Last week, the Department of Finance and the Department of Public Expenditure and Reform published the Fiscal Monitor for April. Tax revenues of €24.8 billion were collected to end-April, an increase of 2.6 percent, or €0.6 billion, on the same period last year. Growth was recorded in income tax, VAT and excise duties, therefore offsetting a decrease in corporation tax. Overall, the Exchequer deficit to the end of April 2024 stands at €1.2 billion. This compares to a deficit of €3.7 billion at the end of April 2023; however the position is distorted due to the transfer of €4 billion to the National Reserve Fund in early 2023. Commenting on the figures, the Minister for Finance, Michael McGrath TD, said: “April is one of the less significant months for tax revenues, but insofar as conclusions can be drawn from today’s figures, the most notable feature of the April performance is the strength in income tax receipts, continuing the trend that has been apparent so far this year. The 6.4% increase in overall tax receipts in April compared to the same month last year is a solid performance, and is in line with budget expectations. The performance of income tax and Vat year to date is encouraging, and points to a domestic economy that is holding up well despite a number of headwinds. The May returns, when further VAT and corporation tax receipts are expected, will provide a clearer indicator of the tax revenue performance. However, overall, tax revenues are ahead of the same period last year even despite the decrease in corporation tax seen last month. This is firm evidence of the fundamental strength of our economy and our labour market, and speaks to the success of Government’s careful and balanced approach to budgetary policy. As outlined in the Stability Programme Update published recently, my expectation is that the economy will experience modest growth in 2024 but importantly living standards will improve for the overwhelming majority of households as incomes rise in real terms. With inflation now moderating quite quickly, interest rates expected to fall over the period ahead, and further reductions in energy prices at the retail level anticipated, the pressures many consumers have faced will likely ease across the year and this will provide a further boost to the domestic economy. I am pleased that we are making progress in relation to the Future Ireland Fund and Infrastructure, Climate and Nature Fund Bill 2024. This is currently at Committee Stage in the Dáil and the legislation is a central part of the Government’s strategy for the long term management of the public finances.”

Revenue has provided an update regarding payment arrangements agreed to address warehoused debt. As of 16:00 on Thursday 2 May, over 10,000 Phased Payment Arrangements (PPAs) have been set up, with Revenue actively progressing a further 1,500 PPA applications. Revenue processed over €65 million in warehoused debt payments last week.  It estimates that, when PPA applications on hand are finalised and incoming payments on the Revenue Online Service (ROS) are processed, 85 percent of the €1.65 billion of debt that was warehoused at the start of April will either have been paid in full or secured under PPAs. Readers are reminded that those businesses who have not yet put arrangements in place to pay their warehoused debt risk losing the 0 percent interest rate and flexible payment options available in respect of their warehoused debt as it will become subject to standard debt collection and the standard interest rate of 8/10 percent will apply. Taxpayers can engage digitally with Revenue via MyEnquiries or ROS or, alternatively, by calling the Collector General (01 738 3663).

In Irish news, Revenue publishes its Annual Report and Minister McGrath comments on the stability of Ireland’s corporation tax receipts. In UK news, we issue a final request for your views on HMRC’s tax agent regulation consultation, and update you on recent discussions with HMRC in respect of its services in 2024/25. In International news, a new report from the OECD highlights the impact of inflation on wages and after-tax income.  Ireland Revenue has published its Annual Report for 2023 confirming strong levels of voluntary compliance. Minister McGrath comments on the stability of Ireland’s corporation tax receipts. UK Tuesday 7 May is the final deadline for letting us know your views on the tax agent regulation consultation. Read our update on HMRC services. International A new report from the OECD highlights the impact of inflation on wages and after-tax income. Keep up to date with all the latest Irish, UK, and international tax developments through Chartered Accountants Ireland’s Tax Newsletter. Subscribe to the Tax News by updating your preferences in MyAccount. You can also read this week’s EU exit corner here.          

In a new report, Tax Wages 2024, the OECD highlights that effective tax rates on wages rose in most OECD countries in 2023. The report also highlights that workers earning the average wage saw a decline in after-tax income in 21 out of the 38 OECD countries. This decline in after-tax income is driven by the lack of automatic indexation of tax credits and bands across most of the OECD. As such, in periods of high inflation workers’ tax liabilities tend to increase as they are pushed into higher tax brackets.

The Minister for Finance, Michael McGrath TD, and the Minister for Public Expenditure, National Development Plan Delivery and Reform, Paschal Donohoe TD have published the Government’s Stability Programme Update for 2024. This document sets out macroeconomic and fiscal forecasts for the periods 2024-2025 and 2023-2027 respectively.  Modified Domestic Demand (MDD) is projected to grow by 1.9 percent this year and by 2.3 percent in 2025. The projected rate of inflation is 2.1 percent as a result of declining global energy prices.  A government surplus of €8.6 billion is anticipated, though an underlying deficit would be in prospect in the absence of ‘windfall’ corporation tax receipts.  Commenting on the figures, Minister McGrath said:  “Available evidence suggests the economy is in reasonably good shape, at least in aggregate terms. Looking ahead, some of the headwinds that have dominated over the past year are set to ease as the year progresses and this should support a pick-up in economic activity.  The brightest economic spot is undoubtedly the labour market, which has remained resilient throughout the period of high inflation and rising interest rates. There are now over 2.7 million people in employment. To put this in context, three-quarters of our working age population are in work, a near record level.  Crucially, the energy price shock is dissipating and the disinflation process is now well advanced, with headline inflation expected to average just over 2 per cent this year – consistent with price stability. Against this backdrop, consumer spending is expected to pick-up over the course of the year as lower energy prices and the associated easing in inflation support an improvement in real wages and household purchasing power.  MDD growth is expected to average 1.9 per cent for this year as a whole - a modest downward revision of 0.3 percentage points from the autumn forecast. As economic conditions improve over the course of this year, MDD growth is set to accelerate to 2.3 per cent next year.”  On the public finances, Minister McGrath said:  “On the fiscal side, we are projecting a headline surplus of €8.6 billion for this year, the equivalent of 2.8 per cent of national income. This is based on the assumption of tax revenue amounting to almost €92.1 billion, a growth rate of 4.6 per cent. However, I would caution that this surplus is heavily dependent on volatile ‘windfall’ corporate tax receipts which have grown from €4 billion to €24 billion in the space of a decade. When the windfall element of these receipts – estimated at around €11 billion, or almost half the projected corporation tax yield this year – is excluded, there is an underlying deficit in our public finances.  These receipts cannot be relied upon: we saw a marked slowdown in corporation tax over the course of last year, highlighting the volatility of this revenue stream. We can say with reasonable confidence at this point that the era of corporation tax over-performance is coming to an end.  That is why this Government has decided to establish the two new long-term investment vehicles – the Future Ireland Fund and the Infrastructure, Climate and Nature Fund. The objective is to invest windfall receipts to help prepare for future known fiscal challenges. The legislation establishing the Funds is currently progressing through the Oireachtas.  The SPU projections published today reflect the resilience of our economy and Government’s commitment to continuing to invest in our public services and the productive capacity of our economy. However, it continues to be important that we highlight the vulnerabilities that remain just below the surface: it is essential that fiscal policy is framed in a manner that is careful, balanced and sustainable.  The publication of the SPU today is an important milestone in the process of preparing Budget 2025. I now look forward to the National Economic Dialogue next month and then to the preparation of the Summer Economic Statement (SES) before the summer recess. The SES will involve making important decisions concerning the parameters of Budget 2025." 

Readers are reminded that taxpayers currently availing of the Debt Warehouse Scheme have until Wednesday, 1 May 2024, to engage with Revenue to agree arrangements to repay their warehoused debt. Revenue has emphasised that there is no expectation on businesses to have all their warehoused debt repaid in full by 1 May. However, they must have engaged with Revenue, by submitting an ePPA online via ROS, to agree a phased payment arrangement (PPA).  Where a business fails to meaningfully engage with Revenue by 1 May, the balance outstanding will immediately be subject to standard debt collection proceedings and the standard interest rate of 8 percent or 10 percent will apply.   As Revenue reports increasing numbers of businesses making contact to set up PPAs and discuss the flexible payment options, the Collector General’s Division has extended opening hours for its phone lines from 9.30am to 16.30pm on Monday 29 April to Friday 3 May. The Collector General’s Division can be contacted on 01 738 3663 or through MyEnquiries.   Revenue’s online 24/7 Phased Payment Arrangement application system can be accessed through ROS, by clicking on the ‘Other Services’ section. Businesses with warehoused debt of €50,000 or more will be required to submit supporting documents with their applications. Businesses can also pay their debt through one of Revenue’s online payment channels, in full or in partial payments, and can also use an approved refund or credit to pay their outstanding balance.  Speaking about the increasing level of engagement from businesses, Revenue’s Collector General, Joe Howley, outlined:  “Applications for Phased Payment Arrangements are being submitted on a constant basis and customers are also engaging with us via phone and MyEnquiries. As a result of this increased level of engagement, over 6,500 payment arrangements for warehoused debt have now been set up on our system, an increase of over 3,700 in the period since 31 March.   The level of warehoused debt which is not yet subject to an active payment plan is now below €1 billion and this balance will continue to reduce as we approach the key deadline of 1 May. We are actively progressing a further 1,300 Phased Payment Arrangement applications at present and we are aware that many customers have financially planned to pay their warehoused debt in full on or close to 1 May, in order to fully maximise the benefit of the 0% interest rate.”  A summary of the key actions required before 1 May 2024 can be found on the Revenue website, accessible here.  

Revenue has advised us that the facility to record advance payments for employee travel and subsistence expenditure is now available on ROS. As previously reported, the Tax and Duty Manual regarding the enhanced reporting requirements (ERR) for employers provides guidance on an optional administrative practice regarding advance payments of travel and subsistence.   Under this administrative practice, an advance travel and subsistence payment may be treated, in certain circumstances, as not being subject to tax via the payroll when paid, but instead treated as a payment where no tax is deducted in respect of travel and subsistence and therefore subject to ERR reporting at the time of payment. Then, when the expense is incurred and the claim submitted by the employee/director, the employer will be required to update their ERR submission to Revenue to reflect the actual travel and subsistence expense amount in respect of that employee/director. 

Following the publication of Corporation Tax – 2023 Payments and 2022 Returns by Revenue, the Minister for Finance, Michael McGrath TD, noted that corporation tax is now the second largest tax revenue stream for the State. Acknowledging that the high concentration of receipts among a small number of companies brings a significant amount of risk, the Minister noted steps taken by Government to mitigate this risk and protect the public finances into the future.  Highlights from the publication ‘Corporation Tax – 2023 Payments and 2022 Returns’ include:  Corporation tax receipts in 2023 were €23.8 billion (up 5.3 percent year on year), representing 27 percent of total tax receipts  85 percent of receipts were from large corporates with the top 10 corporation tax paying companies accounting for 52 percent of total net receipts (down from 57 percent in 2022)  Net receipts from smaller companies increased by €385 million compared with 2022, a growth of 9 percent  Manufacturing (38 percent), Finance & Insurance (15 percent) and ICT (17 percent) were the largest sectors where corporation tax was paid in 2023.    Commenting, Minister McGrath said:  “I welcome the publication of the Corporation Tax 2023 Payments and 2022 Returns report by the Revenue Commissioners.  This is an extremely valuable piece of work that highlights key trends in what is now the second largest tax revenue stream for the State. Last year we took in nearly €24 billion in corporation tax.  However, we must not forget that these receipts are highly concentrated with just a few firms paying the bulk of the tax. My Department has estimated that roughly half of the €24 billion could be windfall in nature. In addition, we have seen major changes in the corporation tax environment in recent years with the OECD BEPS process. Ireland has committed to the two pillar agreement and has fully implemented Pillar II and is fully engaged in negotiations on Pillar I.  What all this means is that we cannot afford to fund permanent increases in expenditure on the back of tax receipts that may be temporary in nature.  Government has taken steps to mitigate this risk. Government debt has fallen by around €15 billion from its peak of €236 billion during the pandemic and we are continuing to run strong Government surpluses.  I am currently bringing legislation through the Oireachtas that would establish two new long-term funds, the Future Ireland Fund and the Infrastructure, Climate and Nature Fund.  The Future Ireland Fund will have a long term investment focus and has the potential to grow to €100 billion by 2035. It will be used in the coming decades to pay for extra costs we know will occur due to demographics and the climate and digital transitions.  The Infrastructure Climate and Nature Fund will be used to maintain our high levels of capital investment during an economic downturn. This will ensure that critical pieces of infrastructure are delivered and that employment is supported at a time when the economy needs it most.  I expect that this legislation will be passed by the summer and the two new funds will be established later this year.” 

Revenue has published its Annual Report for 2023. The report reflects another year of strong performance for Revenue as it collected a record amount of tax and duty, with gross receipts amounting to €127.9 billion.   2023 also saw a continuation of high voluntary compliance rates, at over 99 percent for large cases and 98 percent for medium cases. Timely compliance rates for all other cases in 2023 was 91 percent, up from 88 percent in 2022. In the same period, Revenue completed over 291,000 compliance interventions with a yield of €787 million and 85 tax avoidance cases with a yield of €16.5 million.  Revenue also published a number of other research and statistical papers on Corporation Tax, Income Tax, VAT together with a survey of PAYE customers in 2023 and an evaluation of Budget 2023 compliance measures.   Commenting on today’s publications Revenue Chairman, Niall Cody, said:  “Continued strong levels of timely and voluntary compliance rates confirm that the vast majority of taxpayers pay the right amount of tax at the right time. Given the exceptional disruption which individual taxpayers, businesses and agents have experienced over the past four years, this is an extremely positive reflection on their continued engagement with their tax compliance obligations, and the importance that society generally places on a strong culture of voluntary and timely tax compliance.   We acknowledge and thank all taxpayers and their representatives for their ongoing engagement and co-operation.”  Read the full report for more information. 

Revenue has updated the Tax and Duty Manual which provides guidance on the operation of Ireland’s bilateral Advance Pricing Agreement (APA) programme. The programme provides certainty to taxpayers regarding the process involved in applying for a bilateral APA and the ongoing reporting and administrative requirements once an APA has been entered into. The updated Guidelines take into account international best practice in relation to bilateral APAs as identified by the OECD Forum on Tax Administration (September 2022).  The main changes to the guidelines are as follows:  Including prospective years in an APA term in situations where most of the years proposed to be covered by an APA have passed by the time an agreement is reached between the competent authorities (Part 3.3).  Position to be adopted by a taxpayer in corporation tax returns filed in the period from when an APA application is submitted to Revenue until the APA is concluded (Part 4).  Electronic submission of APA applications (Part 4.2 and Part 8).  Timeframe for Revenue to make a decision in relation to the acceptance of an APA application into the APA programme (Part 4.2).  Annual reporting requirements (Part 4.5).  Timeframe for a taxpayer to notify Revenue in situations where it ceases to apply the terms of an APA (Part 4.5).  Amendment by a taxpayer, where necessary, of previously filed tax returns following the revision, revocation or cancellation of an APA (Part 5).  Relationship between transfer pricing audit and the APA process (Part 6). 

Over the course of several editions of Chartered Accountants Tax News in March and April, we summarised the proposals in HMRC’s consultation “Raising standards in the tax advice market – strengthening the regulatory framework and improving registration” and asked for your feedback. This week we’re issuing a final reminder to let us know your views, especially on the three options presented, mandatory membership of a professional body, a hybrid HMRC and industry enforcement model, or regulation by an independent statutory body. The Institute has condensed all the proposals in this consultation into one document and encourages members to send their feedback to us by close of business on Tuesday 7 May. Email tax@charteredaccountants.ie to let us know your views.  Members may also wish to respond to the consultation themselves (closing deadline is 29 May 2024). To facilitate this, HMRC has launched a consultation survey. Alternatively, you can email raisingstandardsconsultation@hmrc.gov.uk.  

Readers will be aware that last month HMRC announced a series of permanent changes to its helplines which were to begin from 8 April 2024. However, on 9 April, HMRC  announced that the changes were being halted while HMRC “considers how best to help taxpayers harness online services”. Chartered Accountants Ireland recently discussed this with HMRC at its most recent Representative Body Steering Group (“RBSG”) meeting, the highest-level forum meeting for the Professional Bodies. Read on for an update on that discussion and key messages for members.  At the RBSG meeting, HMRC staff made clear that quarters one and two of 2024/25 are likely to see a further decline in services whilst HMRC considers the way forward. A bespoke meeting is expected to take place next month with the Professional Bodies (including the Institute) to discuss further.  Last week HMRC’s Chief Executive and First Permanent Secretary Jim Harra appeared in front of the Treasury Select Committee to provide oral evidence on HMRC service levels. Mr Harra did not rule out returning to the proposed helpline changes but did say that HMRC is reviewing its strategy and that it should have ‘taken more time to go through the evaluation of last year’s trial and spent more time explaining how people would be supported’. Mr Harra also confirmed that from 1 April 2022 to the end of the current financial year, HMRC expects to have to reduce the size of its customer service group by about 5,000 staff but confirmed that there really is only one alternative plan, and that is to deploy more helpline resources. HMRC “currently do not have the funding to do that, but we are of course in discussions with Ministers, following the decision not to go ahead with these changes, about what we will do.”  The Institute and its NI Tax Committee is monitoring this issue and will be attending next month’s bespoke meeting. However, we are disappointed that a request for a bespoke meeting before the formal announcement was made by HMRC last month was rejected and only now is one being set up to discuss our concerns in more detail. Feedback on HMRC services can be sent at any time to the Institute.  The Administrative Burdens Advisory Board (“ABAB”) 2024 Tell ABAB annual survey on HMRC is also currently open until tomorrow 30 April 2024 to feedback on HMRC performance and tax compliance. The survey provides crucial insight on the big issues faced by small businesses in the tax system and is commissioned by the ABAB, an independent body who are passionate about listening to and understanding the needs of the small business community. Results from the survey will be published in a report, which is targeted for publication on GOV.UK in September 2024.