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Thought leadership

Originally published in the Business Post on 29 March 2020 You don’t need to be an economist to know that the collapse in the demand and supply of goods are accounting for a lot of the Covid-19 job layoffs.  All the time however, the focus in the commentary is on the disruption to employment.  Much less is heard about the situation of the self-employed. Only a few short weeks ago, there were 2.36 million people employed in this country.  Of that number, 330,000 were self-employed – working mostly in the trades and professions, some in retailing, many in services.  In relative terms, by European standards, Ireland has (or perhaps had) a high proportion of self-employed relative to employees .  How well are the self-employed being looked after in the crisis? As a general principle, the self-employed are not entitled to many short-term benefits like illness and disability benefita.  All workers in this country, employees or self-employed, pay PRSI at a rate of 4%.  That is not the whole story.  Employers pay on behalf of their employees a further amount of PRSI up to 11.05% of wages.  It is this additional contribution that funds the wider range of benefits available to employees above what is normally available to their self-employed counterparts.  But these are not normal times. Previous downturns have been a consequence of market instability, poor trading decisions and faltering economic decisions at government level.  This time it is different.  The economy is collapsing because, for the excellent reasons of public health and safety, the government has decided to directly or indirectly close many businesses down.  Self-employed though doesn't always mean solo employed.  About 100,000 or so of our self-employed cohort are or were themselves employers, giving work to other professionals and tradespeople and support staff.    It is this group that can benefit most from the emergency supports from Government, because many will be able to claim wage subsidies for the people working for them.  These subsidies are not just for companies – the self-employed are also eligible. First announced on Tuesday last, the details of this Wage Subsidy scheme are still taking shape almost on a day by day basis.  Because the scheme is being run by Revenue, an agency more usually associated with taking money away rather than disbursing it, it is a new departure for everyone concerned.  The big question for employers is whether they can qualify, but the gist of the scheme is now clear.  According to Revenue the focus is on “significant negative economic disruption on the employer due to Covid-19”. The key criterion is a reduction of 25% in likely turnover due to Covid-19.  That’s turnover in the second quarter of 2020, against a yardstick of a comparable quarter in 2019, or even a decline in orders in March 2020 in comparison to February 2020.  It’s not about business collapse or insolvency, and businesses with strong cash reserves can still qualify for the subsidy.  Even a start-up business might be eligible where it can show that the investment won declined by 25% as a result of Covid-19. This wage subsidy scheme is being operated on a self-assessment basis.  It is up to the business owners and directors themselves to decide they fit the criteria, and the subsidy will be given on their application.  Revenue reserve the right to come knocking after the crisis to check claims, and there will have to be documentary evidence available that the claim was valid and justified.  Yet because this scheme is all about business preservation and being ready to get back up to speed when the crisis ends, many businesses can and should qualify.  This is particularly true for self-employed businesspeople with employees of their own. Few sectors suffered to the same extent as the self-employed sector during the 2007/08 recession, and few businesses took so long to recover as businesses in that sector.  Nowhere is this better illustrated than from the income tax take from the self-employed.  That fell from €2billion in 2007 to €800 million in 2010, and it took five years to recover to its former level.  Commercial catastrophe at that scale must not happen again. A significant advantage of the schemes announced this week is that the cash will be delivered quickly.  Compare that with the supports announced this week for the self employed in the UK, where there will be direct grant aid for some self-employed businesses, but payments won’t be made until June.  God knows where we’ll all be by then. There are still some anomalies – the weekly pandemic unemployment welfare benefit of €350 for the self-employed without employees looks low - but the announcements and legislation this week provide much more support for many self-employed people than was available just ten days ago.  Perhaps one of the outcomes of the Covid-19 crisis is that the self-employed are being recognised for their employment capabilities.  They are now more on the radar when it comes to economic policy.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Apr 06, 2020
Thought leadership

The March Newsletter of Accountancy Europe is now available.  Articles COVID-19: 5 key steps for accountants to guide SMEs through the crisis Coronavirus crisis: implications on reporting and auditing Coronavirus resources for European accountants Coronavirus crisis: 15 actions for governments to protect European SMEs Click here to access the stories below Stories from Practice Eco-tourism and Sustainable Finance in Suriname by Eelco van der Enden from NBA Podcast Reforming the tax system Call to Action on Climate Change News of the Joint Campaign with A4S: the call to action in response to climate change, of which Chartered Accountants Ireland are also a signatory Event summary Towards a global non-financial reporting standard setter Publications Annual Report 2019 European IPO Report 2020 Policy Updates Tax Audit Policy Sustainable Finance   Consultation responses IIRC's International IR Framework 2020 Revision

Apr 02, 2020
Ethics and Governance

Aoife Newton assesses the prospects for gender pay gap reporting legislation as negotiations continue to form a new government. The outgoing Government made limited progress in introducing gender pay gap reporting legislation in the Republic of Ireland, and it remains to be seen whether the next government will echo the same commitment. Two separate Bills were initiated in the Houses of the Oireachtas in the past three years. First, the Labour party initiated a private members bill titled The Human Rights and Equality Commission (Gender Pay Gap) Information Bill 2017, and this was followed by the Gender Pay Gap (Information) Bill 2019. The latter progressed to the third committee stage of the Dáil, but as with the 2017 bill, it lapsed upon the dissolution of the Dáil in January 2020. Although the timing of this legislation is unknown, the next government will be under pressure to advance such legislation. The European Parliament passed a non-binding resolution on 30 January 2020, which called on EU member states to strengthen their efforts to definitively close the gender pay gap by strictly enforcing the equal pay principle and adopting legislation increasing pay transparency. The European Commission reports that the overall gender pay gap in the European Union is 16%. In her political guidelines for 2019-2024, Commission President Ursula von der Leyen committed to addressing the gender pay gap within the framework of the upcoming Gender Equality Strategy. The Commission has previously called on member states to close the gender pay gap and address barriers to the participation of women in the labour market.  As there is an emerging consensus from the European Union to close the gender pay gap, there is, therefore, a strong possibility that the next government will introduce gender pay gap legislation to comply with the proposals outlined at a European level. Against this backdrop, employers should start preparations at an early stage. Those who fail to act will find themselves addressing issues in the public domain under the scrutiny of the media, trade unions, their employees, and their customers. Organisations reporting a high gender pay gap may be viewed as being less than fully committed to pay parity, promotion, and development opportunities for women. Where a gender pay gap exists, this may negatively impact an organisation’s brand, employee relations, public reputation, and its ability to attract and retain talent. Organisations operating within a pyramid workforce structure when it comes to gender creates a pay gap, and if such a difference is greater than that of an organisation’s peer employers, it may have some uncomfortable explaining to do to its stakeholders. The all-important narrative The size of the gender pay gap is important, but the accompanying explanation could distinguish progressive employers from those who are merely observing a compliance obligation. Under the Bill, employers would have been required to publish – concurrently with the percentage results – the reasons for such differences and whether they had taken any measures to eliminate or reduce the disparities. This requirement must be replicated in any new legislation, as the mere reporting of data could lead to a compliance complacency while defeating the spirit of the legislation. In contrast, employers who take the opportunity to analyse and explain their gender pay gap are likely to benefit from such transparency. The narrative for any gap is a particularly important opportunity for employers who have a relatively large gender pay gap. The media and the public often confuse the issues of the ‘gender pay gap’ and ‘equal pay’, even though the two are very different concepts. Employers should use their narrative to minimise the risk of confusion and take the opportunity to explain the nuances or legacy issues in their organisation, which may have led to a gender pay gap. This should encourage a level of transparency that enables employees to question and challenge reward models and packages, and employers to highlight their efforts to achieve gender pay parity.   Aoife Newton is Head of Corporate Immigration and Employment Law at KPMG Ireland.

Apr 01, 2020
Ethics and Governance

Karen Flannery and Níall Fitzgerald consider the critical points in the revised Chartered Accountants Ireland Code of Ethics, which came into effect on 1 March 2020. The revised Chartered Accountants Ireland Code of Ethics took effect on 1 March 2020. The revised Code was necessary to increase alignment with the International Ethics Standards Board for Accountants (IESBA) Code of Ethics, which underwent a significant restructure in recent years. While there are no changes to the fundamental principles, Chartered Accountants familiar with the previous Code of Ethics (effective September 2016 to 29 February 2020) will find the look and feel of the revised Code significantly different. While additional sections and emphasis were included, others were removed. This results in greater clarity and ease of navigation. Figure 1 provides an overview of the revised Chartered Accountants Ireland Code of Ethics. Added emphasis on fundamental principles The five fundamental principles of the Code of Ethics remain unchanged. These include integrity; objectivity; professional competence and due care; confidentiality, and; professional behaviour. The conceptual framework that describes the approach used to identify, evaluate and address threats to compliance with the fundamental principles also remains the same. However, there is now a heightened emphasis on the fundamental principles and the use of the overarching conceptual framework underlying each section of the Code. Before, much of the narrative was contained in a single section of the Code. Responding to non-compliance with laws and regulations New sections were added concerning non-compliance with laws and regulations (NOCLAR) for professional accountants in practice (Section 360) and professional accountants in business (Section 260). These bring the NOCLAR provisions of the IESBA Code of Ethics into the Institute’s Code. A vital feature of the NOCLAR provisions is the specific in-Code permission to breach the principle of confidentiality in the public interest. This permission has been explicit in the Institute’s Code for several years and so, the NOCLAR provisions can be seen as a change of detail rather than of substance. The new sections outline the required actions when NOCLAR is discovered and provide additional guidance in this area. Key points to note concerning the NOCLAR provisions are: The first response to identified NOCLAR is to raise the matter, and seek to address it, at the appropriate level within the relevant organisation (internally); Where NOCLAR is not dealt with appropriately internally, the professional accountant considers whether to report to an external authority in the public interest. The decision to report externally is (as it always has been) a complex one; and Where a report is made in the public interest and good faith, there is no breach of the confidentiality requirements of the Code of Ethics. However, there may be legal implications for the professional accountant to consider. Revised layout The most obvious change is the revised layout of the Code of Ethics, which now mirrors the structure of the IESBA Code of Ethics with additional material for members of Chartered Accountants Ireland. A new paragraph numbering format was introduced and as a result, sections were restructured (e.g. what was “Part C” (Professional Accountants in Business) is now “Part 2” in the revised Code).The revised layout facilitates more natural referencing and distinguishes between the Code’s requirements (in bold text and denoted by the letter ‘R’) and application material or guidance (indicated by the letter ‘A’). Complexity has been reduced by simplifying sentences and language in parts. Also a new ‘Guide to the Code’, explaining how it works, has been included. Other content changes Table 1 highlights other notable developments in the revised Code of Ethics and suggests where you might focus your attention depending on whether you are a member in practice or business. Retained Institute ‘add-on’ material Where existing Institute ‘add-on’ content created important additional requirements beyond the IESBA Code, these ‘add-on’ requirements are retained in the revised Code of Ethics. Such requirements include: Specific requirements regarding communicating with the predecessor accountant (Section 320); Particular obligations regarding transparency around the basis for fees and dealing with fee disputes (Section 330); and Agencies and referrals (Section 331). No new ‘add-on’ material was created. Additional support for members The Institute’s online Ethics Resource Centre is updated regularly with a range of supports and guidance for members. Additional information included in the old Code of Ethics, but removed in the revised Code and still considered useful, has been reproduced in a series of new Ethics Releases. The Ethics Releases are not a substitute for the requirements of the Code, but they do provide additional support for members in particular scenarios, including: Code of Ethics and changes in professional appointments; Code of Ethics and confidentiality; Code of Ethics and marketing of professional services; and Code of Ethics and corporate finance advice. Future updates The last substantial change to the Institute’s Code of Ethics was in 2016. While the Code does not change regularly, there is a significant body of work happening behind the scenes to ensure it remains appropriate, precise and effective in the context of the issues affecting the accounting profession. Members can, therefore, expect amendments from IESBA in the coming years; for example, considerations addressing the impact of technology-related ethics issues on the accounting profession. For members who are insolvency practitioners, a new Insolvency Code of Ethics is imminent. The current Code of Ethics for Insolvency Practitioners, appended as Part D of the Institute’s old Code of Ethics for members, remains in effect until then.  Actions speak louder than words It was evident from the Ethics Research Report, published by the Institute in January 2019, that members hold their professional and business ethics in high regard. While the Code of Ethics does not change regularly, it is a hallmark that establishes a minimum standard which is signed up to and shared by all members of the profession. It is useful to be familiar with its requirements and to remember that it is individual member actions that express commitment to the Code of Ethics in addition to a member’s personal ethics. The revised Code is available via the Institute’s Ethics Resource Centre.   Níall Fitzgerald FCA is Head of Ethics and Governance at Chartered Accountants Ireland.  Karen Flannery FCA is Head of Professional Standards Projects at Chartered Accountants Ireland.

Apr 01, 2020
Ethics and Governance

From a governance perspective, COVID-19 will test the robustness of our legislation and our ability to take a more technological, and perhaps modern, approach, writes Claire Lord. The Irish Government recently announced additional measures to protect citizens by delaying the spread of COVID-19. One of these measures is social distancing, which requires individuals to keep a two-metre space between them and other people. This measure and the increasing restrictions on international travel is making it difficult for Irish companies to hold ‘in-person’ board meetings and to proceed with shareholder meetings, particularly annual general meetings (AGMs), in the usual way. Against this backdrop, what can companies do to allow business to proceed so as to comply with the law while protecting the health of its directors, employees and shareholders? Board meetings Generally speaking, the board of an Irish company can meet ‘virtually’. This means that board meetings can be conducted by telephone, video conference or a similar facility. For a virtual board meeting to be properly convened, all directors must be able to hear each other and speak to each other. At a virtual board meeting, the quorum is made up of those participating in the meeting. All participating directors are entitled to vote in the usual way and the location of the meeting, consequent on social distancing requirements, is likely to be the location of the chair. The board of an Irish company can also usually pass resolutions in writing. For a written resolution to be valid, it must be signed by all directors of the company at that time. A written resolution takes effect when the last signature is collected. A written resolution can be signed in counterpart and can be circulated and signed electronically. The fully signed version must be retained with the minute book of the company. The written resolution procedure can be used even if one of the directors is not permitted to vote. Where this is the case, the remaining directors sign the resolution and note the name of the director who is not entitled to vote and the reason why. It is always recommended that a directors’ meeting is held where the business to be transacted is contentious, or if it is anticipated that the business to be approved will not be supported unanimously. Directors must also meet where they are required to make a declaration of the company’s solvency as part of the summary approval procedure to approve certain restricted activities. Where these circumstances exist, meeting “virtually” is sufficient. The board of a company must also consider the location of its board meetings or decision-making where it is important from a tax residency perspective for them to be able to demonstrate that the company is managed and controlled in Ireland. Shareholder meetings Companies with AGMs due to occur in the months ahead should consider how best to proceed with their AGMs in a way that complies with the law, and affords shareholders the ability to participate, while observing the Government’s restrictions on mass gatherings. An AGM must have a physical location that is specified in the AGM notice. The quorum for an AGM is determined based on the number of shareholders present in person or by proxy, usually at the physical location of the meeting. Therefore, to avoid a large  number of shareholders attending at the physical location for the meeting, shareholders should be encouraged to appoint a proxy to attend and vote on their behalf. Ideally, shareholders should be encouraged to appoint the same proxy where possible (while always considering how a quorum will be achieved).   While an AGM must have a physical location, a company can permit participation by shareholders at an AGM via technology, once that technology permits shareholders to participate and vote electronically.   Multi-member and single-member private companies limited by shares (LTDs) and single-member companies of other types can dispense with the legal requirement to hold an AGM by opting to carry out the business of the AGM by way of a unanimous written resolution.  Similarly, all company types can pass resolutions in writing.  In the case of LTDs and designated activity companies (DACs), this right applies regardless of any provisions in the company’s constitution.  Similarly, LTDs and DACs can pass majority written resolutions where a particular process is followed. Business as usual? We face significant uncertainty in the months ahead with the spread of COVID-19. Finding ways to conduct business regardless, while protecting the health of others, will test our ingenuity. From a governance perspective, it will allow us to see if our legislation is robust enough to support a more technological and, dare I say it, modern approach.   Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

Apr 01, 2020
Tax

Originally published on Business Post, 22 March 2020 We are all struggling to become used to social distancing, but there is no such thing as fiscal distancing. When almost nothing else works as normal, the tax system does. The additional burdens which coronavirus is placing on the exchequer, due to increased social welfare payments and emergency care measures, will not be offset by tax revenues – in fact, quite the opposite. While often it is the tax paid (or not paid) by wealthy individuals and multinationals that captures the headlines, the bread-and-butter of exchequer funding is the Vat and PAYE collected by the business community throughout the year. Last year one in every four euros of tax collected was Vat and it was the second largest source of money for the exchequer. Generally, Vat is paid over every two months and the Vat collected by businesses on sales during January and February is due tomorrow. Vat is primarily a consumer tax, and the bill could be large. We still ate in restaurants, drank in pubs, bought cars and clothes and attended events during January and February. Many businesses have a PAYE bill due this week as well, reflecting payroll deductions during the month of February on wages paid before the layoffs and closures we have seen in the past fortnight. Vat and PAYE together make for a big tax bill and a cash-flow challenge. There are two fundamental aspects to tax compliance – the payment and the tax return. While the payment is usually the main concern, it is in fact the tax return which can land a taxpayer into serious trouble. Incorrect, late or missing tax returns result in people being fined or penalised or ending up in court or being published on the list of tax defaulters. Late or missing payments on the other hand are mostly pursued using routine debt recovery methods, so the best advice for any business facing problems with tax payments is to make the tax return anyway and worry about the payments later. The Revenue has signalled this week that it will waive interest charges on late payments of Vat and PAYE for businesses with a turnover of less than €3 million. This is an unprecedented departure from its usual policy. Normally, as Donald Tusk might have observed, the Revenue reserves a special place in hell for businesses who default on Vat and PAYE, on the basis that this money has already been recovered from their customers and employees and should be paid over to the Revenue forthwith. Not even during the crash in 2008 did thebRevenue offer any succour like this for businesses. Another step in the right direction is the application of the new PAYE real time system to ensure that workers laid off due to the coronavirus crisis will get their social welfare benefit of €203 per week as quickly as possible. This column has griped in the past about the cost to employers of implementing Revenue-compatible payroll software to make the new PAYE system work, so it is good to see some return on that outlay. Participating employers will be able to pay the emergency social welfare benefit of €203 per week and expect to recover the amount from the Revenue within a matter of days. Terms and conditions apply, because we must recognise that this benefit is to facilitate the rapid payment of social welfare benefits to people who have been laid off as a result of the coronavirus epidemic. It is not an opportunity for payroll substitution, or for manipulating figures, or for taking on ghost employees. Again, to channel Donald Tusk, there should be a special place in hell reserved for anyone trying to game any system which has been established to help workers and their employers deal with this calamity. The current fall off in tax receipts is a result of the evaporation of demand – for fuel, for services, for goods. Because of this we can expect monthly exchequer receipts to fall by hundreds of millions every month over the coming months. It's another compelling argument, even if one were needed, for social distancing. The shorter the crisis, the sooner demand will return, and the less damage will be done to the economy. While the bank bailout is often blamed for the surge in the national debt following the Great Recession in 2008, most of the debt was racked up by the decision to continue paying social welfare benefits and provide services during years when the tax revenues simply weren't there to support them. This is now happening again, but our tax yield is better shielded now than it was in 2008. For one thing, we are less reliant on capital taxes. It may even work out in our favour that corporation tax receipts are derived from a relatively small number of multinationals operating in industries which might not be as badly affected by coronavirus as some others. For many businesses facing tax bills this week, though, the advice is simple. Make sure the Vat return is made to the Revenue, and that your PAYE system is accurate and up to date. If necessary, worry about the payments later. You cannot do fiscal distancing. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Mar 30, 2020

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