Thought leadership

Originally published on Business Post, 12 April 2020 In many successful businesses, Revenue is one of the largest creditors.  It's no surprise therefore that many of the emergency reliefs for business, arising from the government response to the pandemic, should be channelled through the tax collection system.    Ireland is not the only country taking the tax route to get funds into cash-starved industry.  The likes of the UK, Canada, Australia and New Zealand have introduced assistance and supports very similar to the Irish wage subsidy scheme.  Some of these schemes differ in the detail.  Other countries look for a projected 30% or even 50% reduction in turnover for businesses to be eligible rather than the 25% sought here.    Despite the cash lure of the Wage Subsidy Scheme, the take-up after the initial flurry seems to have stalled at around 40,000 of the 176,000 or so employers which could, in theory at least, avail of the scheme.  One major sticking point seems to be the position of lower paid workers, many of whom believe that the pandemic unemployment payment of €350 may be a better fit for them than lower after-tax wages, even if the wages are subsidised.    Just as wages, subsidised or not, are taxed, there will be tax due on the pandemic unemployment payments.  There is a widely held misconception that state benefits are not taxable, but in fact most of them are.  Payments like jobseekers benefit, maternity benefit and the state pension payments are subject to tax, and payments to individuals are notified directly to Revenue by the Department of Employment Affairs and Social Protection.  The pandemic unemployment payment will be subject to tax even though that tax is not deducted from the payments at source.  It will be assessed and collected next year, though many of us are focusing more on what we will have to do next month.    While the wage subsidy scheme is a lifeline that businesses should grab hold of if they can, there are other concessional treatments from Revenue for businesses during the crisis.  These are receiving less attention, but perhaps in some cases may be more useful.    The best way for government to get cash into business is not to take it away in the first place.  This is the rationale behind interest forgiveness on the late payment of recurring PAYE and VAT bills, and other jurisdictions are examining this Irish approach to see if they should also apply it.  The March Exchequer returns weren't as bad as some had predicted, but the falloff in VAT paid to the Exchequer was directly attributable to this concessional treatment.  Almost €1 billion worth of working capital was kept in Irish business in March through the simple expedient of allowing business the flexibility not to have to settle their VAT bills last month.    We can expect to see this trend repeated in the coming months to the detriment of the Exchequer receipts.  Revenue don't even request smaller industry – businesses with a turnover of €3 million are less – to notify them in advance if they are opting not to make VAT or PAYE payments.  It is important for businesses to continue making tax returns of all types, even if there aren't tax payments being made with them.   Bear in mind that the tax itself is not been written off; rather the payment model is being relaxed.  The responsibility to file tax returns is not being lifted nor is the responsibility, ultimately, to pay the tax at some stage.   Another way for businesses to get cash from Revenue is to apply early for any refunds or credits which might be due.  Many of the Revenue phone services have been curtailed but I gather that correspondence is being dealt with quite quickly, particularly through the Revenue on-line channels.  Arrangements have been publicised to accelerate the refund of professional services withholding tax.  This is a withholding tax which some service industries suffer on many government, state and semi-state contracts.  A similar approach is being taken to refunds of relevant contracts tax which is a form of withholding tax applied in the construction, meat processing and forestry industries.  Companies which have spent money on research and development can also request earlier refunds of the tax credits which might be due to them.   All these refund claims can and should be made now, but this crisis will end.  While the focus of tax system interventions is on supporting cash flow through the crisis, planning is needed to stimulate and support industry recovery post crisis.  Some countries are already modifying their tax systems with that in mind.  In New Zealand, a country with very few tax reliefs and incentives, tax breaks are to become available for investment in factories and premises.  In South Africa, a new scheme allows companies with spare cash to get a full tax deduction for their investment in a government loan fund.  That in turn can be used by businesses needing cheap finance.    Incentives like these will be needed here too.  Revenue will in time revert to their default position as cash collectors.  Irish business will need to be able to pay them, the largest creditor.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.

Apr 23, 2020
Tax

Originally published on Business Post, 5 April 2020 In the last 10 days, the giant engine of the PAYE system has been thrown into reverse.  Usually it's a machine for hoovering up tax.  Now it's doing the opposite, allowing government to pay the wages of businesses in trauma due to the government’s decisions taken to combat the Covid-19 health crisis.   By midweek, Revenue were already briefing that they had paid out €34 million in wages to over 30,000 employers already availing of the scheme.  If nothing else, that's an impressive piece of administrative work.    The new Irish PAYE system which was introduced only at the start of last year was modelled on a British system.  It integrates the payroll process of employers with the data and money crunching IT systems of the Revenue Authority.  Yet the British refund system for employers will only start delivering the cash in the next few weeks.  The Irish system is doing it immediately.  Because nothing kills a business quicker than strangled cash flow, this urgency will make a real difference.    For all that, the Minister for Finance still felt he had come out on Thursday morning to encourage employers to claim the assistance of up to €410 per week for employees who earn below the average industrial wage, and up to €350 per week if the employee typically earns anything up to €76,000 per week gross per annum gross.  Why was that necessary?   It certainly wasn't because people weren't being laid off.  We learnt later on Thursday from the CSO that over 280,000 people are now receiving Pandemic Unemployment Payment.  Within the space of a few short weeks, the country moved from virtually full employment to record levels of unemployment.    Nor is it because employers are so flush with cash that they don't need government support.  Again on Thursday (which was rapidly turning into Gloomsday) we saw from the Exchequer returns for March that the monthly taxes collected from businesses, primarily PAYE and VAT, were down by almost €1bn on the same month last year.  This drop becomes all the more concerning because it doesn't just reflect the falloff in employment during the month of March.  Rather, it more reflects the cash flow difficulties for businesses.  Smaller businesses in particular seem to have been availing of the suspension of interest charges on VAT, and deferring payments which would have been due last month.    In this country it's usually the big employers that make the headlines – the public service, the semi-states, the major multinationals, the big indigenous manufacturing and service firms.  It took an announcement of over a hundred new jobs to even get noticed by a media business desk, let alone merit a headline.  In reality, job numbers of that scale don’t reflect the typical profile of employers in Ireland.    Approximately 176,000 businesses employed people before the crisis, but over half of Irish employers employ 3 or fewer people.  One in four have only one employee.  These are the small traders, small retail outlets, and small services businesses.  Some are what are termed personal service companies.  These are companies employing only one person, their owner, set up as a commercial structure to win contract work often within the IT industry.  Large employers in Ireland are the exception rather than the rule.  Only about 2% of employers employ more than 100 people.    Because the profile of employers is so heavily skewed towards smaller entities, this may partly explain the official concerns about the level of take-up of the scheme so far, where only on in five employers have bought into it.  The majority of employers in Ireland do not have high power advisers or HR departments.  Up to now they might not simply have had the headroom to put claims in place, because the arrangements are fairly complex and new scenarios are emerging daily.  The PAYE machine has been thrown into reverse and when any machine is put into reverse you can end up with a lot of wheel spinning and grinding of gears.    Other reasons for employers not availing of the wage subsidy scheme may include having highly paid employees who earn over the €76,000 per annum mark and who are therefore excluded from the scheme.  Yet another group of employers might be treating this crisis as an opportunity to fulfil their plans to reduce staff numbers, so they won’t be making claims for wage subsidies.    Lastly concerns over privacy or post crisis vulnerability to litigation once the crisis has passed are still circulating.  These seem to have dissuaded some employers from making claims.  Beware of fake news.  Every commercial decision involves some risk, and employers should look at the terms and conditions of the scheme again and make up their own minds.   The wage subsidy scheme is not money for nothing.  Instead it is commercial recompense for government mandated commercial shutdown.  Employers who are entitled to it should avail of it.    Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Apr 23, 2020
Tax

Originally published in the Business Post, 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

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