Tax

The Temporary Wage Subsidy Scheme has ceased as of August 2020, but what does this mean for employers and their employees in terms of tax liabilities? Olive O’Donoghue explores the different options available. While the Temporary Wage Subsidy Scheme (TWSS) ceased at the end of August 2020, there are three main projects to be completed before the scheme will be fully closed off:  Revenue’s reconciliation; finalisation of employer compliance checks; and payment of employee taxes. The main objective of the reconciliation process is to ensure Revenue recoup any excess subsidy paid to employers. While the expectation would be that most overpayments occurred in the Transitional Phase of the TWSS (mainly because, for the first few weeks, employers received a flat €410 per eligible employee per week irrespective of the amount due), it is possible that overpayments may also have occurred for other reasons. For example, a clawback of subsidy would also be required where an employer has paid an employee more than their average revenue net weekly pay. All employers who availed of the TWSS should have already submitted details of subsidies paid to employees over the course of the scheme. Following receipt of these files, we understand that the reconciliation process is underway. While we expect this process to be finalised by the end of 2020, a fixed date has not yet been provided by Revenue. The employer compliance checks continue and, while many employers have already received the letters from Revenue, a number are still issuing. Throughout the operation of the TWSS, Revenue stated that it would adopt a pragmatic approach in assessing an employer’s eligibility for the scheme, and the experience with compliance checks supports this. It is worth noting that Revenue is utilising the compliance check process as an opportunity to raise queries/concerns on PAYE real time reporting issues, so employers should be mindful of this as they move through the compliance process. The tax treatment of subsidies payable under the TWSS has been a contentious issue amongst employers and employees, mainly due to the impact this treatment has to an eligible employee’s overall net pay position for 2020. While there has been significant push back from various bodies and interested parties over the last few months, unfortunately Revenue’s position remains that the TWSS will be subject to income tax and USC. In January, all eligible employees will receive a preliminary end of year statement from Revenue via Revenue’s MyAccount. This will show an employee’s estimated tax liability for 2020 – or, in some cases, a refund. The employee may wish to claim additional reliefs, such as medical expenses, additional pension contributions, etc. Once the final liability is determined, the employee can choose how they would like it to be settled. The employee may choose to settle the liability in full, directly with Revenue, make a part-payment to Revenue upfront with the balance being paid by way of reduced tax credits over four years from 2022, or elect for the full liability to be settled by way of reduced credits over four years from 2022. Recently, Revenue helpfully issued an update advising employers that they can settle the employees’ tax liabilities arising from the TWSS without a gross-up being required through payroll. The guidance notes that employers can make a payment to each employee to settle their liability directly with Revenue or, alternatively, an employer may choose to amend their last payroll submission for 2020 to capture the additional income tax and USC due by the employee. Further details on this can be found on revenue.ie. Olive O’Donoghue is a Director of Tax in KPMG.

With many of us working remotely for now, it is imperative that Irish tax rules around the 'normal' place of work, as well as expenses, are re-evaluated. Colin Smith explains. The Department of Business Enterprise and Innovation (DBEI) recently published the results of its remote working consultation held in August. While submissions to the DBEI covered a wide range of topics, nearly 200 of the 520 submissions raised tax and financial remote work-related concerns. The CCAB-I was among the submissions to outline tax problems in the context of remote working. A special interdepartmental group has been set up to take over for the DBEI to work on the Programme for Government’s promise to develop a remote working strategy. Current measures As outlined by the Minister on Budget Day, there are tax measures in place, to some extent, to support remote workers: Employers can contribute up to €3.20 per day to cover the employee’s additional costs of working from home, such as electricity, heat and broadband, without triggering a charge to benefit-in-kind (BIK). Many employers cannot afford to make such a contribution in the current economic climate. In the UK, the Government provides tax relief of £1.20 per week to lower-rate taxpayers and £2.40 per week to higher-rate taxpayers, when workers are required to work from home due to COVID-19 restrictions. The UK measure is modest, but it’s easy to claim the relief and it recognises that workers are out of pocket due to the restrictions. A similar measure should be considered by the Irish Government. Employees not in receipt of a contribution from an employer can make a claim for tax relief directly from Revenue of 10% of the cost of electricity and heat as apportioned over the number of days worked at home over the year. Revenue recently announced that it will also allow a claim for 30% of the cost of broadband apportioned over the number of days worked at home over the year. An employee working from home cannot claim tax relief for the purchase of work-related equipment such as computers and office furniture. However, the employer can provide such equipment to the employee and a BIK charge will not arise so long as private use is minimal. Employees can make a claim for tax relief directly from Revenue for other vouched expenses incurred “wholly, exclusively and necessarily” in the performance of the duties of their employment. Revenue applies a strict interpretation on the meaning of wholly, exclusively, and necessarily based on case law: an employee can only claim a deduction where the expense is incurred entirely in the performance of their duties, the employee is required to incur the expense in the performance of their duties, and they could not have carried out their duties without incurring the expense. These are complex rules and the odds of making a successful claim are stacked against the employee in the context of working from home. Fairer and more accessible tax rules must be developed as part of an effective strategy for remote working. ‘Normal’ place of work As set out in the CCAB-I’s submission to DBEI, an employee’s normal place of work is central to the tax treatment of travel and subsistence reimbursements to employees. Revenue holds the position that an employee’s home does not qualify as a normal place of work other than in exceptional circumstances and this brings complexity to what should be a straightforward matter. Employees and employers have risen to the challenge of new work practices as necessitated by COVID-19, and Irish tax rules must now align with these practices by re-evaluating what is a ‘normal’ place of work for tax purposes and the rules for tax deductible expenses of employment. Colin Smith is a Tax Partner at PwC and member of CCAB-I Tax Committee South.

The government has recently announced details of a new support scheme for businesses, but it has limitations that need to be addressed. Paul Dillon outlines the role Chartered Accountants must play to raise awareness of these limitations. Details of the COVID Restrictions Support Scheme (CRSS), announced as part of Budget 2021, were recently published by Revenue and registration for the scheme has officially opened. By offering a support of up to €5,000 per week, the scheme will be very valuable to businesses impacted by Government health and safety restrictions. However, the biggest hurdle for businesses will be meeting the many terms and conditions necessary to qualify. To begin with, the guidance issued by Revenue is over 45 pages long. While detailed guidance is always helpful, the length of the guidance speaks volumes about the complexity of the scheme. Further, it piles more paperwork on businesses already struggling to stay on top of the demands of operating under lockdown conditions. These same businesses continue to grapple with paperwork for the Temporary Wage Subsidy Scheme (TWSS) by having to respond to compliance check letters and reconciliations for Revenue, which all 66,000 employers who benefited from the scheme must prepare. The CRSS is only available to businesses operating from premises that restricts customers from access due to COVID-19 restrictions. This means that the scheme benefits retailers, restaurants, pubs and entertainment venues, but it cannot be accessed by the many suppliers of these businesses, even though these suppliers are equally impacted by the negative effects of the Government’s COVID-19 restrictions. For example, wholesalers supplying to restaurants, pubs and hotels do not qualify for the CRSS under the current terms of the scheme. Sound engineers who supply their services to the live entertainment sector do not qualify for this subsidy, and all the businesses who provide services to theatres and shows are also excluded from CRSS. Mobile businesses not tied to a fixed premise are also precluded from accessing the scheme. This includes taxis and businesses operated from stalls, such as markets or trade fairs. It is puzzling why the Government has chosen to exclude these businesses from qualifying for the CRSS, especially given the fact that on Budget Day, Minister Donohoe said, “The scheme is designed to assist those businesses whose trade has been significantly impacted or temporarily closed as a result of the restrictions as set out in the Government’s ‘Living with Covid-19’ Plan.” This messaging gave hope to many businesses; however, those hopes were dashed when further details revealed the condition that only businesses operating from a fixed premises with restricted customer access could benefit from the scheme. As Government restrictions to control the spread of COVID-19 are likely to be a feature of life in Ireland in 2021, it is essential that proper supports are in place to help all businesses impacted by the restrictions, like the wholesalers and businesses supplying services to restaurants and hotels. The CRSS will be a lifeline to many businesses and its only fair that the scheme should apply to all businesses impacted. While Government has demonstrated a willingness to revise and refine supports, like the TWSS, it is only when the issues are brought into the public domain by informed commentary. That is why, as Chartered Accountants, we have a role to play in raising awareness of the limitations of the CRSS and lobbying for change. Paul Dillon is Deputy Chair of the Tax Committee South of the CCAB-I and Taxation Partner in Duignan Carthy O'Neill.

David Duffy discusses recent Irish and EU VAT developments.Irish VAT updatesVAT rate decreaseAs most readers already know, the standard rate of Irish VAT has been reduced from 23% to 21% for the period from 1 September 2020 to 28 February 2021. We expect that most businesses will already have made the necessary changes to their systems and processes to apply the new rate to affected transactions from 1 September 2020 onwards. However, when preparing your September/October VAT return in November, it may be helpful to check that the new rate has been correctly applied. Some of the points to check may include:Has the new VAT rate been correctly applied to your sales? The tax point and corresponding VAT rate for your sales may differ depending on whether the sale was to another business or consumer, whether you operate the invoice or cash-receipts basis of accounting for VAT, and whether a payment was received in advance of the supply. The Revenue Tax and Duty Manual on changes in rates of VAT, available on the Revenue website, provides further guidance on how to apply these rules.Has the appropriate VAT rate been applied to purchase invoices received in the period?Has the appropriate VAT rate been applied to credit notes issued or received during the period? In general, the VAT rate applied to the credit note should match the VAT rate applied to the invoice to which the credit note relates.Does VAT charged at the new rate correctly map to the appropriate general ledger accounts and is it correctly captured in your VAT reports for the period?Extension of COVID-19 reliefsRevenue has confirmed an extension of a number of temporary, indirect tax reliefs introduced earlier this year to help combat COVID-19. These reliefs were originally due to expire on 31 July 2020, but have now been extended until 31 October 2020, subject to further review. The temporary reliefs include:The zero-rate of VAT applies to personal protective equipment (PPE), thermometers, medical ventilators, hand sanitiser, and oxygen when supplied to the HSE, hospitals, nursing homes, care homes and GP practices for use in providing COVID-19-related healthcare services. Relief from import VAT and customs duties applies to the import of medical goods to combat COVID-19 by or on behalf of State organisations, disaster relief agencies and other organisations approved by Revenue, and which are provided free of charge for these purposes. No VAT clawback will arise for the owner of a property used to provide emergency accommodation to the State, HSE or other State agencies in order to combat COVID-19. EU VAT updatesDeferral of VAT e-commerce rulesThe EU has recently agreed to defer the introduction of significant changes to the EU VAT rules for e-commerce transactions from 1 January 2021 to 1 July 2021. The deferral was in response to potential challenges of meeting the 1 January 2021 deadline for tax authorities and businesses as a result of COVID-19. While this deferral gives businesses more time to prepare, it is important for businesses that will be impacted by the changes to begin their preparations. Businesses which will be most affected include retailers with online stores, online platforms and marketplaces which facilitate sales of goods to consumers, and postal and logistics operators which handle imports of goods on behalf of retailers or consumers. A brief summary of the changes coming into effect on 1 July 2021 is set out below. The current domestic VAT registration thresholds for cross-border business to consumer (B2C) sales of goods in each EU member state will be abolished. As a result, a retailer selling goods to consumers in other EU member states will be obliged to charge VAT at the appropriate rate in the member state to which the goods are shipped regardless of their value, subject to a very limited exception where the value of sales to consumers across all EU member states is less than €10,000 per year. The VAT payable to tax authorities in other member states on these sales can be remitted through a quarterly One Stop Shop (OSS) registration rather than requiring an overseas VAT registration. VAT will apply to all goods imported into the EU, at the appropriate rate in the EU country of import, regardless of their value. This is as a result of the abolition of the import VAT relief for low-value consignments with a value of up to €22. This is likely to significantly increase the volume of packages imported on which VAT must be paid. To help facilitate the payment of VAT, the retailer or, in certain cases, the online marketplace facilitating the sale can charge the VAT at the time of sale and pay this VAT to the tax authority in the country of import through a new Import One Stop Shop (IOSS). This return would be filed, and related VAT paid, on a monthly basis. However, this will only apply to imported consignments with a value of up to €150. Packages above that value will be subject to import VAT and customs duty in the normal way at the time of import. An online marketplace that facilitates sales of goods to consumers will be deemed to have purchased and resold those goods in two scenarios: first, the goods are imported from outside of the EU in a consignment of up to €150; or second, the goods are sold within the EU by a retailer established outside of the EU. This will bring additional VAT collection and reporting obligations for these platforms.Additional VAT record-keeping requirements will apply to platforms and marketplaces which facilitate other supplies of goods and services to consumers within the EU.VAT on property adjustmentIn the HF case (C-374/19) the Court of Justice of the European Union (CJEU) ruled that a VAT clawback was payable by a German retirement home operator where it ceased to carry out taxable supplies in a cafeteria attaching to the main retirement home building. The operator constructed the cafeteria and fully recovered VAT on the construction costs as its intention was to sell food and beverages to visitors. This activity would be subject to VAT. It was subsequently determined that there had been approximately 10% use of the café for VAT exempt supplies to residents of the retirement home, which resulted in a partial adjustment of the VAT reclaimed. This was not in dispute.However, subsequent to that initial adjustment, the taxable activity of sales of food and drinks to visitors ceased entirely. The only remaining use was in respect of the VAT exempt supplies to the residents, albeit there was no absolute increase in their use of the building. The question was, therefore, whether this triggered a further adjustment of VAT.The taxpayer had sought to rely on earlier court judgments which support the position that where VAT is reclaimed based on an intended taxable activity but that activity does not subsequently take place, the taxpayer’s right to VAT recovery is retained. However, the CJEU distinguished this case from the others because the intended taxable activity had commenced but ceased and the property was now only being used for VAT exempt activities. Ireland has adopted similar rules (referred to as the capital goods scheme) which can result in a clawback or uplift in VAT recovery where the proportion of taxable/exempt activity in building changes. This typically needs to be monitored over a period of up to 20 years. It is, therefore, important to carefully consider any changes in use of a building as this could have significant VAT consequences.David Duffy FCA, AITI Chartered Tax Advisor, is an Indirect Tax Partner at KPMG.

The pandemic has broken several business taboos and accelerated the role of digitisation in all walks of life. The UK tax system is no different. HMRC’s role in developing the job retention and self-employed schemes’ online portals at speed to deliver support to employers and businesses at a time of crisis has shown that digitisation can be done quickly. It might not have been perfect, but it was very good. On the back of these lessons, the UK Government published its vision for tax administration in the UK in July: building a trusted, modern tax administration system. The strategic importance of this goal has clearly been brought into sharper focus by the pandemic.An important part of the July publication was the announcement of further steppingstones in the roadmap of the Making Tax Digital (MTD) project, starting with extending MTD for VAT to VAT-registered businesses with turnover below the current £85,000 VAT registration threshold from April 2022. MTD for income tax will commence for self-employed businesses and landlords with income over £10,000 from April 2023.But there’s one glaring issue missing from the picture: UK tax legislation is extremely complex. Unless this is seriously addressed, efficient, problem-free, further digitisation of the UK tax system cannot be effectively achieved. For that reason, the Government should also develop a roadmap for simplification of the UK tax system which should work as a precursor to any new digital services developed. This should begin with income tax complexity. If this doesn’t happen, having to navigate legislation that continually increases in complexity coupled with a requirement to make multiple filings to HMRC has the capacity to be extremely challenging for both HMRC, the taxpayer and their agent. The UK Government must simplify to digitise.Leontia Doran FCA is a UK Taxation Specialist with Chartered Accountants Ireland.

In late 2018, HMRC surveyed over 1,000 businesses on their awareness of the corporate criminal offences legislation. Claire McGuigan reports on the findings and the next steps for businesses.Corporate criminal offences (CCO) legislation, introduced in the UK two years ago, was designed to drive a behavioural shift in companies and partnerships to take an active role in preventing the facilitation of tax evasion. HMRC conducted a research project in late 2018, one year after the legislation took effect, to examine the extent to which this has been successful.The results show that more work is needed to raise awareness of the legislation:74% have not heard of the Criminal Finances Act (the Act) and, of those aware, only one-third thought it was relevant to their business.Large businesses and those in the financial services and insurance sectors are much more likely to have taken action.64% of businesses had not made changes to operations as a result of the Act.55% of respondents said they had at least one of the five standard prevention procedures in place.Over one-quarter of respondents intended to make changes in the next 12 months.While some operational changes are happening as a result of the introduction of CCO, it is also clear that the key messages in HMRC’s guidance are not getting through. With no de minimis to the CCO legislation and with sanctions including unlimited fines, criminal prosecution and director disqualification, organisations face a genuine risk if they fail to act.Below is a list of commonly asked questions and lessons based on my work in this area.1. What is a corporate criminal offence?The CCO legislation took effect on 30 September 2017. It created two corporate offences, one relating to the evasion of UK tax and one relating to the evasion of foreign tax. It can apply to the evasion of any tax, including indirect and employment taxes, anywhere in the world. Any UK business, UK corporate, or a foreign corporate doing business in the UK will be within the scope of both offences. The business will have a strict liability under criminal law for failing to prevent the facilitation of tax evasion by one of its associates (employee, contractor or any other person providing services for, or on behalf of, the corporate). A defence exists of having ‘reasonable prevention procedures’ in place.2. Who does this affect?All companies and partnerships. There is no de minimis.3. What happens if we don’t do anything? Are we at risk of penalties?Yes, you are. A successful prosecution could lead to:an unlimited fine;a public record of the conviction; andsignificant reputational damage and adverse publicity.4. What has HMRC said since the legislation came into force?HMRC has made it clear that it is taking this legislation very seriously. It has undertaken investigations, for example, which include interviewing staff to see what they know about CCO, what actions they are aware the business is taking in response to CCO, and if personnel know what to look out for to identify tax fraud.5. Can you provide examples of what this legislation covers?Here are three examples:A member of your payroll team deliberately falsifying information relating to a worker so the worker is treated as a contractor rather than deducting PAYE at source.An employee deliberately collaborating with one of your suppliers to falsify the amount paid on an invoice.An employee deliberately conspiring with a supplier to conceal the true source country of goods to evade customs duties.6. We already have Bribery Act and AML/KYC procedures in place. What more do we need to do?You may already have financial and economic crime prevention procedures in place. These existing procedures are relevant, but a risk assessment specific to the facilitation of tax evasion must be carried out and then mapped to current procedures.7. What should the message be from the board?You need top-level commitment. The board is typically best placed to champion this. From here, your staff will need training so they know what they need to do.8. I haven’t done very much. What do I need to do?The CCO legislation is no longer new, and HMRC will expect you to have reasonable procedures to demonstrate a defence to this legislation in place. There are four stages of compliance with the CCO legislation:Risk assessment: your priority is to conduct and document your risk assessment.Implementation: the risk assessment process should include the development of an implementation plan, setting out the next steps and responsibilities.Training and communication: this is to ensure that CCO policies and procedures are communicated within and outside the business.Monitoring, review and testing: this comprises testing current process and the periodic update of the risk assessment.9. What are other organisations doing at a practical level?Once the risk assessment is complete, there are typical ‘quick wins’ and practical steps that businesses can focus on. This includes developing a suite of CCO policies, such as a board paper and communications to suppliers, and ensuring that CCO training is rolled out across the business.10. What should my business do now?All businesses should continue to develop their response both to COVID-19 and an evolving working environment. The challenges and opportunities of a remote workforce and the accelerating pace of digital change mean that different approaches to compliance, governance and regulation must be considered.It is important to ensure that your reasonable prevention procedures are designed to prevent associated persons committing the facilitation offences in the new reality. Ensuring that your staff and other associated persons understand their responsibilities is also a critical control in minimising the risk of enforcement action.Where there are staff reductions, employees working from home or management focused on critical functions only, unique opportunities arise to commit tax fraud. Risk assessments should be reviewed regularly, particularly within the context of COVID-19.For businesses that have already performed a risk assessment, it is important to carry out a periodic review of existing policies and procedures, as well as refreshing your current risk assessment to reflect any changes in the business.Claire McGuigan is Director, Corporate Tax, at BDO Northern Ireland.