Tax

Paul McCourt and Fiona Hall consider the possible tax implications of current low asset values and what individuals can do to help protect family finances for the long-term.The COVID-19 outbreak is having a range of effects on families and individuals, with many investors seeing family finances suffer and the value of their assets fall in recent months. An important factor to remember at this point is that when an individual makes a gift, it is the current market value of the asset being gifted that applies for both inheritance tax (IHT) and capital gains tax (CGT) purposes.TrustsThe creation of a trust to hold assets for the benefit of the wider family or dependants has been a long-standing solution for many individuals seeking to pass assets to the next generation. Settling a trust is generally a chargeable IHT event. However, if the settlor’s nil rate band is fully available, individuals can transfer £325,000 of assets into the trust without incurring an IHT liability. This could increase to £650,000 for married couples jointly settling a trust with the availability of two nil rate bands. CGT hold-over relief may also be available so that the gift to trust does not trigger a CGT liability.For those considering using a trust, or who have already established one, now may be the time to gift or sell assets. When assets pass out of the trust to a beneficiary, either by way of an entitlement or an appointment by the trustees, any IHT and CGT liabilities are based on the current market value of the assets passing. Trustees may wish to consider whether the trust continues to meet its objectives and whether it is now appropriate to appoint assets out to trust beneficiaries.Personal giftsGifting an asset to another individual is often a potentially exempt transfer for IHT purposes. As such, if the donor survives for seven years from the date of the gift, it falls out of their IHT estate. However, if the donor does die in this period, the value of the assets gifted at the time the gift was made could become taxable.Where a gift fails the seven-year rule, subject to reliefs and the IHT nil rate band (currently £325,000), IHT could be payable on the gift (by the recipient or the executors) or the value of the estate. Making a gift when asset values are low will mitigate the potential IHT exposure for the individual considering gifting an asset.A gift is treated for CGT as being a disposal of the asset at market value by the donor. This could trigger a capital gain if the value exceeds the allowable cost unless the assets qualify for business assets hold-over relief.When asset values are lower, the likelihood of a gift triggering a gain is reduced, or a gift may give rise to a loss. Care should be taken in generating a loss on gifts, as any losses arising from the disposal of an asset to a connected person can only be set against gains that arise from other disposals to that same person. Capital losses generally carry forward to future years, but not back so timing is vital.Crystallising ‘paper’ lossesIndividuals may consider crystallising a current ‘paper’ or book loss on an investment and repurchasing a similar asset. Any such loss can then be offset against capital gains arising on asset disposals made in the same, or later, tax years. It is important to note, however, that ‘bed and breakfasting’ of shares is often ineffective for tax purposes and particular care is required with transactions conducted personally, via an individual savings account or between spouses.As with any investment decisions, independent investment advice should be sought before proceeding.Exercising share optionsWhere an individual exercises an option to acquire shares in an employer through a non-tax-advantaged share plan, income tax is charged on that exercise on the difference between the market value of the shares at the date of exercise and the amount paid for the shares under the option. If the shares acquired are ‘readily convertible’ (i.e. easy to sell for cash or shares in a subsidiary company) National Insurance contributions will also be due on the exercise of the option.Exercising such options while the value of a company is temporarily reduced could reduce tax liabilities in the longer-term. However, this is clearly a risk-driven investment decision on which independent investment advice should be sought before proceeding. One of the key benefits of holding an option is that it would often be exercised before an exit event (e.g. the sale of the company) so that there is an immediate return of value. In the absence of such an event, the implications of becoming a shareholder in the company, and the risk to the value thereby invested, should be considered carefully.Pensions – lifetime allowanceAn individual whose pension pot was previously above the lifetime allowance of £1,073,100 (and with no protection/enhanced protection) might choose to crystallise pension benefits now while the fund value is reduced to reduce/eliminate the lifetime allowance tax charge.There are many financial, investment and IHT issues to consider carefully before proceeding, but acting now may save tax in the long-term. Action should only be considered as part of overall wealth planning, including advice from an independent financial adviser.Short-term opportunity to achieve long-term goalsThis is a difficult time, but any temporary reduction in asset values may allow clients to pass assets into trust or to the next generation at a lower tax cost than both a year ago and a year from now.Fiona Hall is Principal, Personal Tax, at BDO Northern Ireland.Paul McCourt is Tax Principal at BDO Northern Ireland.

Jul 30, 2020
Tax

The Temporary Wage Subsidy Scheme is ever evolving in the face of uncertainty, writes Maud Clear.The Temporary Wage Subsidy Scheme (TWSS) was introduced on 26 March 2020. Looking back 20 weeks on, in a world turned upside down by COVID-19, it is fair to say that the Scheme has evolved since its inception. With many businesses facing an uncertain road to recovery, the July Jobs Stimulus package was the next eagerly awaited phase in this evolutionary process.Revenue offered its services to the Department of Finance to pay out the subsidy through real-time reporting tools – an extraordinary move from an institution whose function is to collect tax.While the initial assessment in establishing eligibility was a significant exercise for many employers, Revenue provided consistency and support in their operation of the Scheme.That is until a programme of compliance checks was announced on 23 June for all employers availing of the Scheme. This was an unforeseen turn in the Scheme’s evolution, particularly when Revenue issued guidance on 20 April indicating: “We may in the future, based on risk criteria, review eligibility”.Such a broad stroke approach and the requirement for a response within five days have many employers questioning what is yet to come in the operation of the Scheme.Chartered Accountants Ireland, under the auspices of the CCAB-I, sought an extension to this response time. In response, Revenue may now allow for an extension of the five days where an employer contacts them to explain their difficulty in returning a response within the required timeframe.The announcement of an extension to the TWSS until the end of August came with a warning from the Minister for Finance that “this support cannot last forever”. As the challenges facing employers in re-opening continue to mount, assurance has since been provided by the Minister that the Scheme will not come to “an abrupt end”.  Most employers need the support of the TWSS to get back on their feet. Clarity on how they will get it, and for how long, will be a determining factor in their recovery. It is hoped that the ‘July Jobs’ stimulus package will provide that certainty.Maud Clear is Tax Manager at Chartered Accountants Ireland.

Jul 30, 2020
Tax

The prospect of an EU-wide digital tax raised its head again in June following developments at the OECD. Peter Vale and Kim Doyle consider if we are now closer to implementation of an EU digital tax across all member states, and the impact on Ireland’s offering.The EU agreed last year to park its digital tax proposals to allow global consensus to be reached through the OECD digital tax discussions.Both the EU and OECD proposals aim to allocate a portion of profits based on the location of consumers, reflecting the increasing value that businesses place on consumer data.In June, the US withdrew from the OECD’s digital tax discussions. This has increased the likelihood that the EU will push ahead with its own proposals.In the short-term, the impasse at OECD level is also likely to see other countries push ahead with unilateral digital tax proposals. Indeed, many EU countries have either implemented or proposed their own digital tax proposals.An EU digital taxThe EU’s original digital tax proposals envisaged a simple 3% turnover-based tax as an interim measure, subject to reaching agreement on a means of allocating profits based on digital activity. Given the complexities involved in arriving at such a means, the risk is that any interim ‘quick fix’, such as a flat turnover-based tax, could potentially become permanent.While countries are free to introduce their own digital tax measures, as several have done, implementation of an EU-wide digital tax regime would require unanimity across all EU member states. The need for unanimity could make it challenging to implement as certain countries, including Ireland, are not in favour of the existing EU digital tax proposals.However, the EU is looking to replace unanimity over tax decisions with a form of “qualified majority voting”. While such a change will itself require unanimity, political factors may lead to the removal of the requirement for unanimity in the future. This could potentially pave the way for easier implementation of EU-wide tax changes.Although the removal of the requirement for unanimity on significant EU tax decisions is some years away, countries are often reluctant to use a veto to block EU tax proposals. Hence the real possibility of an EU-wide digital tax in the short- to medium-term.COVID-19 will also drive countries to seek out additional tax revenues to fund spending, with digital tax from large multinationals likely seen as an easy target.What does it mean for Ireland?In recent years, many multinational companies (MNCs) with substantial operations in Ireland have moved their valuable intellectual property (IP) here. Over time, this would be expected to increase corporation tax revenues in Ireland.A simple 3% tax on the ‘digital’ revenues of large MNCs would increase the effective tax rate of these companies and thus dilute the benefit of our 12.5% corporate tax rate. This would impact low-margin businesses most and from a tax perspective, would make it less attractive to operate from Ireland.While the movement of IP to Ireland should see an increase in our corporate tax revenues, an EU-wide digital tax could see a pull the other way; it may cause some groups to reconsider their Irish presence.However, even if our tax regime becomes relatively less attractive, our 12.5% corporate tax rate may still make Ireland the most compelling location in Europe in which to do business and help us retain key employers.Digital tax optionsThe EU acknowledges that a 3% turnover-based tax is a blunt instrument and that more refined taxation of digital activity is the end goal. The OECD considered other options, which would involve looking at the level of activity in the selling country in determining an appropriate allocation between the selling country and the market jurisdiction. However, it is acknowledged that this is a difficult exercise – one that potentially involves a rewriting of transfer pricing principles – hence the EU proposal to start with a straightforward 3% turnover-based tax.Ideally, there would be agreement at EU level on a more sophisticated and accurate means of profit allocation rather than simply jumping into a turnover-based tax regime. While this might take some time to develop, it could be part of negotiations at EU level given that unanimity is required to implement any digital tax proposals (although countries would remain free to continue to develop their own digital tax regimes, which is far from an ideal scenario). A longer-term solution that reflects the value-added activities taking place in the selling jurisdiction, not merely market jurisdiction factors, would be better for Ireland. It would also encourage more knowledge-based businesses to locate here.Wider impactIf the price of any negotiation on digital tax proposals is that unanimity over tax decisions is removed, there is a longer-term vista of other EU proposals being pushed through. This would include the dreaded Common Consolidated Corporate Tax Base (CCCTB), which would again look to rewrite the rules in terms of the allocation of a group’s profits. Such moves would be bad for a small, open economy such as Ireland with significant profits diverted to larger market jurisdictions diluting the benefit of our 12.5% corporate tax rate.Once again, we are at a critical juncture in terms of global tax rule changes. Developments to date have generally been positive for Ireland. However, it would be dangerous to think that this will continue to be the case. In practice, our options are limited in terms of influencing the direction of changes to the tax landscape. In any future scenario, however, the location of high value-add activities should continue to play a key role in the allocation of a group’s profits. One thing that is not good for Ireland is uncertainty. Groups cannot make robust plans in an uncertain environment. The sooner there is clarity on digital tax changes, the better for Ireland.Ongoing robust corporate tax receipts evidence the generally positive impact that global tax changes have had in Ireland to date, with a movement away from tax havens to jurisdictions with substance. If Ireland can maintain a regime that both encourages and rewards innovation, we will be in the best possible place to emerge relatively unscathed from the latest round of changes.Kim Doyle FCA is Tax Director, Head of Knowledge Centre at Grant Thornton.Peter Vale FCA is Tax Partner, Head of International Tax at Grant Thornton.

Jul 30, 2020
News

How can you increase your bottom line during the challenging times we are currently operating in? Ciara McMullin outlines where VAT law can help businesses to gain short-term cash flow improvements. It is a truth universally acknowledged that cash is the lifeblood of business. Given the challenging times we are currently operating in, many companies are looking for innovative ways to increase their bottom line while improving their management of day-to-day operational costs. While maintaining cash flow is always vital to the success of any business, it is even more relevant during periods of unprecedented uncertainty. In response to the COVID-19 crisis, Irish Revenue have introduced certain limited VAT measures targeted at small and medium enterprises (SMEs). There are, however, several mechanisms already provided for in VAT law, and generally accepted indirect tax practice, which can be used by any business (once relevant) to gain short-term cash flow improvements. If these simple strategies are appropriately implemented, the impact on cash flow could offer a significant boost to businesses during these times of need. VAT Cost Reduction Input VAT recovery methodology Ultimately, all businesses with restricted input VAT recovery need to ensure that the method in place for recovering VAT on dual-use inputs, being the percentage of VAT deductible on costs used both for VATable and non-deductible activities, correctly reflects the use to which the underlying costs are put. As a result of such a review, additional costs may be identified as being attributable to VATable supplies which, coupled with an overall change in the basis for calculating the input VAT blockage, could lead to significant improvements. Accounts payable review A review of accounts payable to consider if all input VAT incurred has been recovered, where permitted, can prove fruitful. In our experience, many businesses under-recover VAT either on categories of expenses, through mis-postings or failure to identify foreign VAT eligible for recovery. Not only can this lead to future cost reductions, but there may also be the opportunity to submit historic reclaims to tax authorities for any identified under-claimed VAT on such costs. Overseas input tax recovery Foreign VAT often remains unclaimed even though there are now efficient procedures in place to reclaim non-Irish VAT incurred. A refund of foreign VAT incurred by Irish and EU traders can be made through the Electronic VAT Refund (EVR) procedure, by submitting a claim via Revenue Online Services (ROS) (or the businesses relevant Tax Authority portal) within the relevant time limits. A reclaim for input VAT recovery on costs incurred in other EU Member States in 2019 must be submitted by an Irish trader to Revenue via ROS by 30 September 2020. The claim being made is still, however, subject to the VAT deductibility rules in the jurisdiction in which the VAT was incurred.  Bad debt relief (BDR) If a debt has been written off as an irrecoverable debt, the business should be able to obtain relief for all or part of the VAT paid on the original supply to the customer in default. Where large debts are written off, significant savings can be made.  VAT Cashflow Input tax accrual Operating an input tax accrual with a view to recovering VAT on invoices received but unposted to the accounting records in the earliest possible VAT return is another cash flow optimisation strategy worth considering at this time. If implemented correctly, substantial cash flow benefits can arise. VAT grouping Where there are considerable VATable costs between related entities, the cash flow benefits of forming a VAT group are also worth bearing in mind. Once VAT grouped, the VAT group remitter files a single VAT return per period for the entire group and accounts for any VAT due to Revenue. VAT does not need to be charged nor VAT invoices raised on supplies between VAT grouped entities, with the exception of property transactions. Accordingly, a significant positive cash flow impact can be availed of by forming a VAT group. VAT56B authorisation A qualifying business that holds a valid Section 56 authorisation is entitled to receive certain goods and services from Irish suppliers with a zero-rate of VAT applying as well as importing goods free from VAT. Eligibility to participate in this scheme can be a significant cash-flow benefit as it removes the requirement for suppliers to charge VAT on qualifying supplies in the first instance, and eliminates the necessity for a subsequent reclaim of this VAT on the business’s periodic VAT return. A business may avail of this relief if 75% of total annual turnover is derived from supplying goods to other EU countries (intra-community supplies), exporting goods to countries outside the EU or making supplies of certain contract work. Consider tax point of invoices Businesses could also consider the VAT tax points of their supplies and explore the timing of when VAT is due for payment. Consideration should also be given to when reverse charge obligations are triggered from supplies bought in from overseas. Other opportunities worth considering at this time are the offsetting of tax liabilities, e.g. using a VAT repayment to fund Employment Taxes or Corporation Tax or (re)negotiating customer and supplier payment terms (accounts payable seek longer payment terms; accounts receivable seek shorter payment terms). Ciara McMullin is an Indirect Tax Senior Manager with Deloitte.

Jun 05, 2020
Tax

Peter Vale considers the items that could become long-term features of Ireland’s tax regime under the new government. In the April issue of Accountancy Ireland, I wrote about the expected impact of COVID-19 on Exchequer receipts for 2020 and beyond. We have now seen the evidence with both VAT and excise down roughly 50% on similar months last year. While some of the drop in VAT receipts might be down to timing with companies deferring payments, a large chunk is an unquestionably permanent loss in VAT revenue due to lower spending. The income tax figures for May are also expected to show a significant drop, due to vastly lower numbers in employment. The Department’s view is that corporation tax figures will hold up better. I hope this forecast is right, but I fear that the hit to corporate profits will be higher than anticipated, with refunds for prior years and losses carried forward likely to feature. What is next? So, what does this mean for future taxes? Will the relatively healthy state of our public finances entering the crisis make for a less painful exit? The Minister for Finance, Paschal Donohoe T.D., has stated that he will not raise taxes this year as doing so would stifle the ability of the economy to recover. This makes sense, assuming we can afford to do it. You also cannot simply raise taxes and expect to collect more tax revenue; you reach a tipping point, after which further hikes result in less tax collected. And many of our taxes are already high. Tax reliefs Of course, ruling out impending tax increases does not mean that there will not be a focus on tax reliefs. While many tax reliefs have been abolished over the last decade or so, certain targeted reliefs remain available to taxpayers. It is unlikely that tax reliefs incentivising environmentally friendly behaviour will be targeted. Furthermore, the research and development (R&D) tax credit is also unlikely to be affected as it encourages more sustainable jobs. Reliefs that allow business assets to be passed (typically) to the next generation are more likely to be in scope. Generous reliefs exist for both the disponer and the recipient. These reliefs escaped the guillotine in the past as they continued to make economic sense; a large tax bill was avoided on a potentially illiquid event, allowing the business to be driven forward by the next generation. Capital taxes Capital taxes are likely to be targeted by the Minister, perhaps initially by way of curtailment of reliefs and in the medium-term via an increase in rates. That said, capital tax rates are already high with our 33% rate one of the highest in the EU. In contrast, the UK capital gains tax rate is 20%. We know that when the capital gains tax rate was halved from 40% to 20% some years back, the tax-take doubled. An increase in capital gains tax rates could see the opposite effect, with fewer transactions and potentially more tax planning resulting in a lower tax yield. Broadening the tax base One thing the Minister may look at in the future is broadening the income tax base. It is questionable as to whether this would be regarded as an increase in taxes, but it would generate more tax revenue. Broadening the tax base would mean more people paying tax, albeit many would pay very little. Adjusting the current exemption limits and credits would facilitate this. Broadening the tax base was a recommendation of the Commission of Taxation over a decade ago, but we have not seen it followed by governments since. While the notion of everybody contributing something may resonate more in the current environment, it may still prove politically unpalatable. Property tax In the medium-term, depending on the state of the public finances, other tax-raising measures may be considered. The options aren’t exactly limitless. Our VAT rate is already comparatively high, as are our income taxes. Our corporation tax rate is low but effectively untouchable. One tax rate that is low in a European context is property tax, in particular for residential property. Many economists see property taxes as the least distortive, so an increase in property taxes might be the ‘least bad’ way to raise taxes. Tackling property taxes would be a brave move for a new government, but potentially something that could be done in year one or year two of a new term. Conclusion In summary, tax increases later this year are unlikely – although we may see certain reliefs targetedand the ‘old reliables’ such as cigarettes and alcohol are unlikely to escape. In the medium-term, COVID-19 will mean that tax-raising measures are likely to feature. In my view, a broadening of the tax base and an increase in property taxes are the most likely outcomes. Both of the above could be long-term features of our tax regime, although much will depend on future government priorities.   Peter Vale FCA is Tax Partner at Grant Thornton.

Jun 02, 2020
Tax

Geraldine Browne provides food for thought as employers prepare to report end-of-year expenses and benefits. At the time of writing, I am adjusting to working from home and seeking the best working station in the house (I lost). Much of my time is spent assisting clients with queries on the UK Government interventions introduced to help businesses survive in this challenging time. The most common questions relate to furloughed workers as companies struggle to maintain productivity. It is difficult to choose a topic for this article amid the human tragedy unfolding before us on a global scale. As this article will publish in June, employers will be gathering the necessary information to complete Forms P11D and share scheme reporting for the year ended 5 April 2020. For this reason, I will focus on P11D reporting and consider the changes employers face in benefit-in-kind (BIK) reporting in light of the coronavirus emergency. The due date for P11D reporting is 6 July 2020 for BIK provided for the year ended 5 April 2020. While this may have been delayed in line with other announcements from HMRC, the preparation process will nevertheless be the same. What do I need to file? If the employer paid any benefits and/or non-exempt expenses, or if they payrolled any BIKs, a P11D (B) form must be filed. The employer must include the total benefits liable to Class 1A, even if some of the benefits have been taxed through payroll. Employers are also required to give employees a letter informing them of the benefits that were payrolled and the amount of the benefit. What do you need to include on the P11D form? Taxable benefits typically include private medical and dental insurance, company cars, and gym membership, for example. HMRC has published a useful guide for P11D completion, which is a good starting point. Company cars and vans Employers are required to disclose the company car BIK for the full tax year where it is made available for the entire period. The question has been asked as to whether an employer can reduce the BIK value since employees have been asked to remain indoors and business travel in a company car ceased temporarily from March 2020. If an employee is furloughed and the vehicle remains at the employee’s home, the car is seen as being available under the current rules. At the time of writing, HMRC has not yet issued formal guidance on this matter. There have been suggestions that HMRC may accept that company cars will not be deemed available for BIK tax purposes where they are ‘virtually’ handed back by returning keys and fobs. It is worth reminding ourselves of the rules regarding the cessation of the car benefit. The benefit may cease, but remember: The car must be unavailable for at least 30 days to pause or cease a company car benefit; and HMRC will accept that the car is unavailable to the employee if it is broken down and has not been repaired or if the employee does not have the keys. If you have not already considered the company car policy, it is worth seeking advice in this area. Taxable expenses when working from home If employers provide a mobile phone without restriction on private use, limited to one employee, this is non-taxable. If the employee already pays for broadband, no additional expenses can be claimed. If broadband was not previously available in the employee’s home, the broadband fee paid for by the employer may be provided tax-free although in this case, private use must be restricted. Laptops, tablets, computers, and office supplies will not result in a taxable benefit if mainly used for business. If the employee purchases a desk and chair and seeks reimbursement from the employer, this will be viewed as taxable, and you may wish to include this in a Pay-as-you-earn Settlement Agreement (PSA). Some employers may provide employees with an allowance for additional expenses incurred in connection with working from home. This was increased to £6 per week from 6 April 2020 and can either be paid to the employee or reimbursed to them. Businesses and the economy are facing unprecedented financial pressure. It is worth reviewing your current benefits and expenses to identify ways in which you can reduce the cost to your business and reduce the taxable benefit to the employee. With many employees now furloughed and under severe financial pressure, any assistance an employer can provide to increase net pay will be welcome.   Geraldine Browne is Tax Director at BDO Northern Ireland.

Jun 02, 2020
Tax

David Duffy discusses recent Irish and EU VAT developments. Irish VAT updates VAT payment deferrals  In response to the economic impact of COVID-19, Revenue announced that interest would not apply to late payments by SMEs of their January/February 2020, March/April 2020 and May/June 2020 VAT liabilities. SMEs in this context are defined as businesses with a turnover of less than €3 million and which are not dealt with by either Revenue’s Large Cases Division or Medium Enterprises Division. Businesses that do not meet the definition of an SME but are experiencing VAT payment difficulties are advised to contact Revenue and these issues will be dealt with on a case-by-case basis. Revenue also advised that all taxpayers should continue to file VAT returns within the normal deadlines. Where key personnel are unavailable to prepare the VAT returns due to COVID-19, businesses should file on a ‘best estimates’ basis and any subsequent amendments can be completed on a self-correction basis without penalty.  Furthermore, on 2 May 2020, a scheme was announced to allow businesses that have availed of VAT and PAYE deferrals during the COVID-19 crisis to defer or “warehouse” the payment of those outstanding liabilities for a period of 12 months without accruing any interest. A lower than normal interest rate on late payment of tax (3% per annum instead of 10% per annum) will then apply until the warehoused tax liability has been repaid. Further details of this scheme are available on the Revenue website and legislation will be enacted in due course. Temporary relief from VAT and duty on PPE On 8 April 2020, Revenue announced that the 0% rate of Irish VAT and customs duties would apply to Irish imports (from outside the EU) of personal protective equipment (PPE) and other goods used to combat COVID-19. This relief applies to imports in the period from 30 January 2020 to 31 July 2020. Revenue also confirmed in eBrief 63/20, issued on 17 April, that the 0% rate of Irish VAT concessionally applies to domestic and intra-EU acquisitions of similar goods in the period from 9 April 2020 to 31 July 2020. These reliefs are subject to certain conditions, which are summarised below. For imports from outside the EU, the goods must be imported by, or on behalf of, State organisations, disaster relief agencies, or other organisations (including private operators) approved by Revenue. The goods must be intended for free-of-charge distribution or be made available free-of-charge to those affected by, at risk from, or involved in combating COVID-19. Furthermore, the importer must have both an EORI number and be pre-authorised by Revenue for the relief. In addition, import declarations must include the relevant customs codes in the appropriate SAD boxes. Where VAT and customs duties have already been paid but the relevant conditions for relief are met, a refund of such amounts can be claimed. Application forms to avail of the relief and to seek a refund of VAT or customs duty previously paid are available on Revenue’s website. For domestic supplies and intra-EU acquisitions, the 0% VAT rate temporarily applies to PPE, thermometers, ventilators, hand sanitiser and oxygen supplied to the HSE, hospitals, nursing homes and other healthcare facilities for use in the delivery of COVID-19-related healthcare services to patients. The sale of these products in other circumstances will continue to attract the VAT rate that would typically apply. VAT grouping In eBrief 053/20, Revenue issued guidance in respect of VAT groups. The guidance primarily outlines the requirements and implications of VAT grouping and includes examples, which show how the rules apply in certain circumstances. Businesses that are considering forming or breaking a VAT group should review the guidelines to ensure that the appropriate procedures are followed. The guidance includes a section on the territorial scope of Irish VAT groups and confirms that, where an entity that is established or has a fixed establishment in Ireland joins an Irish VAT group, it is the entire entity, including any overseas branches, that is considered to join the Irish VAT group. Consequently, charges from a foreign establishment of an Irish VAT group member to other members of that Irish VAT group are disregarded for Irish VAT purposes. This has been the Revenue position for some time, but it is helpful to have it reconfirmed – particularly for the financial services and insurance sectors. ROS enhancements In eBrief 58/20, Revenue announced several VAT-related enhancements to Revenue’s Online Service (ROS). Taxpayers now have the option to add a second VAT agent. To add the second VAT agent, taxpayers will need to complete an Agent Link form in the usual manner. Also, the Revenue Record (Registration Details) on ROS now indicates the VAT basis of accounting (i.e. the cash receipts or invoice basis) adopted by a given taxpayer. EU VAT updates VAT treatment of staff secondments The Court of Justice of the EU (CJEU) concluded in the San Domenico Vetraria (SDV) case (C-94/19) that the secondment of staff by a parent company to its subsidiary in return for a payment equal to the parent company’s cost (but excluding any profit margin) is a supply of services within the scope of VAT. The case highlights that VAT can arise on cross-charges for staff time and this should be carefully considered, particularly in cases where there may be no or partial VAT recovery in the recipient entity. In analysing the case, the CJEU re-stated that VAT arises on a supply of goods or services effected for consideration within the territory of an EU member state by a taxable person. A supply effected for consideration requires a legal relationship between the supplier and recipient, and reciprocal performance, meaning that the payment received by the provider of the service is in return for the service supplied to the recipient. In the present case, the CJEU was satisfied that there was a legal relationship between the parent and subsidiary and that there was a payment in return for the service provided. Consequently, where the Italian court, which had referred the case to the CJEU, established based on the facts that the amounts invoiced by the parent company were a condition for the secondment and that the subsidiary paid those amounts only in return for the secondment, VAT would apply to the secondment. The CJEU confirmed that the fact that the payment did not include a profit margin did not impact the VAT analysis, as it has been previously held that a supply for VAT purposes can take place where services are supplied at or below cost.   David Duffy FCA, AITI Chartered Tax Advisor, is an Indirect Tax Partner at KPMG.

Jun 02, 2020
Tax

While COVID-19 will take a significant toll on 2020 tax receipts, Peter Vale suggests that the figures should return to current levels at some point next year. At the time of writing, the coronavirus pandemic looks likely to have a significant adverse bearing on global economic growth, in addition to the substantial societal impact we are all experiencing. We know from experience that an economic downturn can dramatically affect exchequer receipts – there was a 40% decline in corporate tax receipts alone between 2007 and 2009. So, what impact will COVID-19 have on tax receipts by year-end and what will that mean for our economy? Corporation tax Large companies make their first tax payment six months into their financial year, with a further payment one month before year-end. In Ireland, May and June tend to be the first key months in the year for corporation tax payments. A company has the option to base its first payment on either current year estimates or the prior year actual liability. Given the expected impact of the virus on the economic activity and profitability of most companies, you can expect that many will choose to base their first payments on current year estimates. It may not be possible to assess the full 2020 impact of the virus by May/June, however; some large companies may take a conservative view and make payments based on the prior year position. Assuming the virus continues to cause economic disruption through to the end of the year, there could be significantly smaller second instalment payments later in the year or large refunds due to companies in 2021. For many smaller companies, November is the critical month with the ability again to assess the liability based on the current year estimates. All of this means that we could see significantly smaller corporate tax payments this year, likely first evidenced in May/June with a further reduction in November returns, if the virus disrupts economic activity through to year-end. It is challenging to assess the scale of the potential reduction in corporate tax receipts. In this author’s view, it will be significant and could also impact on 2021 figures. But on the positive side, one would hope that the figures would return to current levels perhaps late next year. This would contrast with a more gradual increase in receipts following the economic crash. COVID-19 will also impact other tax heads. VAT Restrictions on travel and movement, plus enforced closures, will likely have a significant impact on consumer spending and a consequent downward impact on VAT receipts. While online spending could continue, supply chain issues are likely to mean even that option will be curtailed. Discretionary high street spending may be impacted most, with many shopping trips confined to the purchase of essential goods. Again, one would expect that any resultant downturn in VAT receipts would be temporary. Still, it could last for the rest of the year and trickle into early 2021 receipts if Christmas spending is impacted. Income tax and capital taxes Income tax receipts will also suffer, with seasonal and temporary roles likely to be hit hardest, and a reduction in profits generally for the self-employed seeing tax receipts fall. While not as significant, capital taxes will also suffer with deal volumes expected to fall across many asset classes, impacting both capital gains tax and stamp duty receipts.  Impact The impact of most of the above will be seen before the October Budget, leaving the Minister for Finance facing some difficult decisions, assuming there is no mini-Budget before then. There may be a need for some temporary tax-raising measures in addition to dipping into cash reserves and a considerable increase in borrowing. While significant on many fronts, COVID-19 is expected to be something we recover from, with many governments already launching initiatives to help individuals and businesses get through the crisis. The Republic of Ireland is lucky to be home to many large multinational companies that use Ireland as a hub for global activity. It is almost inevitable that COVID-19 will see the profits and tax receipts of these groups fall substantially, with a decrease in domestic economic activity generally also fuelling a significant dip in tax receipts. While I believe the decrease in 2020 tax receipts will be significant, the figures should return to current levels once the worst of the crisis is over. A best estimate of when this will be is likely at some point next year. Peter Vale FCA is Tax Partner at Grant Thornton.

Apr 01, 2020
Tax

Kim Doyle considers the best course of action for businesses that are strained financially as a result of the impact of COVID-19. COVID-19, a term that was not part of most members’ vocabulary a mere two months ago, is now the unwanted commandeer of conversations. Self-isolation, social distancing, WFH (working from home) and CC (conference call) have become part of our basic business language. But we must not forget to keep talking about the old reliable, tax. Continue to talk to Revenue, as early as possible, if you are now experiencing timely tax payment difficulties. This is one of their key messages. The other is to get tax returns in on time. At the time of writing, Revenue’s message to businesses strained financially as a result of the impact of COVID-19 is that they will work to resolve tax payment difficulties. Viable businesses that experience cash flow difficulties have long been encouraged by Revenue to engage with them as early as possible. Often, entering a phased payment arrangement is the appropriate practical step to deal with outstanding tax payments. In fact, at the end of 2019, over 6,300 business had such arrangements in place covering €73 million in tax debt, according to Revenue. Revenue will only agree to a phased payment arrangement provided the relevant tax returns are filed with them, the tax due is fully calculated, the business is viable and there is early and honest engagement. Applications for such an arrangement can be made via the Revenue Online Service (ROS). Supporting documents will be required; the volume of documentation depends on the level of outstanding tax payments. A down-payment must be made, which can range from 25-40% of the total tax payment, which may include interest. Agents can apply on behalf of their clients via ROS. Applications are typically responded to within two weeks; in many cases, arrangements are up and running in a matter of days. Responding to the difficulties arising from the impacts of COVID-19, Revenue has implemented specific measures for small- and medium-sized enterprises (SMEs) experiencing trading difficulties. Perhaps the most important being that interest will not be applied to late tax payments of VAT for the January/February period (due by 23 March) or employer PAYE liabilities for the months of February and March. Any future similar suspension will be considered at the relevant time, Revenue say. For other businesses experiencing temporary cash flow or trading difficulties, the advice from Revenue is to contact the Collector-General’s office directly or the appropriate Revenue division. Revenue has also suspended all debt enforcement activity, for now. Current tax clearance status is expected to remain in place for all businesses over the coming months.  And in an effort to ease the burden on households, Revenue also announced the deferral of certain local tax payments (annual Debit Instruction/Single Debit Authority) to 21 May from 21 March. As of now, there is no statement from Revenue on dealing with other taxes such as corporation tax. In this unprecedented turbulent environment, protecting the tax receipts must be one of the priorities for Government. It is hoped that any dip in tax receipts will be confined to 2020. However, as long as we continue to talk about COVID-19 and suffer the impacts, we must also continue to talk to Revenue. Kim Doyle FCA, AITI-CTA, is Tax Manager at Chartered Accountants Ireland.

Apr 01, 2020
Tax

It is now time to consider the UK tax relief available on building projects, writes Eugene Moore. To stimulate international investment in the UK, the then-Chancellor, Phillip Hammond, presented his 2018 Autumn Budget to the House of Commons. In it, he announced the introduction of capital allowances for capital expenditure incurred on the construction, renovation or conversion of most UK and overseas buildings and structures. The Structures and Building Allowance (SBA) applies to contracts entered into on or after 29 October 2018. Construction projects that may qualify for the SBA are now starting to be completed, with the structures and buildings coming into use. It is now, therefore, time for the current owners and their advisors to consider the significant tax relief available on such capital projects and how best to mitigate the risks of making an invalid claim. The relief Relief is available for UK and overseas structures and buildings where the claiming business is within the charge to UK tax. The SBA was introduced at a rate of 2% straight-line basis on qualifying expenditure over 50 years. The rate was increased to 3% in the Budget and the change will take effect from 1 April 2020 for UK corporation tax and 6 April 2020 for UK income tax. The relief commences with the later of: The day the building or structure is first brought into non-residential use; or The day the qualifying expenditure is incurred. Once qualifying expenditure is incurred, the first use of the structure or building must be non-residential. Subsequent events, such as change of use to residential or the demolition of the structure or building, will impact the availability of the SBA. A period of non-use immediately after a period of non-residential use is deemed as non-residential use, and the SBA continues to be available. Qualifying activities The structure or building must be for a qualifying activity carried out by the person who holds the relevant interest. Qualifying activities include: trade; an ordinary UK property business; an ordinary overseas property business; a profession or vocation; the carrying on of a concern listed in ITTOIA05/S12(4) or CTA09/S39(4) (mines, quarries and other concerns); or managing the investments of a company with investment business. Qualifying expenditure Capital expenditure incurred on the construction or purchase of a structure or building (including professional fees and site preparation costs) is qualifying expenditure. Excluded expenditure covers: the cost of the land or rights over the land; the cost of obtaining planning permission; financing costs; or the cost of land remediation, drainage and reclamation. Abortive costs, such as architect’s fees associated with a structure or building that is not completed, do not qualify for the SBA. Commencement date As the SBA was introduced to stimulate investment from 29 October 2018, allowances are not available on structures or buildings where the contract for the physical construction work was entered into before 29 October 2018. For projects under a construction contract, the commencement date for the SBA will be the date of that contract. HMRC is of the opinion that contracts can take different forms; it gives the example of email exchanges, which confirm that works will take place. Where no contract is in place, the date of the commencement of physical works represents the commencement date for the SBA. This is also the case where physical works commence, and a contract is subsequently put in place. Site preparation According to HMRC, the cost incurred in preparing land as a site is treated as expenditure on the construction of the structure or building that is then built upon that site. This includes cutting, tunnelling or levelling land. On the plus side, these costs are not excluded as expenditure for the SBA. On the downside, the timing of these costs could drag the entire construction project into an invalid claim position for the SBA if they are incurred before 29 October 2018. HMRC states that the following does not impact the commencement date: separate preparation and construction contracts; replacement of preparation contracts; preparation works ceased then recommenced; and preparation work redone. Demolition or enabling works incurred before 29 October 2018 do not in themselves make the entire claim invalid for the SBA unless explicitly linked to the actual structure or building. Practical issues Before an SBA claim can be made on a UK income tax or UK corporation tax return, the current owner of the relevant interest in a structure or building must create and maintain an allowance statement. Where the current owner incurred the qualifying expenditure in relation to the structure or building, the current owner creates the allowance statement. Where the current owner acquired the relevant interest in the structure or building from another person, they must obtain the allowance statement from the previous owner. An allowance statement means a written statement, which must include the following information: information to identify the building to which it relates; the date of the earliest written contract for the construction of the building; the amount of qualifying expenditure incurred on its construction or purchase; and the date the building is first brought into non-residential use. CPSE.1 (Ver. 3.8) General Pre-Contacts Enquiries for all Commercial Property Transactions now contains questions concerning the SBA and requests explicitly the allowance statement. In summary The SBA may result in significant tax relief for UK businesses that construct or purchase non-residential structures and buildings where previously, there was none on such expenditure. Careful consideration should be given to the commencement date of the project, and detailed evidence must be created and maintained by way of an allowance statement to avoid invalid claims.   Eugene Moore ACA is Corporate Tax Manager at BDO Northern Ireland.

Apr 01, 2020
Tax

David Duffy discusses recent Irish, EU and UK VAT developments. Irish VAT updates VAT compensation scheme for charities eBrief 21/20 contains updated guidance in respect of the VAT compensation scheme for charities. This scheme is now open in respect of VAT incurred by charities in 2019. The deadline for submitting such claims is 30 June 2020. Charities must satisfy various conditions to make a valid claim and there is a formula for calculating the claim. The total fund available for all claims is capped at €5 million and, if exceeded, this amount will be allocated between valid claims on a pro rata basis. There have been no changes to the scheme, but the guidance provides further details on the terms “total income” and “qualifying income”, which are relevant to the calculation of claims under the scheme. VAT on telecom services On 31 January 2020, the Tax Appeals Commission (TAC) published a determination in a case (16TACD2020) involving a mobile telephone operator (the appellant). The case considered the VAT treatment of the appellant’s cancellation charges, unused data, and non-EU roaming on bill-pay mobile phone services, as well as the time limit for making VAT reclaims. The appellant was unsuccessful in arguing for a VAT refund on three counts but did succeed in a claim for a VAT refund on non-EU roaming services. The key points of TAC’s determination were as follows: The appellant was liable for VAT on cancellation charges to bill-pay customers for early termination of their contracts. This followed a similar decision by the Court of Justice of the EU (CJEU) in MEO (C-295/17). The appellant was also liable for VAT in respect of customers’ unused data included in the price of their bundle. The appellant’s argument that VAT refunds should extend back further than four years was also rejected. The appellant had sought to argue that it should be equivalent to the five-year refund period available for other taxes, but this was rejected. The appellant was successful in arguing for a VAT refund to the extent that its bill-pay customers used its telecom services outside the EU. Revenue had sought to argue that refunds for non-EU roaming should only be available for pre-pay customers, but this was rejected by the TAC. While the case is principally relevant to the telecoms sector, some of the principles regarding cancellation charges and equal treatment could have wider application. The determination (which is available on the TAC’s website) is, therefore, a useful read. Time limits The question of time limits for VAT refunds was also the subject of a TAC determination (03TACD2020). The taxpayer was engaged in a VAT-exempt business but was entitled to partial VAT recovery on its dual-use input costs to the extent that its services were to non-EU recipients. However, during 2009, the taxpayer had not been aware of its entitlement to partial VAT recovery and therefore had not taken any VAT recovery on its costs. Upon becoming aware of this entitlement, the taxpayer submitted a claim on 31 December 2013, which included VAT incurred before 1 November 2009, which would ordinarily be outside the four-year time limit. The taxpayer sought to argue that this VAT was still within the four-year time limit because, in the taxpayer’s view, it was an adjustment of its partial exemption VAT recovery rate review for 2009 (which fell due after 31 December 2009). However, the TAC disagreed as the taxpayer had not applied any VAT recovery rate to dual-use inputs during 2009. The TAC concluded that only VAT incurred from 1 November 2009 onwards was correctly included in the claim submitted on 31 December 2013. While the facts of the case are quite specific, it emphasises the importance of following the appropriate procedures and paying close attention to time limits when submitting a claim for any historic VAT. EU VAT updates VAT treatment of boat moorings Segler (C-715/18) was a German non-profit-making association whose objective was to promote sailing and motorised water sports. It maintained boat moorings, some of which were used by members of the association and others were used by guests. Segler applied the reduced rate of German VAT as it believed the letting of the moorings fell within the meaning of “accommodation provided in hotels and similar establishments, including the provision of holiday accommodation and the letting of places on camping or caravan sites”. The German tax authorities argued that the standard rate of VAT should instead apply. The CJEU concluded that the reduced rate could not apply, as the letting of the boat mooring was not intrinsically linked to the concept of “accommodation”. UK VAT updates Budget 2020 The UK’s Chancellor of the Exchequer announced several VAT measures in Budget 2020, which was presented to the UK parliament on 11 March 2020. The key updates are summarised below: The 0% rate of VAT will apply to e-books and online newspapers, magazines and journals with effect from 1 December 2020, bringing them in line with the rate applying in the UK to physical books and publications. The standard 20% rate has applied heretofore. Interestingly, however, the UK Upper Tribunal had already held that the 0% rate correctly applied to such publications in the Newscorp decision, but HMRC has indicated an intention to appeal that decision. Consequently, the position applying before 1 December 2020 remains to be clarified. As a cash flow-relieving measure following the implementation of Brexit, postponed accounting for import VAT will be introduced for all goods imported into the UK with effect from 1 January 2021. Postponed VAT accounting will enable UK VAT-registered businesses to self-account for import VAT under the reverse charge mechanism. From January 2021, 0% VAT will apply to women’s sanitary products. David Duffy FCA, AITI Chartered Tax Advisor, is Indirect Tax Partner at KPMG.

Apr 01, 2020
Tax

Peter Vale and Christopher Crampton outline some expected changes to international taxation in the coming year. 2020 is set to be a busy year for international tax. For Ireland, it’s a key period. While international tax reform to date has been good for the country, the changes being looked at in 2020 pose challenges.   Global tax changes – Pillars One and Two The outcome of meetings in January are key to the OECD’s plans to reach consensus on both the Pillar One and Pillar Two proposals. While the Department of Finance expects the ultimate outcome to be a reduction in Irish corporate tax receipts by up to €2 billion, it’s a very difficult one to call. Pillar One examines a reallocation of profits to market jurisdictions. While this does impact on our corporate tax base, it should not prove fatal on its own. However, recent pronouncements from the US suggest that getting consensus on the Pillar One changes could be difficult. Pillar Two looks at a global minimum effective tax rate and is, perhaps, of more danger to Ireland. A tax rate of 12.5% was suggested by the French Finance Minister in December. While at first glance this would look positive from an Irish perspective, the devil is in the detail.   The most recent OECD draft proposals look at an allocation of profits to individual countries based on a group’s consolidated financial statements. This could provide a distorted result for groups with large intellectual property (IP) migrations to Ireland, in particular, and potentially lead to an effective tax charge significantly lower than 12.5%.  The early months of the year should provide key signals as to the direction of travel on both Pillars, with the outcome critical to the relative attractiveness of our corporate tax regime in the future. We should not rule out the EU taking matters into its own hands, particularly if reaching a consensus looks like being a protracted affair. Transfer pricing Finance Act 2019 saw the introduction of OECD 2017 guidelines into Irish tax legislation. One of the biggest impacts of the guidelines will be more onerous documentation requirements in 2020 for Irish companies, although many will already be maintaining similar documentation on a group-wide basis. At first glance, this might seem to cause disruption for Irish subsidiaries of US multinationals with significant IP in Ireland. While these groups typically have significant substance here, many of the IP functions are carried out outside Ireland; often in the US. Another key change in Finance Act 2019 was the introduction of transfer pricing for Irish small- and medium-sized enterprises (SMEs). While it is expected that the documentation requirements will be more relaxed for SMEs, the extension of transfer pricing will create further administrative requirements on Irish businesses. On the positive side, the extension of transfer pricing to SMEs is subject to Ministerial Order, which we might see later in 2020. Any transfer pricing requirements will apply from that date or later; they should not be retrospective to 1 January 2020. For businesses within the scope of transfer pricing now, more focus from Revenue in 2020 can be expected.   IP migrations 2020 will see the final year of “double Irish” migrations, with 31 December 2020 marking the end for groups with IP currently housed offshore in Irish incorporated non-resident entities. After that date, those entities become regarded as Irish tax resident. While many groups have already moved their IP onshore (much of it to Ireland), a significant number of groups have yet to do so. Hence, we expect many IP migrations to take place in 2020. When an IP migration takes place, the market value of the IP determines the amount of tax allowances available in Ireland. This number is often large, and so we expect to see Revenue examine these IP valuations closely. Interestingly, when these tax allowances expire then, all other things being equal, a significant increase in Ireland’s corporate tax receipts at some point in the future would be expected. However, a lot could happen in the intervening years! Revenue audit focus Aside from the focuses identified above, we don’t expect significant change in the nature of Revenue audit activity in 2020. We expect Revenue’s focus to remain on PAYE and VAT for SMEs, which tend to be the areas of greatest non-compliance.   On the corporation tax side, we have seen Revenue increasingly look for back-up supporting tax losses carried forward, which can prove challenging where the losses were generated some time ago but are being used presently. Businesses should be aware of this when considering document retention policies. Budget 2021 While Budget 2020 has just passed, it’s worth noting that this Budget was based on a more negative outlook than now appears to be materialising. This could mean we finally see more meaningful movement on our high marginal income tax rates later in the year, or possibly a reduction in capital taxes. Of course, a lot can happen between now and then, including a new government, further global tax changes, and six months of known unknowns! And, that’s all without mentioning Brexit. In summary, another year of significant developments on the international tax front looks likely, with the outcome critical for Ireland. Peter Vale FCA is a Tax Partner at Grant Thornton. Christopher Crampton ACA is an Associate Director at Grant Thornton. Brass Tax -- new year, new tax rules by Leontia Doran Since we’re fast approaching a new tax year in the UK (from 6 April 2020), let’s take a look at what is on the horizon for practitioners. IR35 rules From 1 April 2020, the IR35 rules in the public sector are being extended to the private sector with an exemption from the rules only available to “small” businesses. The IR35 legislation is designed to combat avoidance by individuals who are supplying their services to businesses via an intermediary (such as a company) but who would be an employee if the intermediary wasn’t used. Making Tax Digital From 1 April 2020, the UK will join the ranks of France, Italy, Austria, Turkey and Malaysia when it introduces its own digital services tax.  Making Tax Digital (MTD) for VAT continues. Some businesses are now able to apply for an extension to meet the digital links requirement once the one-year soft-landing period ends on either 1 April 2020 or 1 October 2020. However, the criteria to do so is strict, as set out in the updated VAT notice.  Corporation tax The rate of corporation tax is also legislated to fall from 19% to 17% from 1 April 2020. However, the Government has stated that it will remain at 19%. As it’s already on the Statute books, legislation will be needed to reverse this.  And therein lies the rub. The next UK Budget isn’t taking place until 11 March, which means the related Finance Act likely won’t be enacted until several months later. Retrospective legislation is never a good thing. Leontia Doran FCA is UK Taxation Specialist at Chartered Accountants Ireland.

Feb 10, 2020
Tax

As the new UK Government has been formed by the Conservative party with a significant majority, its policies will set the tax agenda for 2020 and the following four years. Claire McGuigan summarises the main proposals. Business taxes In Finance Act 2016, the rate for corporation tax for 2020/21 was set at 17%. As this rate is set in legislation, it is the rate (excluding the UK banking corporation tax surcharge of 8%) that companies must use for their deferred tax calculations. However, during the election campaign, the Conservative party pledged to maintain the rate at 19%. Therefore, once this change is enacted, businesses will need to revisit their deferred tax calculations. The Chancellor is expected to stick to the existing plans to introduce restrictions to payable research and development (R&D) tax credits from April 2020 to reduce the scope for tax avoidance by small- and medium-sized enterprises (SMEs). However, the Conservatives have pledged to increase the value of the R&D expenditure credit (RDEC) for larger companies from 12% to 13% and review the project qualifying criteria to establish if it can be widened to include R&D on cloud computing and data. They also committed to increasing the relief available under the new structures and buildings allowance to 3% a year. Both of these changes are likely to take effect from 1 April 2020. The Conservative party confirmed its commitment to introduce a Digital Services Tax (DST) from April 2020, although it is not clear if there will be enough time to finalise the necessary legislation by then. Also, at the time of writing, the OECD has asked the UK to postpone implementation of this tax to allow for a standard approach to be considered across all countries. During the election campaign, all three main parties promised to review the impact that the IR35/off-payroll labour changes will have on private sector businesses. Given that these changes were longstanding Conservative party policy, it is unlikely that they will be abandoned entirely. However, delaying the changes until 2021 or committing to a ‘post-implementation review’ may feature in the Budget. Similarly, the outcome of the Loan Charge Review is expected. Again, for the Government to abandon this tax enforcement action seems unlikely, but the Chancellor may announce much more flexible payment terms for individuals facing the charge. Finally, for business taxes, the Conservative party manifesto contained a promise not to raise the rate of VAT during the next parliament. Brexit The promise to “get Brexit done” was central to the Conservatives’ election campaign. With a transitional period operating until 1 January 2021, most operational laws and cross-border arrangements will remain in place until that date. During 2020, the new Government will aim to negotiate a post-Brexit trade deal with the EU that will take effect from 1 January 2021. However, some uncertainty will continue: in the election campaign, the Prime Minister promised not to extend the transition period beyond 1 January 2021 so, theoretically, there may still be a ‘no-deal’ Brexit if a trade deal is not agreed. Alternatively, an extension to the transition period may be possible if a post-Brexit deal takes longer to agree. Employer issues Although the Conservative party committed to ending freedom of movement on Brexit day, under the transitional rules, EU citizens would be able to come to the UK to live and work without any formal application process. If those individuals wish to remain in the UK after 31 December 2020, they can apply for “temporary leave to remain” in the UK which, if granted, will allow them to continue living and working in the UK for 36 months from the date it is granted. From 2021 onwards, the Conservatives plan to introduce a points-based immigration system. Despite the national insurance contributions (NIC) changes for individuals, the Conservatives pledged not to increase NIC for employers and, to help small employers, they also plan to increase the NIC employment allowance from £3,000 to £4,000. Employers should prepare for a significant increase in the national minimum wage (NMW) from April 2020. The Conservative party has pledged to increase it in stages to £10.50 over five years – this equates to a 5% increase from April 2020 and each subsequent year of the parliament. Personal taxes During the election campaign, all the main parties proposed changes to capital gains tax, although the Conservative party proposals were the least radical. The Conservative manifesto did pledge to “review and reform” entrepreneurs’ relief (ER). While it is perhaps unlikely that the valuable ER rules will be immediately repealed, there may be some interim changes to the rules announced in the Budget, pending the outcome of a more fundamental review during 2020/21. The Conservatives intend to raise the annual NIC starting threshold for employees to £12,500 over the next parliament, with an immediate increase to £9,500 from April 2020. The rates of NIC will be frozen for the duration of the new parliament. The Prime Minister also made an election commitment not to increase income tax rates during the new parliament. Past political controversy over pension tax relief perhaps influenced politicians not to make specific commitments on the topic during the election campaign. However, because of the impact the annual allowance charge is having on senior NHS clinicians, the Government has already announced temporary measures to ensure that where they take on additional hours, such individuals would not lose out overall. The ‘quick fix’ compensation arrangement announced during the election campaign is unlikely to be sustained for the long-term, and a review of the underlying rule is likely to be announced in the Budget as it can trigger tax charges for many workers in the public sector (and private sector). On tax avoidance, they propose a new package of measures including doubling the maximum prison term to 14 years for individuals convicted of the most serious types of tax fraud and creating a new HMRC Anti-Tax Evasion Unit.   We await the Government’s first budget, scheduled for 11 March 2020, with anticipation. Claire McGuigan is Director, Corporate Tax, at BDO Northern Ireland.

Feb 10, 2020
Tax

New legislation from the UK government has changed the rules of UK residential property disposals. Maybeth Shaw tells us about these changes and what tax filing and payment obligations need to be adhered to post-6 April 2020. The UK government has passed legislation which will have a major impact on the filing and payment obligations of certain UK resident taxpayers who sell UK residential property from 6 April 2020, applying to both individuals and trusts and only to capital gains tax (CGT). It does not apply to UK resident companies (and, from 6 April 2020, non-resident companies) which are subject to corporation tax on capital gains. This change was initially proposed in 2015 in order to reduce the time between a gain arising on a residential property sale and the tax being paid (in order to bring it closer to the position for other taxes). The April 2020 changes represent an extension of provisions which have applied to the disposal of UK residential property by non-resident persons from 6 April 2015, which was extended from 6 April 2019 to non-residential. Disposals before 6 April 2020 Currently, a UK resident individual or trust disposing of UK residential property that results in a taxable gain is required to report that gain on their annual UK self-assessment tax return. The deadline for reporting the gain and paying the tax due is the 31 January following the year of the disposal. Disposals from 6 April 2020 onwards From 6 April 2020, a UK resident individual or trust disposing of UK residential property will be required to file a “residential property return” within 30 days of the completion date of the disposal. Penalties will apply if the return is filed late. The vendor will be required to pay an estimate of the CGT within 30 days of the completion date. This will be treated as a ‘payment on account’ against their total income tax and CGT liability for that year when their annual self-assessment tax return is submitted by 31 January after the tax year of disposal, if filed online. The individual or trust will, therefore, be required to estimate how much tax is payable. This will depend on several factors which could result in a refund/additional liability being due when the self-assessment return is submitted. If additional tax is due when the annual return is filed, then interest will be payable at the standard rate set by HMRC. Exceptions Some common examples of where a return will not be required are: Where the gain is wholly covered by principal private residence relief for the duration of the taxpayer’s ownership. If a loss arises on the sale of the property. The gain is sheltered by capital losses crystallised before the sale takes place. The gain is small enough to be covered by the individual’s annual exemption for the year of disposal. The return and payment on account will not be required where the property disposed of is not a residential property or where the property is situated outside the UK. From a practical perspective, the taxpayer will need to rapidly determine whether (or to what extent) their gain is sheltered through principal private residence relief and, if it is not fully sheltered, what the gain will be and to what extent it will be sheltered by crystallised capital losses or their annual exemption. As these can take time to assess/calculate, it will often be worthwhile to assess them before the sale has completed. Non-UK residents Non-UK residents have already been required to file returns within 30 days when they have disposed of UK property, both residential and non-residential, since 6 April 2015 and 6 April 2019 respectively. There are no changes for disposals by non-UK resident individuals or trusts from 6 April 2020. Action from 6 April 2020 The application of this legislation to UK residents will be a game-changer in the sense that the tax filing and payment obligations need to be considered immediately on completion of the sale rather than left until after the end of the tax year. It will be common for individuals not to know precisely what their CGT liability will be at the time of the sale and, indeed, some of the relevant information may not be known until after the end of the tax year. For example, this could be the case where the tax liability depends on other disposals or other income in the same tax year. It would, therefore, be prudent to contact your tax advisor much sooner (ideally before completing the transaction) when making residential property disposals in order to submit the returns on time and to determine an appropriate estimate of the CGT liability. Maybeth Shaw is a Tax Partner in BDO Northern Ireland.

Jan 10, 2020
Tax

Without much guidance from Revenue, business owners often struggle with completing their annual Return of Trading Details, at great impact to the business. Alan Kilmartin explains RTD, how it can affect a business and the best way to simplify the process. All VAT-registered persons are required to file a Return of Trading Details (RTD) following the end of their accounting period (which is usually aligned to the financial year). The RTD is a statistical return summarising actual sales and purchase figures, the VAT on which was included in the less detailed periodic VAT returns during the accounting period. The return gathers the information through four key questions: Have you made supplies of goods or services? Did you acquire any goods or services from the European Union, including Northern Ireland? Did you purchase goods or services for resale? Did you purchase goods or services that are not for resale but where VAT paid on them can be claimed as an input credit?      The fields on the return are completed using the net sales or purchase figures at the various VAT rates applicable to the relevant transactions. For example, the net total sales of goods and services supplied for question 1 would be broken down into the various VAT rate categories (9%, 13.5%, 23%, etc.) and included in the return based on the total for each rate. The potential impact of the RTD The RTD must be filed on the 23rd of the month following the end of the accounting period. Therefore, if a business has an accounting period which ended on 31 December 2019, the RTD is due to be filed by 23 January 2020. The return is, as mentioned, a statistical return and, as such, does not carry an obligation to pay any VAT liability. Essentially, the RTD is used as an audit tool to assist Revenue in verifying the accuracy of periodic VAT returns filled during the accounting period. Revenue have stated in recent guidance that when a nil RTD is filled, it will be rejected when there have been positive values in the VAT returns for the accounting period, so it is important to ensure that the RTD reconciles with the VAT returns made to Revenue in the period which it covers. It is recommended to carry out a reconciliation of the RTD with the VAT returns because it is quite likely that one will be carried out by Revenue and if there are discrepancies, Revenue may choose to audit your client’s business. In contrast to VAT returns, there is no option to complete a Revenue Online Service (ROS) offline file in respect of the RTD and, therefore, the return must be completed ‘live’ on ROS. Failure to file an RTD can affect the cash flow of a business as tax refunds, under any tax head, can be withheld until the RTD has been filled. Also, Revenue may refuse to issue tax clearance certificates until the RTD has been filed. How to simplify the process In order to ensure that the information provided to Revenue is correct, it is recommended that businesses fully utilise the functionality of their ERP/accounting systems and ensure the tax and VAT codes within those systems take account of the data required to be declared in RTDs. In addition, preparing the RTD on a periodic basis when preparing the periodic VAT return will alleviate pressure during the “year-end” process. Despite an overhaul in recent years, the RTD still contains obvious flaws and its completion, in parts, is certainly open to interpretation by the taxpayer. Furthermore, in the absence of definitive guidance from Revenue, it is not surprising that taxpayers often have difficulty completing this return. So, are you RTD ready? Alan Kilmartin is a Director of Indirect Tax in Deloitte.

Jan 10, 2020
Tax

While Finance Bill 2019 may have seemed to cater to SMEs, Peter Vale highlights where it includes significant measures for international businesses. The headlines surrounding Budget 2020 and Finance Bill 2019 may have left the impression that most of the legislative changes have been focused on domestic small- and medium-sized enterprises (SME), with less focus on foreign direct investment (FDI) and Irish companies with international operations (which may, of course, include SMEs). The reality is that the Finance Bill was packed with provisions of interest for groups with international operations, either inbound or outbound, albeit many of these were expected and hence didn’t attract the same headlines. Here are some of the key Finance Bill measures for international businesses, some of which were expected, and others which came as a surprise. Mandatory reporting As expected, the Finance Bill saw the introduction of  Council Directive 2011/16/EU (DAC6), which covers the mandatory reporting of certain cross-border transactions to home country tax authorities, to be subsequently exchanged between EU Member States. The DAC6 provisions reflect the ever changing global tax environment and follows on from the Common Reporting Standard (CRS), which was a game-changer in terms of providing for a new level of reporting and transparency. Irish taxpayers might feel relaxed about the new provisions on the basis that Ireland already has domestic mandatory reporting rules, although these haven’t had much bite in practice.  The new DAC6 provisions, however, are much wider in reach, covering not just tax-motivated transactions, but also transactions that may have a “potential tax effect”, but aren’t themselves driven by tax avoidance motives. While the new rules only require reporting from August 2020, they apply retrospectively to transactions from 25 June 2018. Intermediaries and taxpayers need to be aware of the scope of the new rules and have measures in place to track and report such arrangements. Anti-hybrid rules The Finance Bill also saw the expected introduction of anti-hybrid rules, effective for payments made after 1 January 2020, and follow on foot of the binding EU Anti-Tax Avoidance Directive (ATAD1). It is worth noting that the anti-hybrid rules apply to payments made post-1 January 2020 – the actual accounting period of a company is not relevant. So, who needs to be concerned about anti-hybrids? Minority sport? The first thing to note is that there is not a de minimis threshold, therefore all companies irrespective of size are potentially within the scope of the new provisions. The rules target a number of arrangements, in particular where there is a “deduction without inclusion” or a “double deduction” as a result of hybrid mismatches, such as a payment being treated as tax deductible interest by the payor country but as a tax-exempt dividend in the recipient country. It is worth noting that just because a country does not tax a payment does not mean that there is a hybrid mismatch. Thus, the payment of interest by an Irish company to a jurisdiction that does not tax interest income will not be a hybrid mismatch, although interest withholding tax may need to be considered. The anti-hybrid rules are complex. While Revenue guidance (due to be published in 2020) is critical, equally critical is that this guidance is drafted in consultation with relevant industry stakeholders so Ireland’s attractiveness is not adversely impacted vis-a-vis other EU countries. Transfer pricing As expected, the Finance Bill introduced 2017 OECD transfer pricing guidelines into Irish legislation. Other important provisions were also introduced, including the introduction of transfer pricing to non-trading transactions (with limited exceptions), the abolition of pre-2010 grandfathering arrangements and the extension of transfer pricing rules to both capital transactions and to SMEs. The extension to SMEs is significant as it will, at a minimum, add an administrative burden to smaller companies. It is, however, subject to a Ministerial Order. The Minister was reluctant to add to the administrative burden of the SME sector with Brexit looming. Bringing Irish transfer pricing requirements in line with 2017 OECD guidelines will introduce some additional reporting requirements for many companies, with master file and local file requirements now in place.   Of note is that the thresholds for master file and local file introduced in the Bill, €250m and €50m respectively, are much lower than in many other countries. This could trigger additional documentation requirements for some large groups. Many Irish groups will also have intra group financing arrangements in place that may not be arm’s length compliant, and these will now need to be reviewed in light of the Finance Bill changes, which come into effect for accounting periods beginning on or after 1 January 2020. Financial Services/property fund changes There were several changes in the Bill to provisions governing the taxation of Irish real estate funds and section 110 securitisation vehicles. The changes for property funds as initially drafted were unexpected. They were wide-ranging and impacted on funds that only had third party debt. At the time of writing, Committee Stage amendments were expected to correct this anomaly and other provisions that could have inadvertently created a double tax charge for some funds. Additional anti-avoidance provisions have been added for section 110 companies, including the broadening of the control test used in determining whether certain profit participating interest payments are tax deductible, and placing the bona fide commercial purposes test on an objective basis, thereby giving Irish Revenue more scope to challenge aggressive securitisation arrangements.   Interest deductibility limitations Under ATAD1, Ireland is obliged to introduce new rules which broadly restrict interest deductions to 30% of earnings before interest taxes and amortization (EBITA). The Finance Bill did not contain any provisions in respect of these new rules, which are now likely to apply from 1 January 2021 onwards.   In summary, Finance Bill 2019 was one of the most significant in recent years, with new anti-hybrid and transfer pricing provisions, and the introduction of DAC6 reporting requirements. These fulfil Ireland’s commitment to being at the forefront in the adoption of international tax changes and bring our tax regime into compliance with international best practice and relevant EU Tax Directives. Undoubtedly, however, these will add further complexity to the lives of tax professionals and in-house tax teams.  Peter Vale FCA is Tax Partner at Grant Thornton.

Dec 06, 2019
Tax

Kimberley Rowan highlights the key elements of Finance Bill 2019.  Most of the measures contained in Finance Bill 2019 (the Bill) were expected. It consisted mainly of legislative provisions for the tax changes announced by the Minister for Finance as part of Budget 2020. But some measures were not expected. The change to the general rule on tax deduction for any taxes on income, for example, was not expected by most tax practitioners. A handful of other measures contained in the Bill were also surprising. In this article, I will explore the unexpected measures and provide an overview of the key anticipated measures, focusing on those that affect the domestic taxpayer. Peter Vales write about the key Finance Bill measures for international businesses in his article on page 68. Tax-deductible expenditure The Finance Bill includes two changes to the general rules applying to tax-deductible expenditure. First, a tax deduction is not available for “any taxes on income”. This matter has been before the Tax Appeals Commission in a number of cases and now puts Revenue’s view on a legislative footing. This will be relevant in the context of Irish companies that suffer foreign withholding tax on their business profits. The second amendment aligns the tax deduction for doubtful debts with impairment losses under the relevant accounting standards. KEEP The Bill confirms the welcome enhancements to the Key Employee Engagement Programme, as announced on Budget Day. However, new complex conditions seem likely to limit the practical application of the enhancements. For example, the definition of a qualifying group includes only a qualifying holding company, its qualifying subsidiary/subsidiaries and its relevant subsidiary/subsidiaries. The qualifying group (excluding the holding company) must be wholly or mainly carrying on a qualifying trade, must have at least one qualifying subsidiary and all the companies in the group must be unquoted. It seems that the definition does not extend to scenarios where the parent company in a group is a trading company with multiple subsidiaries or where a holding company holds cash or undertakes certain activities. Income tax payments The Bill introduces exemptions for certain income tax payments. The exemptions introduced cover: The reimbursement of expenses by the HSE to an individual for the donation of a kidney for transplantation (under conditions defined by the Minister for Health); Certain foster care-related payments made by TUSLA; Certain training allowances paid by, or on behalf of, the Minister for Education and Skills; and Certain student support payments awarded by SUSI, education and training boards, or local authorities. The Bill also introduces an amendment to clarify the availability of the income tax exemption on a range of payments made by the Minister for Employment and Social Protection, including payments made under the Magdalen Laundry ex-gratia scheme. The amendment is to clarify that a qualifying person for the relief must, in all circumstances, have received a payment under the Magdalen Restorative Justice Ex-Gratia Scheme. Food supplements  The change in the VAT treatment of food supplements was widely expected. The Bill introduces a provision that, with effect from 1 January 2020, food supplements will be subject to VAT at 13.5%. A concessionary zero rating had applied to these products. The change from zero to 13.5% VAT rate follows a comprehensive review by Revenue of the VAT treatment of food supplements, engagement with the Department of Finance in 2018 concerning policy options, the publication of Revenue guidance in December 2018 and a public consultation in May of this year. Revenue will not, as previously announced, apply a 23% VAT rate to these products. There was no change to the rate in last year’s Finance Bill, but Revenue did issue guidance in December 2018 which removed the concessionary zero-rating of various food supplement products with effect from 1 March 2019. However, the withdrawal of Revenue’s concessionary zero-rating of food supplement products was delayed until 1 November 2019 to allow time for the Department of Finance’s public consultation on the taxation of food supplement products in summer 2019. The zero rate continues until 31 December 2019. From 1 January 2020, the 13.5% rate will apply. The change introduced in Finance Bill 2019 will not impact certain products. These are: Well-established and defined categories of food that are essential for vulnerable groups of the population such as infant formula, baby food, food for special medical purposes and total diet replacement for weight control; Human oral medicines that are licensed or authorised by the HPRA are zero-rated for VAT purposes under a different provision. This includes certain folic acid and other vitamin and mineral products for oral use. Once such products are licensed/authorised by the HPRA as medicines, they are zero-rated for VAT purposes; and Fortified foods (i.e. foods enriched with vitamins and/or minerals). Dwelling house exemption  An exemption from Capital Acquisitions Tax may be available in respect of inheritances of certain dwelling houses. One of the conditions to avail of the dwelling house exemption is that the person receiving the inheritance doesn’t have a beneficial interest in any other residential property at the date of the inheritance. Any dwelling house that is subject to a discretionary trust where the taxpayer is the settlor and a potential beneficiary must also be considered. The Bill amends the exemption following the High Court decision in the Deane case in 2018. The conditions of the relief are amended such that all properties inherited from the same estate are to be considered. A clawback is provided for where a beneficiary subsequently inherits an interest in any other dwelling house from the same disponer. R&D tax credit The Bill details the measures announced as part of Budget 2020 while also introducing several new measures. A summary of the key legislative amendments is as follows: Grants funded by any state and/or by the European Union must be deducted when calculating the amount of qualifying research and development (R&D) expenditure; A company that outsources to third parties must now notify in advance of, or on the day of, payment if that company intends to claim the R&D tax credit. Revenue has said that the purpose of this amendment is to ensure that the sub-contractors do not receive such notifications after their R&D claims have been filed. How this notification by the company will work in practice needs further consideration and guidance from Revenue; The application of a penalty for an over-claim of the R&D tax credit has been aligned with the procedure for over-claims of other credits; Where a payable amount or amount surrendered to a key employee is later withdrawn, any offset of losses or credits cannot be used to shelter the clawback on this amount; and Amendment to capital expenditure on scientific research to ensure that relief for capital expenditure on buildings or structures cannot be claimed in respect of the same expenditure. Pension deduction The Bill provides for tax relief for pension contributions made by a company to occupational pension schemes set up for employees of another company in certain defined circumstances. This amendment is to accommodate cases of a merger, division, joint venture, reconstruction or amalgamation where an issue could arise as to whether contributions are being made in respect of an employer’s employees. Specific conditions apply. A few words on the expected The Bill confirms the Minister’s announcement as part of Budget 2020 that there will be no significant income tax cuts for 2020. The Bill provides the legislation for the tax measures announced in Budget 2020 and the ones worth noting are: Extension of both the Special Assignee Relief Programme and Foreign Earnings Deduction to 31 December 2022; Enhancement of the operation of the Employment and Investment Incentive (EII), although a few technical points were not expected; Minor increases in the Home Carers Credit and the Earned Income Credit (up €100 and €150 respectively); The reduced Universal Social Charge (USC) rate for medical cardholders is extended; Extension of the 0% benefit-in-kind (BIK) rate on electric vehicles; Changes to the overall BIK treatment of employer-provided cars (not vans) from 2023; Capital Acquisitions Tax threshold increase from €320,000 to €335,000. The Bill confirms that the increase applies to gifts or inheritances taken from 9 October 2019; Increase in the rate of Dividend Withholding Tax from 20% to 25% with effect from 1 January 2020. Additional information gathering requirements are proposed at Committee Stage on the ultimate payer of a dividend before the payment of a dividend; Increase in the rate of stamp duty on non-residential property from 6% to 7.5% with effect from 9 October 2019; The ‘Help to Buy’ scheme and the living city centre initiative are extended for a further two years; and The R&D tax credit rate for small and micro companies has been increased from 25% to 30%. What’s next? The Bill is scheduled to move to Report Stage at the end of November and after that, as is the customary legislative process, to the Seanad. Under the requirements of the European Union’s two-pack budgetary schedule, a common budgetary timeline applies to all EU member states. As a result, the Bill will complete passage through the Oireachtas and be enacted as Finance Act 2019 by 31 December. More unexpected measures are unlikely at this stage of the Finance Act process. As this is likely to be the last Finance Act before Brexit, and the last before a general election in the Republic of Ireland, any legislative changes to the tax legislation will have to wait until the new government is formed and the next Finance Act.   Kimberley Rowan ACA AITI Chartered Tax Advisor, is a Tax Manager at Chartered Accountants Ireland.

Dec 05, 2019
Tax

Gareth Morgan appraises the mandatory framework for charity accounting in Northern Ireland, which represents a significant change for charities and practitioners alike. Charities in Northern Ireland are still getting to grips with a mandatory framework for charity accounting, including a requirement to file accounts in specified formats with the Charity Commission for Northern Ireland (CCNI). Although CCNI has required charity accounts for several years, the statutory accounting framework under the Charities Act (Northern Ireland) 2008 only took effect for financial years starting on 1 January 2016 or later. Northern Ireland-registered charities have therefore had to file accounts under the new rules since late 2017. A review of some of the documents filed with CCNI shows major variations in terms of compliance, especially among small- to medium-sized charities. Some are excellent, but others seem to show virtually no awareness of the rules despite plenty of guidance from CCNI. Charity accounting regulations took effect in England and Wales in 1996 (originally under Charities Act 1993, now under Charities Act 2011). English and Welsh charities now have more than 20 years’ experience of preparing accounts under a statutory framework and filing them with the Charity Commission for England & Wales (CCEW). Scotland has had charity accounting regulations since 1992 but, without a charity regulator, compliance in the early years was highly variable. However, following devolution and the establishment of the Office of the Scottish Charity Regulator (OSCR) with statutory powers under the Charities and Trustee Investment (Scotland) Act 2005, new regulations took effect in 2006. Effective means of reporting In all UK jurisdictions, including Northern Ireland, smaller charities with income of up to £250,000 (if not constituted as companies) have the option to prepare a receipts and payments (R&P) account together with a statement of assets and liabilities (SOAL). Above this, accruals accounts are required arising from Charities SORP with a statement of financial activities, balance sheet and extensive notes. In my experience, and from my research findings, the R&P regime – if followed properly – is a very effective means of reporting for funders and others who use charity accounts at this level. But it is not uncommon to find the SOAL missing or to find something labelled as an “income and expenditure account”, which is not appropriate either under the R&P regime or under the SORP. A further complication in Northern Ireland is that, because the new structure of charitable incorporated organisations (CIOs) has not yet been implemented, many smaller charities are still being formed as charitable companies, which rules out the R&P approach. (In England and Wales, most new charities are now formed as CIOs and in Scotland as SCIOs. Many existing charities have converted to the CIO forms.) From further training to good governance Separate thresholds apply in each jurisdiction regarding the external review process. In Northern Ireland, registered charities with over £500,000 in income are subject to audit regardless of their legal form. Below this, a charity must have an independent examination (IE) of its accounts, but this is much more than an informal process – even in the case of R&P accounts the examiner must, by law, follow the directions of CCNI and must consider seven separate issues of negative assurance before completing his or her report. Moreover, like Scotland, Northern Ireland has no lower limit for IE so there is a great need for training more people to undertake IEs. In the £250,000 to £500,000 income band, the examiner must be professionally qualified. Fortunately, the Association of Charity Independent Examiners now has a specific committee focused on training and supporting IEs in Northern Ireland with good links to Chartered Accountants Ireland. Reforming the Charities SORP However, for charities subject to the SORP regime (which includes all Northern Ireland-registered charities with over £250,000 in income, and charitable companies whatever their income), further changes may be on the horizon. In the last year, I was invited by the four charity regulators of the UK and Ireland (CCEW, OSCR, CCNI and the Charities Regulator of Ireland) to chair a Charities SORP Governance Review. This was concerned not with the detailed content of the SORP, but with how the processes in developing the SORP could be improved. The panel recommended several changes including a reduction in the size of the SORP committee, but with a clear representation of at least two persons from each jurisdiction – one of whom would have specific experience of smaller charities (under £500,000 in income). Hopefully, Northern Ireland will soon have two specific members on the committee, including someone to make the case for smaller charities applying the SORP. The benefits of more informed trustees Both the English and Scottish jurisdictions can now be considered as ‘mature’ in the sense that charities have over 10 years’ experience in applying a mandatory accounting regime. It has been exciting to see trustees increasing their understanding of finances, including the appreciation of restricted funds, reserves policies and public benefit reporting, which has in turn led to more effective charities. I am confident that similar benefits will soon become apparent in Northern Ireland, especially as Chartered Accountants and others gain experience as independent examiners. New accounting regulations are also due to be implemented soon in the Republic of Ireland under Charities Act 2009, which will hopefully bring similar benefits.   Gareth Morgan is Emeritus Professor of Charity Studies at Sheffield Hallam University and now works with charity consultants, The Kubernesis Partnership LLP, based in Dunbar, Scotland. Gareth is the author of numerous publications on charity regulation and accounting, including The Charity Treasurer’s Handbook (the fifth edition includes the new requirements for Northern Ireland) and Charitable Incorporated Organisations. In 2018/19, Gareth served as independent chair of the Charities SORP Governance Review.

Dec 02, 2019
Tax

With Budget 2020 fast approaching, what – if anything – could be on the table from a tax perspective? By Peter Vale & Oliver O'Connor At the time of writing, the Minister for Finance and Public Expenditure & Reform, Paschal Donohoe TD, had already flagged that we can expect little by way of tax cuts in the upcoming Budget. So, from a tax perspective, are we looking at a damp squib or could there be a mix of tax cuts and increases that net to zero? And if so, who are the winners and losers likely to be? Income tax In the authors’ view, we will see some modest tax cuts next month benefiting primarily lower and middle income earners, with higher earners likely to see some of this cut back – perhaps via a restriction in tax credits. Depending on the scale of the adjustment for higher earners, this could mean they see a net decrease in take-home pay with all other taxpayers seeing a modest increase. So, in summary, we don’t expect to see much either way in terms of income tax adjustments, with lower and middle income earners likely to be the main beneficiaries of any cuts. We also don’t expect to see any longer term statement committing to a reduction in our high marginal tax rates of 52% and 55% for employees and self-employed respectively. Nor should we expect to see a broadening of the tax base; indeed, successive budgets have taken more and more people out of the tax net. The concept of broadening the tax base was a recommendation of the Commission on Taxation report almost 10 years ago, but it has not been embraced by governments since. While the idea of more people paying a little has merits, it is unlikely to be a vote winner. Pensions and investments On the investment side, we are all aware that deposit rates are derisory at present and unlikely to increase any time soon. We are also very keenly aware (as is the Government) that there is a potential pensions time-bomb in the coming decades. The auto-enrolment regime, planned for the early 2020s, is a step towards ensuring that people are more sufficiently funded from a pension perspective and thus, not as dependant on State support in their later years. To this end, it is crucial that the current pension rules are not adjusted (downwards) but rather, that all are maintained at a minimum. A possible concession, which would be of long-term benefit to all, would be to increase the net relevant earnings from the current €115,000 to even €125,000. Entrepreneurs Entrepreneurs would ideally like to be given an increase in the Entrepreneur Relief from €1,000,000 to a more substantial figure. As importantly, they would like to know that there is a roadmap over the coming three to five years to bring this relief more in line with our near neighbours, which is 10 times greater than our current level. We pride ourselves in being the best small country in which to do business, enabling this crucial economic grouping to thrive and create yet more economic prosperity for the country as a whole. Corporate tax We know for certain that new transfer pricing legislation will be introduced in October. The new provisions will implement 2017 OECD guidelines into Irish law and also make certain other changes. While the nature of the other changes is still uncertain, it is very likely that transfer pricing will be extended to non-trading transactions, in particular where tax is being avoided. Certain grandfathering provisions for arrangements in place in 2010 will be removed while it is also possible that transfer pricing will be extended in some form to SMEs. Ireland is also obliged under EU law to bring in anti-hybrid legislation on 1 January 2020, which broadly prevents deductions for payments that are not taxed elsewhere. A further change required under EU law is to restrict tax relief for interest to 30% of a company’s EBITA. At the time of writing, it is still unclear whether this legislation will be in place at 1 January 2020. It should be noted that there will be a de minimis limit (expected to be roughly €3 million), group provisions and certain other carve-outs from the scope of the new legislation. Other changes We don’t expect to see significant changes in the VAT space. There isn’t the fiscal space to provide a VAT reduction to a specific sector (similar to the lower rate previously provided to the hospitality sector), while our headline rate is already relatively high and hence not likely to be used as a revenue-raising measure. It would be positive to see some targeted tax reliefs introduced in the Budget, despite the negative press that some of these reliefs have received in the past. However, sensible tailored reliefs have a role. Improvements to some of the existing reliefs should also be considered. Overall, it is possible that this Budget will be seen as a damp squib. But the devil will be in the detail and there is an opportunity to make changes that will bolster key sectors of our economy. Peter Vale FCA is Tax Partner at Grant Thornton. Oliver O’Connor FCA is Partner, Private Client and Wealth Management at Grant Thornton.

Oct 01, 2019
Tax

David Duffy highlights the latest VAT cases and discusses recent VAT developments. Two-tier VAT registration In eBrief 114/19, Revenue announced the introduction of a “two-tier” VAT registration process which took effect from 15 June 2019. The purpose of this change is to help speed up VAT registration applications for most businesses while also protecting against fraudulent traders obtaining VAT numbers that would allow them to buy-in goods or services from abroad VAT-free. Under the new system, applicants must specify whether they are applying for a ‘domestic-only’ or ‘intra-EU’ VAT registration number. Businesses that trade in goods or services with counterparties in other EU member states should apply for intra-EU registration. Other businesses should apply for domestic-only status. It is our understanding that domestic-only and intra-EU numbers will follow the same format. However, only intra-EU numbers will be valid on the EU’s VAT Information Exchange System (VIES) website. The VIES website is intended to allow suppliers to validate their customers’ VAT numbers for the purpose of intra-EU trade. Domestic-only VAT registration numbers will not be valid on the VIES website. For new applicants to obtain an ‘intra-EU’ VAT registration, additional information will be required, including details of due diligence undertaken to establish whether their suppliers are genuine traders and the arrangements for the cross-border transport of goods (if applicable). Less information will be required for domestic-only applicants, but these applicants may at a later time apply for intra-EU status, at which time they will be required to provide additional information on their intra-EU activities. All VAT registrations in effect prior to the introduction of the two-tier system will be automatically treated as having intra-EU status and there is no requirement to contact Revenue in this regard. Further changes are expected to be introduced in September 2019 to accelerate the processing times of VAT registration applications. EU VAT updates Recovery of VAT incorrectly charged In the case of PORR Építési Kft (C-691/17), the Court of Justice of the European Union (CJEU) confirmed that the Hungarian tax authorities were entitled to disallow a claim by the taxpayer, PORR, in respect of VAT incorrectly charged to PORR by the supplier of motorway construction services. This was on the basis that PORR should instead have self-accounted for VAT under the reverse charge procedure. The CJEU confirmed that in such circumstances, the customer must pursue the supplier for a reimbursement of the VAT incorrectly charged in the first instance. It is only if reimbursement from the supplier is impossible or excessively difficult (e.g. if the supplier is insolvent) that the customer can address their application to the relevant tax authority. However, the CJEU confirmed that the tax authority is not required to ascertain whether the relevant supplier can adjust the VAT before rejecting a claim by the customer for a deduction of VAT incorrectly charged. This case highlights the importance of adopting the correct VAT accounting mechanism in order to claim recovery of the VAT arising on the supply. VAT bad debt relief In A-PACK CZ case (C-127/18), the CJEU held that a tax authority cannot deny a supplier’s claim for a VAT adjustment on bad debts, simply as a result of the debtor ceasing to be VAT registered. The VAT legislation in the Czech Republic appears to have included a condition that a VAT bad debt adjustment could not be made in these circumstances. In addition to confirming that this condition was incompatible with EU VAT law, the CJEU went on to say that the fact that the customer is no longer VAT registered because of insolvency proceedings is, in fact, supportive of the position that it is a bad debt and that the supplier should, therefore, be entitled to an adjustment for the VAT previously remitted on those supplies. There is no equivalent condition in Irish VAT law, but confirming the principle of an entitlement to claim VAT bad debt relief when it is clear that the debt will almost certainly not be collected is helpful. VAT exemption for granting of credit Vega International Car Transport and Logistic (C-235/18) was an Austrian company which had a number of subsidiaries throughout the EU. Vega provided fuel cards to drivers employed by its subsidiaries to allow them to purchase fuel for the purpose of providing transport services. Vega paid for the fuel purchased with the fuel card and at a later date, on a monthly basis, passed on the cost of the fuel to its subsidiaries plus a surcharge. Accordingly, Vega allowed its subsidiaries to obtain the use of the fuel but only pay for that fuel at a later date, in return for an additional charge.  Vega sought to argue that this should be considered a VAT-exempt service to its Polish subsidiary of the provision of credit. The CJEU agreed with this analysis as it concluded that Vega had not bought and resold the fuel, but had instead provided it subsidiaries’ employees with an instrument to allow them to purchase fuel. The judgment reconfirmed a principle established in other cases that the VAT exemption for the granting of credit is not limited to loans or similar products granted by banks and financial institutions, but can in principle apply to other circumstances where an additional charge is levied for deferred payment. VAT recovery on investment activities The University of Cambridge case (Case C 316/18) asked whether there is any entitlement to recover VAT connected with activities that are outside the scope of VAT, if those activities could help generate funds for other VATable activities.  The University in this case provides VAT-exempt educational services as well as VATable services, such as commercial research, and therefore has a partial VAT recovery position on its general overhead costs. However, the University also received donations and endowments, which it invested through a fund. It was accepted that this investment activity was non-economic activity, i.e. outside the scope of VAT. The CJEU was asked whether the University could recover VAT on the management costs of the fund at its general overhead recovery rate.  The CJEU concluded that, based on the facts of the case, there was not the necessary direct and immediate link between the fund management costs and VATable output activities, and therefore the costs did not form part of the University’s overheads. Consequently, as the fund management costs instead related to an activity that was outside the scope of VAT, there was no entitlement to recover VAT on the fund management costs. David Duffy FCA, Chartered Tax Advisor, is a VAT Partner at KPMG.

Aug 01, 2019
Tax

The new rules provide an opportunity  to review your client’s overall inheritance tax position, the terms of their will, and relevant estate planning opportunities. By Fiona Hall The Residence Nil Rate Band (RNRB) was introduced on 6 April 2017, so many of us are just starting to appreciate the intricacies of the complex legislation. This article will summarise the key points regarding the RNRB, including when it does and does not apply, what property can qualify, factors affecting the amount of the allowance, and some planning points. References to spouses are to include civil partners. The RNRB is an additional inheritance tax-free allowance where a home passes on death on or after 6 April 2017 to direct descendants. The legislation is found in the Inheritance Tax Act 1984 Section 8D-8M, with HMRC’s helpful guidance contained in its Inheritance Tax Manual. The RNRB applies whether the home passes on death via the will, under the intestacy rules or by survivorship. It generally does not apply to a lifetime gift of the home (subject to the downsizing rules, highlighted later) unless the gift with reservation rules apply. Then, for the purposes of the RNRB, the home is treated as passing on death and the allowance can apply. The legislation refers to a “qualifying residential interest”, which is an interest in a dwelling house that was the person’s residence at a time when the person’s estate included that property. A person may own multiple properties on death. In this scenario, the personal representatives may nominate which is to be taken into account for the RNRB and it can be a property let out at the time of death, so long as it has been the deceased’s home at some stage during ownership (i.e. not a buy-to-let). There is no minimum period of occupation or ownership of the property and no garden/grounds limitation applies. It can be a home outside the UK so long as it is within the charge to inheritance tax. The RNRB is being phased-in over four years starting at £100,000 in the 2017/18 tax year and increasing by £25,000 each year until 2020/21 when it will be £175,000. The RNRB is not aimed at the very wealthy and it is tapered where the net value of an estate exceeds £2 million. The “net value” is the market value of the assets less liabilities at death, but before any reliefs or exemptions are deducted. It does not include the value of any gifts made in the seven years prior to death. Where taper does apply, the RNRB is reduced by £1 for every £2 above the threshold. For clients whose estates are above the taper threshold, lifetime gifts may be considered. Married couples should consider alternative options if leaving their entire estate to the survivor on first death will lead to tapering. The allowance due on a particular estate is the lower of the RNRB and the property value (after deduction of any secured liabilities and any reliefs, such as agricultural property relief). As with the nil rate band, the legislation provides that should one spouse not utilise their RNRB, on making the appropriate claim, the surviving spouse’s RNRB is increased by the unused amount (using rates on the second death). A transfer of unused RNRB is available regardless of: When the first death took place, including deaths before 6 April 2017; How much the first estate was worth (however, this may result in tapering where the first estate exceeds the taper threshold); and Whether or not the first estate included a residence. A point of practical importance when calculating the inheritance tax liability is that the RNRB applies in priority to the nil rate band. This is relevant in determining whether there is a claim for a transferable nil rate band and/or transferable RNRB by the surviving spouse. To qualify for the RNRB, the home must be “closely inherited” (i.e. generally that the property passes to direct descendants such as a child/grandchild of the deceased, including step-children and foster children). However, the legislation also extends to spouses of direct descendants, including their widows/widowers, provided remarriage is not a factor. The RNRB does not apply if the home passes to others, including parents, siblings, nephews and so on. Should the home pass into a trust for direct descendants, eligibility to the RNRB will depend on the trust terms. Trusts under which a direct descendant has a qualifying interest in possession will qualify, as will a bereaved minor or 18–25 trust. However, a discretionary trust will not. The home does not have to be a specific legacy in the will; it can pass through the residue. However, where residue passes to qualifying and non-qualifying beneficiaries, HMRC treats each as inheriting a proportion of the home and this may lead to a restriction to the available allowance. A deed of variation could be considered in such circumstances. If the maximum RNRB is not being utilised, you should consider whether the downsizing provisions apply. These complex provisions are designed to replace the RNRB lost due to a disposal of the original home. To qualify for a “downsizing addition”, the deceased must have disposed of a home on or after 8 July 2015 and either moved to a less valuable property or ceased to own a home, and some of the estate must be closely inherited. In conclusion, these relatively new rules provide an opportunity to review a client’s overall inheritance tax position, the terms of their will, and any relevant estate planning opportunities.   Fiona Hall is Principal, Private Client Tax Team, at BDO Northern Ireland.

Aug 01, 2019