The ability to judge the mood music of society could be our greatest asset in shaping how the profession is perceived, writes Dr Brian Keegan. If you happen to be an auditor and are of a sensitive disposition, look away now. Apparently, you are not a member of a profession. This is just one of the suggestions of the Brydon review into the quality and effectiveness of audit, which was published at the end of last year. Brydon’s work was prompted by public disquiet over high-profile business collapses in the UK, where it was believed that the auditors should have done better. The standard response of politicians everywhere to topics that make them uncomfortable is to commission a review. In that way, action is seen to have been taken and the discomfort is spread around. There are many reasons, of course, why Brydon is wrong about auditing not being a profession. An audit is, after all, about the exercise of intellectual skill and knowledge. It is an unfortunately flippant conclusion in a study that otherwise has a lot going for it. Worse, in the court of public opinion, many people won’t necessarily make a distinction between what an auditor is and does, and what an accountant is and does. It is therefore inevitable that the profession often finds itself in the uncomfortable position of having to explain itself. It doesn’t matter that our most immediate stakeholders – board members and investors – know perfectly well the contribution of the audit and the role of the auditor. Government policy in any area is not exclusively formed by listening to, and then following, the views of knowledgeable stakeholders. The perception of the accountancy profession can be contradictory. Surveys conducted by Edelman (admittedly commissioned by this Institute) report that the level of confidence in accountants among financial decision-makers is high relative to the level of confidence in other professions. Yet public opinion is all too willing to jump on the bandwagon when they think we get it wrong. For instance, the response to the exclusion of the former Chair of Anglo Irish Bank, Mr Sean Fitzpatrick, from Chartered Accountants Ireland was heavily skewed. Much of it focused on the length of time our proceedings appeared to take. No one seemed interested that the Director of Public Prosecutions wanted the State’s actions in the matter to conclude first, hence a seven-year delay. Understanding this lack of interest is important because the effective communication of what the profession is and does relies heavily on the receptiveness of the public audience. There are lessons here from politics. Prime Minister “Get Brexit Done” Johnson and President “Make America Great Again” Trump are widely lauded for their communication skills, but that misses the point. The genius of the messaging of Prime Minister Johnson and President Trump is not in their capacity for articulation – it is in their capacity to read the mood of the public. During the recent hustings in the Republic of Ireland, the major political parties would have fared better using slogans like “give people homes” or “hospital beds, not trolleys” instead of plaintive murmurings about futures we can look forward to, or an island for all. Like the more successful politicians, the accountancy profession has to get better at reading public opinion and responding to that mood. If we fail to get across the ethical value and the competency involved in the work that accountants do, and the wider contribution made to society by virtue of that, future government policy towards accountants and auditors will be shaped by the negativity that is already out there. Much is made of the challenge to the profession from things like artificial intelligence and robotic process automation. You can add to that list the suspicion with which the profession is viewed. We now know that some don’t even consider that auditing is a profession at all. Dr Brian Keegan is Director, Advocacy & Voice, at Chartered Accountants Ireland.

Against a backdrop of underinvestment, housing will remain a key economic concern for the new Government, writes Annette Hughes. With 2020 well under way, some of us have already broken our New Year’s resolutions and had our focus shifted to the plethora of election resolutions and promises which emerged over the past four weeks. With the election now behind us, political leaders will need to focus on delivering on those election promises.  Governments generally have a five-year term to fulfil their promises, but experience tells us that some of the policy commitments promised in party manifestos may never be implemented. The new Government faces both challenges and opportunities in steering a sustainable economic path as it embarks on a new term. One of its key functions is to administer public policy and deliver high-quality public services and infrastructure across a range of areas including housing, health, education and transport. Notably, housing was the topic that received the most attention during the election campaign and it remains the Government’s number one priority. There continues to be underinvestment in both private and social housing, and the demand for housing significantly exceeds the current supply. Much has been made of the doubling of housing stock from 2016 to 2019 with 21,000 new homes, however the national annual housing supply requirement is closer to 35,000. We were informed during the election campaign that 6,000 new social housing units were built in 2019. Yet, data from the Department of Housing, Planning and Local Government shows that there were 2,003 new social housing units built in the first nine months of 2019, or 2,229 units when local authority vacant units brought back into the stock are included. Adding acquisitions (1,533), units leased from the private sector (630), households supported under the Housing Assistance Payment (12,853) and the Rental Accommodation Scheme (717), implies that a total of 17,962 social housing households were accommodated in the first nine months of 2019. This may be in the region of 24,000 for the full year. This total is in a year in which the latest assessment of housing need reported that there were 68,693 households across the State (43.2% in Dublin) on the social housing waiting list.  In the meantime, the shortage of affordable accommodation to rent and buy continues to create challenges for Irish policy makers, notably, the escalating homelessness problem, and rising rents and property prices, although the rate of growth has moderated in recent months.  Some of the solutions proposed included building more social and affordable homes, preferably on State-owned lands, which has implications for the level of capital investment on housing (€2.03 billion in 2020), the second largest allocation after transport (€2.5 billion). Other measures included rent regulations, which have proved to have a range of unintended consequences for tenants, including a negative impact on new and existing supply, as well as the potential for lower quality stock. The issue of the decade will undoubtedly be climate change and this too will impact on housing stock. With an estimated two million residential properties across the country, the potential cost of retrofitting to improve energy efficiency could be in the region of €10,000 to €30,000 per home, depending on its age and quality.   The one consensus during the election campaign by all parties was that there needs to be a substantial and fundamental change in housing policy, given the failure by all to address a number of issues over the past decade. The new Government clearly has its work cut out. Annette Hughes is a Director at EY-DKM Economic Advisory.

Cormac Lucey argues that accountants need to discuss one of the most unjust outcomes of Government profligacy – the over-taxing of the State’s high earners. The UK electorate recently faced a general election where, under the leadership of an Islington Marxist, the British Labour Party was offering its most left-wing proposals for a generation. It proposed raising the rate of income tax on earnings above £125,000 (equivalent to €146,000) to 50%. With the 4% UK rate of PRSI, that would have required Britain’s top earners to pay a marginal rate of deduction of 54%. In the Republic, those of us of a right-of-centre political disposition are lucky not to have to face the prospect of barely diluted Marxism as a real policy prospect. Here, government control switches pretty seamlessly between right-of-centre Fine Gael and right-of-centre Fianna Fáil-led administrations. That’s the theory. The reality is something very different. Down south, top earners must already face a 52% (income tax 40%, universal social charge 8% plus 4% PRSI) rate of deduction on income above €70,000. Indeed, if a person is self-employed, they face a marginal rate of 55% on income above €100,000. In terms of top tax rates, high earners in Ireland already face marginal rates of deduction in excess of 50% at incomes of around twice the national average that the UK Loony Left was only contemplating applying on incomes of about four times that average. Largely unnoticed, the contours of the Irish tax system have changed very substantially since 2007. Income tax receipts are up €9.3 billion, or 68%, from 2007 levels. They have risen from 29% of total tax receipts to an expected 40% this year. Thirteen years ago, income tax proceeds were slightly lower than VAT receipts. Last year, they exceeded VAT receipts by 52%. The Organisation for Economic Co-operation and Development (OECD) has concluded that Ireland has the second most progressive income tax system among its 36 member countries and the most progressive among its EU members. In other words, high earners pay disproportionately more in income tax here than in nearly every other developed country in the world. Revenue’s Budget 2020 Ready Reckoner document reveals that the top 1% of income earners (those earning more than around €250,000) contribute more than a fifth of all income tax receipts, while the top 5% of income earners (those earning more than about €125,000) contribute more than 40% of total receipts. By contrast, the bottom 75% of income earners (those earning around €55,000 or less) contribute a mere 18% of total income tax proceeds. The top 1% lose an average of 42% of their income in State deductions while the bottom 75% lose an average of 9%. One might accept this dramatic soaking of high earners if it was required to save the State from imminent insolvency, but the Troika left town in 2013. Large rises in tax revenues since then have been used to fund dramatic increases in State spending rather than to reduce the national debt. When the Government first officially forecast total 2018 Government spending, it expected a total spend of €60.3 billion (according to the 2014 Stability Programme Update). In reality, the Government ended up spending €76.8 billion in 2018, 27% more than its original forecast. High earners are being soaked, not to save the State from bankruptcy or to secure minimum levels of State spending but, rather, to indulge a fiscally incontinent and gruesomely inefficient Government apparatus. It strikes me that we (as a profession) and Chartered Accountants Ireland (as a representative body) should speak more loudly about the clear errors and short-sightedness of this approach.  Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

The resourceful con artist has now moved to online scams, but old advice still holds, writes Des Peelo. Confidence and a presence are often perceived as necessary for business or personal success. This resonates with me in the context of recognising con artists, better described as fraudsters, whom I have encountered. The most outstanding was an approach from a gentleman, intending to be my client, who lived in a suite in one of the great London hotels. Of indeterminate nationality, his occupation – or the source of his apparent wealth – was not evident. Happily, I withdrew from involvement early in the saga but became aware of subsequent events. A mine of false information This gentleman was promoting an opportunity for investment, which was highly confidential, in newly discovered vast ore resources adjacent to a previously worked-out mine in Ireland. The geological studies and supporting paperwork (all forged) was there. The scam worked for nearly £3 million. British aristocracy and London financiers, amongst others, came on board. Subsequently, this gentleman was arrested in the UK. He was refused bail as the police said they found nine passports in his suite. After one year on remand in a London prison, the charges were inexplicably dropped, though an accomplice and a UK solicitor were subsequently jailed. No monies were recovered. During that year in prison, my almost-client managed to have meals delivered from the hotel, paid monthly in advance. He also started a charismatic movement and a choir. On learning of his imminent release, he called the hotel manager, who reportedly said something like “wonderful news; we will send a car” and he moved back into his suite. That was not the end of the story. Some years later, on watching an investigative programme on UK television, there was my almost-client being named for a stunt involving investors and coffee futures in Central America. This time, still based in London, he allegedly had a prestigious commodities brokerage office in Miami. A load of beeswax Older readers may recall the origin of the description ‘widget’. It was first used in an amusing film, loosely based on a real event in the 1950s, about a Texas con artist launching a widget company on Wall Street. None of the financiers knew what a widget was or wouldn’t admit they didn’t know, but the word was that the oil industry was very excited about it. Hence the contemporary use of the word ‘widget’ when nobody understands the product. The modern equivalent of a widget, on occasion, might be a ‘tech disrupter’. My possible ‘widget’ moment involved another gentleman from London. He arrived in Ireland sporting impressive achievements, connections and qualifications (all bogus), including being a medical doctor. His business card showed an address on the famous medical Harley Street in London (which turned out to be a temporary post-box). Accompanied by a self-described titled lady, he rented a country mansion near Dublin and quickly entertained his way into the bloodstock and racing fraternity. He claimed to be developing a product akin to Viagra, long before it was invented. The connection with Ireland was that the magic ingredient could only be sourced from the blood and urine of top-bred horses. State agencies expressed interest, impressive international names were mentioned as possible directors, suitable sites were inspected, and so on. All that was missing, of course, was the millions necessary to bring it all together. Fortunately, shortly before substantial monies changed hands, a sceptical stud farm owner and the IIRS (then a State scientific agency) analysed a prototype unbeknownst to the bogus doctor. It was largely beeswax. The gentleman concerned managed to depart Ireland in time, leaving large unpaid bills. He was last heard of as being in Lebanon, again something to do with horses. Don’t be fooled The world has now changed for the con artist. The old scams are easily identified with instant access to history, profiles and technical information. However, the resourceful con artist has now moved to online scams. If an investment is too good to be true, it is. This adage has never changed. Des Peelo FCA is the author of The Valuation of Businesses and Shares, which is published by Chartered Accountants Ireland and now in its second edition.

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.

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.