending university who is not more than twenty five years old.  This is provided the support and maintenance falls within the “normal and reasonable” provision.

 

3. The cost of family functions paid by a parent.  For example, a wedding paid by a parent.

 

4. Payments to cover the child’s normal costs associated with attending college.  This includes rent, food, clothing, educational material, tuition fees, transport costs, pocket money, etc.  Please keep in mind that the child must be under the age of twenty five years.

 

 

 

 

Relevant Contracts Tax

Before we examine this guidance document, I will briefly explain the Relevant Contracts Tax system in Ireland.

 

 

 

 What is Relevant Contracts Tax (R.C.T.)?

R.C.T. is a tax that applies to the following industries in Ireland:

1. Construction

 

2. Forestry

 

3. Meat Processing

 

 

R.C.T. applies to payments made by a Principal Contractor to a Subcontractor under a Relevant Contract i.e. a contract for a Subcontractor to carry out relevant operations for the Principal Contractor.

 

 

 

 

Important Points to Note:

 

1. An employment relationship does NOT exist i.e. the Subcontractor is NOT an employee of the Principal Contractor.

 

2. The Subcontractor provides his/her own labour or the labour of other individuals when carrying out the relevant operations for the Principal Contractor.

 

 

 

So, how does this tax work?

Before 31^st December 2011, the Principal Contractor was required to deduct withholding tax from the gross payments made to a Subcontractor under a relevant contract and submit this tax to the Irish Revenue Commissioners on the Subcontractor’s behalf.  At the time there was only one rate and that was 35%.

 

The Principal provided the Subcontractor with a Certificate outlining the tax paid on his/her behalf (Form RCTDC 45) and the Subcontractor could then receive a credit or in some cases a refund of this tax withheld once they filed an annual Income Tax Return.

 

Then, the Principal was required to file a monthly Return of tax deducted (RCT 30) and pay the relevant RCT deducted to Revenue. The Principal Contractor was also obliged to file an Annual Return of Gross Payments and Tax Withheld on an RCT 35 which had to be filed by 23^rd February following the year end.

 

If, however, the Subcontractor had a Certificate of Authorisation or a C2, the Principal could pay the Subcontractor without deducting R.C.T.

 

 

 

What changes were introduced?

On 1^st January 2012 the rules changed with the introduction of three rates of withholding tax:

1. Zero rate for Subcontractors who previously held a C2
2. 20% for Subcontractors who were registered for tax and had a record of substantial tax compliance
3. 35% for Subcontractors in all other situations.

 

 

 

Back to eBrief 110/14

Section 17 Finance Act 2014 introduced a revised sanction for situations where the Principal Contractor fails to operate RCT on relevant payments to Subcontractors.  The level of penalty will depend on the percentage of tax withheld from the Subcontractor’s payments.

 

From 1^st January 2015 the Principal will be liable for the following penalties in the event of non operation of R.C.T.

• If the Subcontractor is registered with Revenue and usually liable to a deduction of zero percent, the Principal will be liable to a civil penalty of 3% of the relevant payment.

 

• If the Subcontractor is registered with Revenue and is tax compliant and therefore liable to a RCT deduction rate of 20%, then the Principal will be liable to a civil penalty of 10% of the relevant payment.

 

• Where the Subcontractor is registered with Revenue but is not tax compliant and, as a result, all payments are liable to an RCT deduction rate of 35%, the Principal will be liable to a civil penalty of 20% of the relevant payment.

 

• Where the Subcontractor is not registered with Revenue i.e. the individual to whom the payment was made is not known to Revenue, then the Principal will be liable to a civil penalty of 35% of the relevant penalty.

 

 

 

What about filing obligations?

In all the above four situations the Principal Contractor will be required to submit an Unreported Payment Notification to Revenue.

 

 

 

 

Capital Gains Tax – Finance Act 2014 – Vodafone Shareholders

On 14^th May 2014 the Irish Revenue Authorities issued a detailed Tax Briefing outlining the tax treatment of the Vodafone Return of Value to its Shareholders.  I wrote an Explanatory Blog, which was published on this site on 16^lth May 2014, outlining the comprehensive guidance on the calculation of the base cost for Capital Gains Tax purposes.  In my Blog, I discussed the Income Tax Treatment for shareholders who opted for “C Shares”:

 

“individuals who opted for the ‘C Shares’ received a dividend from Vodafone which consisted of (a) a cash amount and (b) shares in Verizon.

 

The individual was then required to include both amounts in his/her annual Income Tax Return i.e. (a) the cash actually received and (b) the market value of the Verizon Consideration Share Entitlement received.

 

Income Tax, P.R.S.I. and the Universal Social Charge were then levied on this dividend.”

 

 

On 23^rd December 2014 Revenue issued additional guidance on the tax treatment where Returns of Value of €1,000 or less were received by Vodafone shareholders.  eBrief 107/14 contains details of a tax relieving measure which was introduced by Section 48 Finance Act 2014.

 

 

 

What is this Tax Relieving Provision?

Section 48 Finance Act 2014 allows individuals who received a “Return of Value” payment of €1,000 or less under the terms of the Return of Value to be treated as having received a Capital Sum which, if the individual had acquired the Vodafone shares as a result of originally investing in Eircom back in 1999, would result in a NIL Capital Gains Tax liability.

 

The individuals can opt to have the payment treated as income should they wish. In this case the payment sum would be liable to Income Tax, PRSI and the Universal Social Charge.

 

 

 

What are the filing requirements?

In situations where Vodafone shareholders made a capital loss on the “Return of Value” of €1,000 or less and providing these individuals had no other chargeable gains arising in the 2014 tax year, then there is NO requirement to file a Tax Return in relation to the Vodafone “Return of Value” unless of course, these individuals are otherwise required to do so under a different section of the Taxes Consolidation Acts 1997.

 

 

 

 

Why is this provision so beneficial to Taxpayers?

The loss arising on the “Return of Value” can be carried forward. It can be written off against gains that may arise in the future.  This may result in a reduced Capital Gains Tax liability in that tax year.

 

 

 

Any other points to consider?

If a taxpayer prefers to have his / her “Return of Value” of €1,000 or less treated as Income, this information must be included in his / her annual Income Tax Return as outlined in Revenue’s Tax Briefing dated 14^th May 2014.

 

 

 

 

For further information, please click: Finance Act 2014

 

 

 

 

At Accounts Advice Centre, we can provide you with a full range of accountancy and tax services.  To make an appointment, please email queries@accountsadvicecentre.ie

 

 

 

 

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.