Tax

The Pre-Budget Submission 2024 tackles challenges in Ireland, from the ‘green’ transition to inflation and housing supply, offering recommendations to benefit businesses, says Gearóid O’Sullivan Each year, Pre-Budget Submission is prepared under the auspices of the Consultative Committee of Accountancy Bodies – Ireland (CCAB-I).  It is a particularly influential document as it represents not only the views of Chartered Accountants but also our peers in other professional accountancy organisations. The Pre-Budget Submission is overseen by the CCAB-I’s Tax Committee South, of which the membership is predominantly Chartered Accountants. Pre-Budget Submission 2024 This year’s Pre-Budget Submission addresses several key issues impacting business in Ireland, from the so-called ‘green’ transition to the impact of inflationary pressures and, of course, ongoing supply issues on all sides of the residential property market.  The aim of any tax measure is ultimately to support the economy and wider society. Therefore, to the extent a measure represents an initial cost to the Exchequer, the hope and intention is that there is a corresponding benefit that exceeds the cost.  In some instances, the benefit is purely financial, e.g. our recommendation to permanently legislate for the Special Assignee Relief Program (SARP) and, in others, the benefit is a desired change in behaviour, e.g. our recommendation to introduce a ‘Help-to-Insulate’ scheme. Measures to alleviate capacity issues in the residential property market The residential property market faces issues on both the rental and retail sides.  On the rental side, we continue to advocate for measures to make renting more attractive, particularly for small-scale and accidental landlords.  Despite tax legislation recognising taxable profits in many cases, often small-scale and accidental landlords find themselves in a cash-flow negative position when the tax bill and any loans on the property are taken into account.  While it is reasonable to mention the economic benefit achieved through property ownership over the longer term, the cash-flow impact is often driving these small-scale and accidental landlords out of the rental market.  If this cohort of landlords were, in turn, selling their investment properties, there could be a sound basis from a policy perspective in maintaining the rules in their current iteration.  However, landlords will often have to first seek to evict and then sell. As such, vacancy represents a key policy issue for government when designing appropriate taxation rules for landlords. With the above in mind, CCAB-I has made several recommendations that we suggest will make letting sufficiently attractive for smaller-scale and accidental landlords: Local property tax should be available as a deduction against rental income. Expenses deductible under section 97 TCA 1997 should be aligned with Case I/II principles. Expenses that are revenue in nature and incurred wholly and exclusively for the purpose of the rental business should be deductible, and rental losses should be available for offset against other income. Capital allowance rates for fixtures and fittings should be increased from 12.5 percent to 25 percent per annum to facilitate landlords investing in the maintenance of properties, providing the works do not result in the termination of an existing tenancy. Landlords who retrofit a property to enhance the property’s energy rating should be able to claim a 100 percent capital allowance where the renovations do not result in the termination of an existing tenancy. The Government should introduce measures to bring parity to the taxation of corporate and individual professional landlords by introducing a flat rate of 25 percent on Case V income for small landlords who opted to become ‘professional landlords’ by waiving their rights under Section 34 of the Residential Tenancy Act (2014), giving additional security to their tenants. We have also suggested a reasonable capital gains tax (CGT) relief to incentivise property sales with tenants in-situ: Professional landlords should be given access to succession reliefs (e.g. CGT retirement relief) to improve the long-term investment proposition of the residential rental business. To encourage landlords to remain in the private rental market, CGT relief of four percent per annum should accrue for the length of time the asset remains a rental property. (This was specifically examined in a 2017 Report of the Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers.) In addition to the above, we are also recommending that Government increases ‘Rent-a-Room’ relief to match standardised average rents and to remove the ‘cliff-edge’ over which relief is completely removed. Measures to combat inflationary pressures The level of inflation in the Irish economy is putting significant pressure on households.  The European Central Bank began increasing interest rates in a bid to dampen inflation. There is a balance to be struck between tax measures to combat inflation and the policy aim of reducing spending capacity. With that said, there is scope for a reasonable change in the personal tax regime, which should not be incongruent with the policy objectives of the European Central Bank.  Earlier this year, CCAB-I responded to the Department of Finance’s consultation on Ireland’s personal tax system. The Pre-Budget Submission includes many of the points raised in that earlier submission, including a recommendation to move to indexation of the income tax bands and credits.  In Ireland, a taxpayer begins to pay tax at the higher rate from €40,000, although the average industrial wage is €46,800. Therefore, the application of an indexed approach to increasing bands and credits should ensure that tax bands and credits remain valuable year to year. Otherwise, while the Government may not raise bands and credits in a particular year, the real value of after-tax wage is likely to have decreased due to the impact of inflation. We also recommend changes to other areas of the personal tax system, including several changes to the CGT and capital acquisition tax (CAT) regimes. These include: The CGT annual exempt amount available under section 601 TCA 1997 should be increased to €5,000.  The CGT indexation tables in section 556 TCA 1997 should be extended beyond 2003 to the present day. The rates of CGT and CAT should be reduced to 20 percent. The lifetime limit for claiming revised entrepreneur relief under section 597AA TCA 1997 should be increased to €5 million. The category A threshold for CAT should be increased to €350,000 in line with a rate reduction. The CAT small gift exemption should be increased to €5,000. Employers’ PRSI should not be increased at this time. As in 2022, we are also recommending that further consideration is given to an intermediate rate of income tax. This is a longer-term ambition.  However, the current system is complicated by the fact that we have three separate taxes on personal income (income tax, USC and PRSI). As such, all these taxes could be redesigned into a single tax, and in this scenario, an intermediate rate of tax becomes a key tool. Further recommendations Pre-Budget Submission includes further recommendations on measures to assist climate change, support foreign direct investment, SMEs and entrepreneurs, and enhance the tax system generally.  The document is a key feature of the tax department’s annual output. It reflects the views of professional accountants across the country and is presented directly to the Department of Finance each year.  While the Government faces several challenges in this year’s Budget as it balances a substantial surplus with increasing societal needs, it is hoped that our recommendations will be considered in terms of the benefit we believe they will bring to businesses in Ireland. Gearóid O’Sullivan is a Tax Manager at Chartered Accountants Ireland 

Irish Government finances are in surplus and Ireland’s debt-to-GDP ratio has stabilised, so why are there calls for higher taxes? asks Dr Brian Keegan It’s hard to avoid concern fatigue setting in. What with the war in Ukraine, the cost-of-living crisis, the continued Northern political stalemate, multiple dire warnings amplified at COP27 over climate change and another possible COVID-19 surge—the list of concerns seems particularly endless at the moment.   Some time ago, the commentator Marc Coleman projected that population growth—and, by implication, skills growth—would drive prosperity in Ireland. Coleman’s ideas have been given additional credence by the current situation in the UK. Chancellor Jeremy Hunt’s November budget looks towards an extended period of economic stagnation. British productivity has not grown in line with government spending in recent years. In the moribund British economy, there is a record low level of people out of work while the number of job vacancies is at a record high.   There is a straightforward, one-to-one relationship between economic growth and the growth in tax yield, which permits more government spending without further borrowing. When the growth in gross domestic product (GDP) stalls, so too do the tax figures.   In his book The Best is Yet to Come, Coleman pointed out some of the links between more workers, growth and greater resources for public services and benefits. Though the timing was unfortunate (the book was published just months before the 2008 financial crisis), Ireland is now indeed in a better place, at least economically, than it has been for many years. Government finances are in surplus and the debt-to-GDP ratio, at around 50 percent, is back under control.   Unlike the British situation where a Budget bordering on the austere was required to meet existing public spending commitments, without an intolerably high borrowing requirement, the recent Irish Budget took a cost-of-living crisis in its stride, with grant aid against soaring energy bills for households and businesses alike being met through current tax receipts. Nevertheless, a narrative has emerged that the burden of taxation in Ireland will have to increase.   Why this should be the case is not always specified. There are unquestionably problems with housing, health, and education, but it does not automatically follow that these problems arise from underinvestment. At the time of writing, close to half a billion euros set aside in 2022 for local authority housing remains unspent. This points to management or capacity problems, not funding challenges.   The much-heralded report of the Commission on Taxation and Welfare has not had a huge impact on the political debate. This may be because it presents solutions in search of a problem. As research from the Irish Fiscal Advisory Council has pointed out, “its work was not framed around any specific shortfall in funding that needed to be filled. Instead, it was guided by a broad intention to generate additional revenue”.   Even government politicians, who are rarely scathing about the output of an expert group, which the government itself commissioned, were dismissive of the recommendations. Clearly, there are some areas of the economy where additional tax funding will be required, if not immediately, in the medium-term.   Unless there is an unforeseen level of immigration of people of working age, the ratio of workers to pensioners is going in the wrong direction. Climate change management, ironically being driven more by energy security concerns than global altruism, will come with a price tag. The sustained high corporation tax take may have peaked. In Britain, the urgent need for higher taxation has been unanswerable. In Ireland, there needs to be a clear business case for any form of new or additional taxation. We have enough to be concerned about without the prospect of unnecessary taxes. Dr Brian Keegan is Director of Advocacy and Voice at Chartered Accountants Ireland

As the dust settles on the Government’s recent Budget, Norah Collender and Brian Brennan consider the tax measures announced for businesses in Ireland Although the cost of living crisis dominated Budget 2023, announced by Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath on 27 September, it also heralded some interesting tax measures for business. The finer details of these measures—along with possible additional business tax measures—will be set out in the Finance Bill, due to be published on 20 October. For now, here is a rundown of what we know so far. R&D tax credit & KDB Budget 2023 outlines amendments to the payment provisions of the Research and Development (R&D) tax credit, aligning it with new international definitions of refundable tax credits. The changes include the removal of caps on the payable element of the credit and a new fixed three-year payment system. Under the new payment system, a company will have an option to request either payment of its R&D tax credit, or for it to be offset against other tax liabilities. The first €25,000 of the credit claim will be payable in the first year. This will provide a welcome cash-flow benefit for small companies, which make up two-thirds of claimants. The Knowledge Development Box (KDB) regime was due to expire at the end of this year, but Budget 2023 has extended the scheme for a further four years to accounting periods commencing before 1 January 2027. The extension is welcome, but companies need a long-term incentive to make investment decisions, so it would be preferable if the regime was to become a permanent fixture of the tax system. The KDB will be impacted by changes under the Organisation for Economic Co-operation and Development’s Pillar Two rules for a global minimum effective tax rate of 15 percent. The Government is taking initial steps to prepare for the OECD changes by increasing the effective tax rate of the regime from 6.25 percent to 10 percent (subject to a Commencement Order). In our view, more amendments will be required to ensure the KDB’s viability as an incentive in light of Pillar Two. It is also worth noting that, for companies not impacted by the proposed minimum effective tax rate of 15 percent, the increased rate of 10 percent will significantly reduce the benefit of the regime. Given the low numbers currently availing of the KDB, this change is unlikely to help with the uptake of the relief. Film relief/multimedia industry The film corporation tax credit was scheduled to cease on 31 December 2024. Recognising the long production cycle for audio-visual productions, however, Budget 2023 has extended the credit to 31 December 2028. Minister Donohoe has also signaled an intention to explore opportunities to encourage international players in new and innovative multimedia industries to locate to Ireland. Bank levy The bank levy, due to expire in 2022, is to be extended to the end of 2023. The levy was originally designed to produce a fixed annual yield of €150 million, but just €87 million will be raised in 2022 due to the exclusion of Ulster Bank and KBC Bank on their exit from the Irish market. The same yield is projected for 2023. The future of the levy is being assessed by the Department of Finance as part of the Retail Banking Review. Investment products and section 110 The Government will establish a working group to consider the taxation of funds, life assurance policies, and other investment products. The Commission on Taxation and Welfare suggested that such a review should consider how to simplify the tax treatment of investment products, and identify opportunities for horizontal equity and neutrality in the tax system when it comes to investment decisions. Currently, funds and life assurance policy providers are obliged to deduct 41 percent tax on both income and gains, which is higher than the rate of income tax and capital gains tax. It is hoped that the working group will focus on the scope and possible impact of reducing these rates. Minister Donohoe also announced plans to review the section 110 regime. The Commission on Taxation and Welfare’s report referenced the section 110 regime in the context of the role of institutional investors in the Irish property market. However, acknowledging that the regime applies to a broader range of assets than debt secured on Irish property, the report went on to recommend a wider review of the regime. Agri-business measures Budget 2023 outlined the extension of several agricultural reliefs set to expire at the end of this year. The proposed extensions are dependent on the outcome of negotiations at EU level on the Agricultural Block Exemption Regulation. Stamp duty reliefs for young, trained farmers and farm consolidations are to be extended to the end of 2025. Farm restructuring capital gains tax relief is also to be extended until the end of 2025. Stock relief enhancements for young, trained farmers and registered farm partnerships are being extended until the end of 2024. A new accelerated capital allowance scheme for the construction of slurry storage facilities is set to be introduced from 1 January 2023 and will run for three years.

The government’s new auto-enrolment scheme has been described as a ‘once-in-a-generation’ pension policy. Clare O’Sullivan examines how it will change our retirement  landscape. Andrew Glenn was 20 and an undergraduate studying in Adelaide when the Australian government’s Superannuation Guarantee (SG) came into effect in 1992, making it compulsory for employers to pay a percentage of their employees earnings into a retirement fund. In the three decades since, Glenn has become “passionate” about the scheme—dubbed the “Super”—which has, he says, created a positive culture around pension savings in Australia. “I remember when superannuation came in, I had a part-time job at university and, all of a sudden, I had money going into this separate retirement account. It wasn’t coming out of my pay. It was an additional payment, so, straight away, I felt good about it,” says Glenn. The idea behind the SG was that it would provide income in retirement for as many Australians as possible, substituting or supplementing the government pension. “There is definitely a mindset here now where people value their Super. It is pervasive throughout Australian culture and it can add up to quite a significant amount of money over time. If you are a home-owner, your Super would tend to be your second biggest asset, so people care about it,” says Glenn. Although not quite the same as Australia’s SG, the Automatic Enrolment Retirement Savings System announced recently by the Irish government has a similar aim to “build a culture” of saving for retirement, according to Minister for Social Protection, Heather Humphreys. Speaking in March at the announcement of the final design principles for the auto-enrolment regime, Humphreys described it as a “major reform” of the Irish pensions landscape. “It is intended not just to get people saving earlier, but to support them in that saving process by simplifying the pension choices and, importantly, by providing for significant employer and State contributions as well,” Humphreys said. Due to come into effect in 2024, the scheme will see some 750,000 workers enrolled automatically into a new workplace pension scheme with matching employer contributions and a state top-up. For every €3 saved by a worker, a further €4 will be credited to their pension savings account.  According to the Government, this means that, when the scheme is fully established, a worker earning €35,000 per annum will accumulate a fund (excluding investment returns) of €293,000 over their working life. Participation in the new scheme will be voluntary, however. Workers will have the ability to opt-out. Given the success of the Superannuation Guarantee in Australia, and the pension auto-enrolment systems since introduced in other countries, including Britain and New Zealand, the Irish scheme is expected to be a welcome addition to the pension landscape here. Although welcome, the government’s pension auto-enrolment scheme has been a long time coming, however.  “This goes back a long way. Pension policy in Ireland was first reviewed about 20 years ago and, today, we are the only OECD country that doesn’t yet operate an auto-enrolment or similar system as a means of promoting pension savings,” says Munro O’Dwyer, Partner, Pension Services, PwC Ireland. “In countries without such schemes, retirement savings tend to be quite low. In the UK, the introduction of an auto-enrolment system similar to that planned for Ireland doubled the rate of participation in private pension savings. The behavioural change was really quite significant. “If you dig further into the UK figures, you can see an even higher jump in the number of people in low-pay or low-security employment participating in private pension savings.  “We will see the same thing happening in Ireland once our auto-enrolment scheme is introduced, so, I think the benefit to society as a whole is really quite positive.”    Focus so far To date, much of the focus in Ireland has been on reducing future spending in the area of pensions, rather than working on incentives to increase private pension coverage, according to Miriam Donald, Public Policy Manager, Advocacy and Voice, Chartered Accountants Ireland. “This isn’t surprising given that the State Pension is the single biggest cost to the State in terms of benefits,” Donald says. Recent figures show that close to €6 billion was spent on the State Pension in 2020.  “This figure far exceeded the €4.5 billion spent on the COVID-19 Employment Wage Subsidy Scheme in the same year,” Donald says. Cultural shift As a result, the government has faced mounting pressure to change the “culture around pensions savings” in Ireland by introducing measures to encourage private pension coverage. “Recent studies show that life expectancy in Ireland is currently 90 years for men and 92.6 years for women,” says Donald. “This means workers, on average, will be retired for more than a quarter of their lives, with one third of the population depending solely on the State to fund their later years.” Figures released last year by the Central Statistics Office, meanwhile, showed that 34 percent of Irish workers had no pension coverage outside the State Pension. “The existing annual State Pension of some €13,000 might seem reasonable if you have paid off your mortgage, but Ireland’s home ownership rate in 2021 was reported to be 68.7 percent,” says Donald. “This means that many will pay high rents long after their peers own their own home and, with average annual rents lying north of €15,000 according to the Residential Tenancy Board’s 2021 rent index, sole reliance on the State Pension will not be sustainable.” Encouraging retirement savings By introducing auto-enrolment, Donald says the government has taken an important step in encouraging more people to save for their retirement over the course of their working lives. “At the moment, starting a pension requires taking an active decision to do so. The attraction of auto-enrolment is that, if a worker does nothing, a portion of their pay will automatically go into a pension fund,” she says. This means that the new scheme will overcome an existing barrier to pension savings whereby people simply overlook the need to put money aside for retirement over the course of their working lives, according to Donald. “Employees who do opt out after six months of being enrolled will be re-enrolled after two years, meaning private pension coverage could be increased considerably,” she says, “but the scheme also relies on behavioural inertia – i.e. trusting that some people will not get around to opting out of a pension scheme and will simply stay invested.” Challenges ahead Overall, Donald sees the introduction of auto-enrolment as a viable solution to increasing private pension coverage in Ireland. “It incentivises people to save, reduces the risk of people entering poverty in retirement and reduces the reliance on the State pension. Its introduction could even result in long-term savings for the State,” she says. Getting the scheme up-and-running by early 2024 will be challenging, however, according to Cróna Clohisey, Tax and Public Policy Lead at Chartered Accountants Ireland.  “A significant amount of work needs to be done—not just to develop the legislation underpinning the scheme, but also to finalise its design, and to establish the various mechanisms that will be required for it to function,” says Clohisey. As the legislation progresses, the government will need to work closely with businesses to advise and help them prepare for the introduction of automatic enrolment. Payroll providers, in particular, will face an uphill battle preparing for the planned introduction of the new scheme. “We know that this is going to be a considerable challenge for payroll providers to implement,” says Clohisey. “They are telling us that a lead-in time of at least 18 months would be required to properly develop, test, and deploy a fully operational system.  “January 2024 is not far away, and businesses will need time and guidance to get ready for this change. Sustained momentum will be needed to meet this ambitious timeline.” Central processing agency Jerry Moriarty, Chief Executive of the Irish Association of Pensions Funds, agreed that the planned introduction of the new scheme in early 2024 could give rise to significant challenges. “There is a huge amount to be done in a relatively short period of time, including the setting up of a central processing agency to do the job of auto-enrolling people—getting them on board and then dealing with all the administration that goes with making sure the contributions are passed on to the right investment managers,” he says. In the government’s favour is the fact that “we’ve been able to learn a lot from what’s happened with similar schemes in other countries,” Moriarty says. “In the UK, for example, the system focused on auto-enrolling employers rather than employees. That caused a huge problem with payroll systems, so they ended up having to phase in participation, starting with big employers.” Ireland’s new scheme will, by contrast, focus on auto-enrolling individual employees, Moriarty says. “It makes more sense because it means employers won’t have to deal with all of this extra admin and that, when people move from one employer to another, they won’t have to switch pension provider.”

Jane O’Hanlon explains the common tax-related issues facing members in business and how to deal with them before Revenue comes knocking. As a tax advisor working in a specialised tax practice, I encounter similar tax issues in various businesses. This article will focus on the most critical issues and help ensure that your business is tax compliant. What should I do when Revenue knocks on my door? The answer to this depends on the nature of the knock! Any correspondence issued by Revenue must be looked at carefully to understand the purpose of the query. A letter might issue from Revenue with queries due to an incorrect entry on a tax return (referred to as an ‘Aspect Query’ letter). Where a business files a VAT return and is in a VAT recovery position, standard VAT verification letters are often issued by Revenue seeking documentation to support the VAT refund due. This type of correspondence is routine and while it should be dealt with promptly, it should not result in undue concern. If an error is discovered as you prepare your response, it is usually possible to make a ‘qualifying disclosure’ to Revenue. By making a qualifying disclosure, you can reduce the penalties payable, avoid prosecution, and avoid publication in the list of tax defaulters. A disclosure is unprompted if it is made before notification of a Revenue audit is received. Any disclosures in relation to items covered by the audit made after the audit notice is received is prompted, and the penalty reductions for unprompted disclosures are higher than for prompted disclosures. However, Revenue recently indicated that it intends to move disclosures made by a business under an ‘Aspect Query’ to the ‘Prompted Disclosure’ category. Although publication can still be avoided, higher rates will be applicable if penalties apply. When a Revenue audit letter issues, depending on the tax head and the period covered, the taxpayer should conduct a full review of all tax matters. Common problems include businesses making cash payments to casual staff without PAYE, incorrect claiming of VAT input credits, incorrect operation of benefit-in-kind (BIK), and incorrectly claiming a tax deduction for income or corporation tax purposes. When that audit letter is received, it is essential to at once consider whether the business will need to make a prompted qualifying disclosure. If it does, it can write to the Revenue auditor requesting time to prepare the disclosure. In my experience, the time spent at this stage is well worth it as it often results in the audit running more smoothly and concluding promptly. It is not in the interest of any business to have an audit process continue any longer than it needs to. Therefore, it is crucial to ensure that a full disclosure, if needed, is made and that all supporting documentation is gathered and available to the auditor. Cooperation is the best policy. * Review your tax compliance position on VAT and PAYE. Cooperation is the best policy when dealing with Revenue and, if necessary, make a voluntary disclosure. What VAT can I recover? At a high level, VAT can only be recovered by a business providing VATable products or services. This means that the business charges VAT on sales to customers. You may think that a business providing only products or services subject to VAT can recover all VAT charged by its suppliers. However, that is not the case. It is never possible to recover VAT on the purchase of food and drink items for use in an office kitchen. I frequently encounter cases where VAT is being reclaimed on bottled water purchased by the business, for example. Similarly, if a business owner purchases items for personal use, VAT should not be recovered as that purchase has not been made to provide taxable (i.e. VATable) supplies. Furthermore, if a company carries on a trade and owns several rental properties, you must determine if the expense relates to the trade or the rental properties. For example, if repairs are carried out on the business premises and all supplies by the business are liable to VAT, the VAT charged can be recovered. However, if repairs are carried out on a rented residential apartment owned by the business, the VAT cannot be recovered as the rental income from the residential apartment is not liable to VAT. In summary, consideration must be given to each invoice to determine if the business can recover the VAT charged. In addition, businesses can recover 20% of the VAT incurred on the acquisition or leasing of a car, provided it is used for business purposes at least 60% of the time. Businesses must also be aware that, in most cases, the supplier will not have charged VAT when the business purchases goods or services from outside Ireland. The business must self-account for Irish VAT at the appropriate rate and claim an input credit if it is entitled to do so. If foreign VAT has been charged, the business should satisfy itself that this is correct before payment is made to the supplier. A business cannot include an input credit in an Irish VAT return for foreign VAT charged. A business can only include a claim for a VAT input credit where a valid VAT invoice has been received. Accounts payable staff should be trained to ensure that all invoices are valid VAT invoices before settling them. It is easier to seek a proper invoice from a supplier when the invoice has not yet been paid. * Check that you are correctly claiming VAT input credit on cars and foreign purchases. How long do I need to keep documentation for? In general, documents must be kept for six years after the tax year in question. However, that is not as straightforward as it may sound. For example, I know of one situation where an individual claimed capital allowances on a building, with the capital allowances available over seven years. The tax return covering the sixth year in which the allowances were available was selected for verification three years after the return was filed, and Revenue sought copies of documentation to confirm the nature and the availability of the allowances. In this case, the taxpayer needed to provide documentation from nine years earlier. The key point from a tax perspective is that the burden of proof rests with the taxpayer. Therefore, you need to ensure that you can prove your entitlement to a deduction for any expenses or any capital allowance claimed in your tax return. Many recent tax appeals decisions have referred to this point. An Appeals Commissioner cannot decide a case in favour of a taxpayer where the taxpayer cannot discharge the burden of proof. Regarding an asset that is a capital asset, it will be necessary to keep documentation for six years after the property is disposed of. If a property was bought in 2000 and sold in 2021, for example, documentation regarding the purchase of that asset must be retained until 2027. Doing so enables you to prove your entitlement to a deduction for the costs of acquisition incurred in 2000 in determining the capital gains tax payable (or indeed the capital loss) on the disposal of the asset. The retention of documentation is also important in the context of VAT and the Capital Goods Scheme. When an asset is disposed of, the vendor is often obliged to complete Pre-Contract VAT Enquiries (PCVE) as part of the sales process. The PCVE contain full details of the purchase/development of the property, how it has been used since it was acquired, and how it is currently being used. To determine the correct VAT treatment of the sale, there can be no gaps in terms of how the property has been used. It is easier to maintain this information on a contemporaneous basis rather than pulling together information on all prior years as you prepare to sell the property. * Review your document retention policy as in some cases, you may need to keep certain records for more than six years. How do I ensure compliance with BIK rules on the provision of company cars? Employers who provide employees with company cars are obliged to keep contemporaneous records of business mileage. BIK operates by applying a percentage rate to the original market value of the car provided to the employee (other than electric cars, where different rules apply). The applicable percentage depends on the annual business mileage driven by the employee and ranges from 30% down to 6%. If any rate other than 30% is used, the employer must be able to prove the business mileage. Where an employee is provided with a car, they must complete a monthly log of the business journeys for their employers. While the tax is payable by the employee, the obligation is on the employer to operate the tax correctly. In addition, if the vehicle provided is a commercial vehicle or a van, the appropriate BIK rate is 5% regardless of the business mileage. * Review how you are calculating PAYE on the BIK on company cars and keep appropriate contemporaneous records of staff business mileage. What information does my tax advisor need to prepare my tax return? Where your accountant prepares your business’s financial statements, they will generally have sufficient information to prepare an accurate tax return. Where the financial statements are prepared by the business and provided to the tax advisor, however, they will generally need answers to the following questions: Are all expenses incurred wholly and exclusively for the purpose of the trade? For example, consider business entertainment, charitable and political donations, personal expenditure, and expenses paid for by the business that may not relate to that business. Was the employer’s pension contribution paid during the year, or is there an accrual in the profit and loss account? A tax deduction is only available on a paid basis. Can you provide an analysis of professional and legal fees? Fees that relate to capital transactions (e.g. asset purchases/sales) are not deductible in calculating trading profits. Can you provide a schedule of fixed asset additions to include the date of acquisition, the cost of acquisition, and the nature of the asset? Also, can you provide a schedule of fixed asset disposals so that accurate capital allowances claims and balancing charges/allowances can be prepared? Can you provide a reconciliation of any finance lease creditors from the opening position to the closing position? Can you provide a schedule of directors’ remuneration split by director? Can you provide details of any dividends or distributions paid during the year? Can you provide details of any non-trading income? Where medical insurance is paid on behalf of the staff, can you provide details of the tax relief at source (TRS) amount and confirm whether the gross or net amount has been included in the profit and loss account? * Save time and fees by completing the checklist your tax advisor will need to prepare your tax return. These issues occur in a wide range of businesses. You should aim to ensure that your business is compliant with tax legislation on an ongoing basis. Careful consideration should be given to amending any errors you discover – before you get that knock on the door. Jane O’Hanlon is a Director at Purcell McQuillan and a Fellow of Chartered Accountants Ireland.

In response to requests from charities and their lead bodies, Benefacts produced a special report on Irish charities last May. Patricia Quinn explains the findings. In Ireland’s charity sector, just as across the rest of the economy, the COVID-19 pandemic cast a long shadow. A sector of predominantly small and micro entities, charities experienced the full gamut of disruption to their not-for-profit businesses in 2020, ranging from temporary closure to rapid adaptation to digital working and developing new solutions to meet the needs of vulnerable people in local communities. For some – especially providers of hospital, hospice, residential care, and homelessness charities – the impact for their staff and served communities was a matter of life and death. Other charities – especially in emergency relief, mental health, local development, and social care – experienced increased demand for their services. In some sectors such as the arts, heritage, and museums, charities without the capacity to move to digital working methods could not operate, or only to a minimal degree. They report staff cutbacks and other cost-saving measures, but most have limited reserves and cannot avoid fixed costs. Fundraised income, which is a significant proportion of the revenues of some Irish charities, was expected to take a severe hit. In some sectors that rely predominantly on traditional fundraising, including door-to-door or church gate collections, charity shops, fun runs and other event-based approaches, this has been the case. Where charities were already geared up to appeal to donors and collect gifts digitally, or transitioned successfully to online giving, some reported an increase in income from this source. What do we know about charities? Charities form a subset of all non-profits in Ireland, which number more than 32,000 if you drill down to the level of local clubs, societies, and associations. The 11,405 charities on the Register of Charities today include just under 3,600 primary and secondary schools. For practical purposes, they are regulated elsewhere. The Register also includes about 2,700 unincorporated associations, trusts, and non-incorporated bodies that file accounts to the Charities Regulator which – for various reasons – are not published on the Regulator’s website. Anybody wanting to study the financial and governance profile of the charity sector therefore relies mainly on the CRO (Companies Registration Office) filings of incorporated charities, of which there are about 5,000. These form the basis for a new benchmark report on the charity sector in Ireland released by Benefacts last month. Benchmarking the state of the sector There has never been a time when current, reliable data was more relevant to charities. In boardrooms around the country, trustee directors have been grappling with tough choices. Even the best risk register was unlikely to include a worldwide pandemic involving the near-total shut-down of whole sectors of the economy. And most charities are particularly ill-equipped to cope with financial adversity; by definition, they have no equity, no investors, and limited capacity to trade their way out of financial trouble. Few charities entered 2020 with significant financial reserves. Although the aggregate reported value of reserves in the sectors under review in the Benefacts report was €3.73 billion based on available data for 3,628 incorporated charities, most of these reserves (€2.5 billion) are held by just 80 larger charities – in particular, voluntary hospitals and social housing providers. The remaining €1.2 billion in reserves is distributed across smaller charities, primarily in local development, social housing, health, and services for people with a disability. Moreover, charities’ assets – unlike most commercial organisations – typically cannot readily be liquidated as they are essential for delivering services or may be of a heritage or highly specialised nature. When reserves are converted to the number of weeks of average weekly expenditure (using data from full accounts), our analysis found that more than one-third of charities have fewer than ten weeks’ reserves, with arts charities particularly heavily exposed. Not all bleak In preparing its report, Benefacts reviewed more than a dozen surveys and other reports prepared by sector lead bodies, policy-makers, and regulators. Many positive effects have been reported. These include heightened public awareness of the value of charities’ work, better engagement across geographic divides, cost and time savings, a better quality of life for staff, and the adoption of more diversified fundraising solutions – especially digital ones. In fact, it appears that a small percentage of charities that were already well-geared for digital fundraising will be reporting 2020 as a better year than usual. Philanthropists stepped up in response, especially to pandemic-related causes, and social enterprises were encouraged to bid for new additional funding. The State permitted some charity employees to avail of pandemic unemployment benefits and allocated additional funding to address areas of acute need. Using financial reporting data shared with us in advance of the publication of their own financial statements by the nine State bodies that are the principal funders of charities, we were able to identify a 10.7% year-on-year uplift in funding for charities – mainly in health, social care, arts, and culture. But in 2020, there were nearly ten pandemic-free weeks at the start of the year and lockdowns were partially lifted mid-year. Additional State support will undoubtedly have sustained some charities that might otherwise have gone under. But there’s already a recognition that 2021 – with the exit from full lockdowns only starting in the middle of the second quarter – will be a tougher year, and 2022 probably tougher again. Planning for better The last 30 years have seen considerable professionalisation in the charity sector. The 5,000 charities whose financial statements form the basis for this new report employ more than 101,000 people. Fundraising, a critical discipline in the 273 charities that rely on this as their principal source of income, has become highly specialised. The larger charities now have professional staff to manage their volunteer supporters. Even the voluntary directors of charities themselves are increasingly recruited using the kind of competency framework approach that would have been unheard of in this sector 20 years ago. And perhaps it’s as well, since understanding the drivers of charity business success is a crucial function of charity boards. Contingency planning will surely come to the fore, as well as a searching review of some of the fundamental assumptions about funding. Benefacts has already received queries from charities trying to understand their position relative to their peer organisations in a given sub-sector, anticipating perhaps an even more competitive environment in the future. Audited financial statements are a hugely valuable source of granular data that makes up the picture of any sector and its component entities. Like analysts in commercial sectors, Benefacts relies on charity company disclosures as the bedrock on which we build a profile of the charity sector and its sub-sectors. Common financial reporting standards bring consistency and reliability to the data that can be used to create a picture of the whole sector and track changes year-on-year at the level of individual charities and sectors such as hospice care, addiction support, or animal welfare. Thanks to its database, augmented each year with more than three million new data items harvested from non-profit company disclosures, Benefacts has been able to provide charities, funders, policy-makers and other stakeholders with a powerful knowledge asset to help them navigate uncertain times. The impact of regulation The range of data underpinning our analysis of this multi-billion euro sector suffered a setback with the new Companies Act reform in 2014. For the first time, small non-profit (limited by guarantee) companies could avail of the same exemptions from filing full accounts as commercial companies. While this is only fair and equitable on the face of it, it has diminished the public disclosures of thousands of charities that rely on public donations, state funding, or both to support their operations. Unfortunately, the Charities Act 2009 did not foresee this change and exempts charity companies from filing their accounts to the Charities Regulator to avoid the burden of double regulation. Again, fair and equitable – except for the unintended side effect of making the financial disclosures of thousands of charities less transparent to the very people on whom they rely for income and something more precious – trust. Here are the numbers: of the 3,628 charities that have already filed their 2019 accounts, 36% have filed abridged accounts and 26% have filed unaudited accounts. 106 of these charities receive funding from the State. This means that their unaudited accounts breach the reporting standards for any body receiving State funding set by the Department of Public Expenditure & Reform (Circular 13, 2014). Rules are there to be obeyed, and over time, the compliance authorities will surely iron out these wrinkles in the provisions of the various legal and regulatory frameworks. But charities are not like other small businesses. The principle rather than the letter of the legislation regulating them is one of transparency. To that, I would add informed self-interest. Sector lead bodies preparing a brief for their board or a presentation for an Oireachtas Committee hearing are often disappointed to discover that Benefacts analysis of their members is missing some critical dimension – especially an analysis of their income. That is because so many of the source documents lack an important few pages: the income and expenditure account. This is all the more galling as funders require the full accounts to be provided to them. We therefore experience a double standard – full accounts to go in the State filing cabinet, abridged ones for the rest of us.