Best Corporation Tax Advisors Dublin

Employee Share Awards. Personal Tax. Income Tax. Global Mobility. Payroll. RTSO

From 1^st January 2024 employers will be required to report, collect and remit Income Tax, USC and PRSI, under the PAYE system, on any gains arising on the exercise, assignment or release of unapproved share options by employees and/or directors.  From 1^st January 2024, the tax collection method for share option gains will become a real-time payroll withholding obligation for the employer instead of the individual self-assessment system known as the Relevant Tax on Share Options (RTSO) system.

These new rules are a welcome development for employees and directors who, from 1^st January 2024, will no longer be responsible for filing and submitting Income Tax, USC and PRSI arising on the exercise of their share options.

Employees may still, however, be required to file an Income Tax Return for a relevant tax year, if that individual remains a “chargeable person.”

The due date for such returns is 31st March 2024 and there are different returns required depending on the type of share scheme operated / share remuneration provided.

Penalties for failure to file Returns may apply.

The following Forms are required for the following share schemes:

1. Form RSS1 for share options and any other rights to acquire shares or assets awarded to employees and Directors. https://www.revenue.ie/en/employing-people/documents/form-rss1.xlsm

2. Form KEEP1 – Key Employee Engagement Programme (KEEP) – Details of qualifying share options granted. https://www.revenue.ie/en/employing-people/documents/form-keep1.xlsm

3. Form ESOT1 – Employee Share Ownership Trust (ESOT) – Details of approved Employee Share Ownership Trust (ESOT) schemes. https://www.revenue.ie/en/employing-people/documents/form-esot1.pdf

4. Form ESS1 for details of Approved Profit Sharing (APSS) schemes. https://www.revenue.ie/en/employing-people/documents/form-ess1.xlsm

5. Form SRS01 for details of Save As You Earn Schemes (SAYE) https://www.revenue.ie/en/employing-people/documents/form-srso1.pdf

6. Form ESA – Restricted Stock Units (RSUs), Discounted / Free / Matching Shares, Employee Share Purchase Plans (ESPP), Restricted Shares, Convertible Shares, Forfeitable Shares, Phantom Shares, Stock Appreciation Rights, Growth/Hurdle/Flowering Shares and other Shares. https://www.revenue.ie/en/employing-people/documents/form-esa.xlsm

In circumstances where employers have globally mobile employees working outside Ireland for part of the year, the gains arising on the exercise of the stock option may need to be apportioned based on the number of days those employees worked in Ireland during the grant to vest period.  Employers will need to monitor the Irish workdays for these employees throughout the entire vesting period of the options.  Employers will also need to determine whether the stock option gain is exempt from PRSI.

Consideration must be given as to how the tax liabilities will be funded, especially in situations where there is insufficient income to cover the payroll taxes, where the globally mobile employee is not subject to Irish tax at the date of exercise but a portion of the gain has given rise to an Irish tax liability or where the employee or director has ceased their employment with the organisation. For example, by introducing a “sell to cover” mechanism.

In Summary:

• The RTSO system will be abolished with effect from 1^st January 2024.

• From 1^st January 2024, taxes arising on stock option gains will be collected through the payroll system.

• Currently there are no proposed changes that affect the obligation to file an annual RSS1 informational return by the employer. Therefore, the reporting obligations for share options by employers remain due on or before 31^st March of the following tax year.

• Share Option gains realised before 31^st December 2023 will be liable to tax under the self-assessment system with the employee being responsible for filing a Form RTSO1 along with the relevant tax payment within 30 days of the date of exercise.

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.

Research and Development (R&D) Tax Credit, Corporation Tax, Rental Income, Employment Taxes

Revenue published Tax and Duty Manual Part 29-02-03 – Research and Development (R&D) Tax Credit today.  These updated guidelines clarify Revenue’s treatment of rental expenditure incurred by a company.   It states that rental expenditure incurred by a company will be eligible to the extent to which is was incurred “wholly and exclusively” for the purposes of the Research and Development (R&D) activities.  This Revenue Guidance material also includes information on the treatment of subsidies received under (i) the Temporary Wage Subsidy Scheme (TWSS) and (ii) the Employment Wage Subsidy Scheme (EWSS).

• The eligibility of rental expenditure incurred by a company will relate to the extent to which it is incurred wholly and exclusively in the carrying on of the R&D activities.

According to previous guidance material on this matter issued on 1st July 2020 Revenue’s position was that “rent is expenditure on a building or structure and is excluded from being expenditure on research and development by section 766(1)(a) TCA 1997”.

Since then, Revenue’s position has been the source of continuous discussion and debate with many disagreeing with Revenue’s interpretation of the treatment of rent in relation to R&D claims.

Clarity had been sought from Revenue with regards to their position on rent in relation to both historic and new claims for Research and Development tax relief.

In this latest update, Revenue has clarified that rent will qualify in such circumstances where “the expenditure is incurred wholly and exclusively in the carrying on of the R&D activities.”

According to Paragraph 4.2 of the updated Revenue Guidance Manual:

“In many cases expenditure incurred on renting a space or facility, which is used by a company to carry on an R&D activity, may be expenditure that is incurred “for the purposes of”, or “in connection with”, the R&D activity but will not constitute expenditure incurred wholly and exclusively in the carrying on of the R&D activity. The eligibility of rental expenditure incurred by a company will relate to the extent to which it is incurred wholly and exclusively in the carrying on of the R&D activities. Where the nature of the rented space or facility is such that it is integral to the carrying on of the R&D activity itself then it is likely that the rent can be shown to be more than merely “for the purposes of” or “in connection with” the R&D activity.”

Therefore, it is possible for rental expenditure to be included as part of an R&D tax relief claim but only where that rented building is deemed to be integral to the carrying on of R&D activities.  According to Revenue’s guidance material, an example of a rental expense that may be considered qualifying expenditure might relate to the rental of a specialized laboratory used solely for the purposes of carrying out R&D activities. This is contrasted with the rental of office space necessary to house an R&D team, but which is not deemed to be integral to the actual R&D activity.  In this case, this rent would not be treated as eligible expenditure.

Revenue have confirmed that this position will only apply for accounting periods commencing on or after 1st July 2020. 

Revenue’s Manual has also been updated to include:

• Confirmation that the EWSS and TWSS are considered State support and therefore expenditure from such assistance will not qualify for relief.  In other words, such amounts will reduce the qualifying allowable expenditure or qualifying R&D tax relief expenditure.
• The COVID-19 practice for 2020, in relation to the use of a building in a ‘specified relevant period’ under section 766A TCA 1997.
• A further example of a subcontractor who would not be eligible to claim the R&D tax credit.

For further information, please follow the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-29/29-02-03.pdf

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.

Business Tax. Corporation Tax. Finance Act. Research & Development. Capital Allowances.

CORPORATION TAX

For all those individuals currently preparing his/her own 2015 Corporation Tax Return, please be aware of the significant changes in Finance Act 2014, especially in the areas of:

1. Research & Development Tax Credits
2. Capital Allowances for the Provision of Specified Intangible Assets
3. Three Year Relief for Start-up Companies
4. Employment and Investment Incentive (EII)
5. Company Residence

Research and Development (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 Research and Development (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:

1. a flat five year period for all disposals on or after 23rd October 2014.
2. an amendment to the “connected party” rules stating that from 23rd October 2014 the purchaser can claim capital allowances on the lower of (a) the purchase price paid or (b) the tax written down value.

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:

1. The amount a company can raise in a lifetime has been increased from €10 million to €15 million (s. 491(2) TCA 1997).
2. The amount a company can raise in EII funds in any one year had been increased from €2.5 million to €5 million (s. 491(4) TCA 1997).
3. The scheme has been expanded to include medium sized enterprises in certain non-assisted areas, the management of nursing homes and IFSC services, subject to certain conditions.
4. The period for which shares in an EII company must be held by an investor to avoid a clawback of the relief has been extended to four years (s. 496(1) and s.488(1) TCA 1997).
5. any claim for EII relief will not be allowed unless, at the time the claim is made, the company in which the investment is made qualifies for a tax clearance certificate

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.

Company Residence

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.

For further information, please click: https://www.revenue.ie/en/tax-professionals/documents/notes-for-guidance/vat/vat-guidance-notes-fa2014.pdf

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.