Irish Tax Institute Query Home Office Tax Crackdown

August 16, 2013

The Irish Tax Institute have today published their formal response to the last month’s Revenue Tax Briefing which sought to restrict allowable travel expenses for contractors and small companies operating from home office environments.

In their Tax Briefing, Revenue effectively attacked the entitlement of company directors and employees to claim mileage and subsistence expenses in respect of travel to and from their home office – even if it is a company’s registered office or main place of business.

Revenue Attack Home Office Company ExpensesThe Irish Tax Institute (ITI) have responded by questioning the validity of this approach.

They point out the rather obvious reality that in the modern working environment, there are many cases in which a person’s home is their main place of work, and note that Government policy actively encourages home working and teleworking.

The ITI criticise the Revenue position as failing “to take account of genuine situations where an individual’s work operations are based at their home and the majority of their work takes place at home, rather than at any other premises.”

The Institute also point out the apparent contradictions between the new Revenue policy and a range of existing Revenue arrangements and concessions, including:

  • construction industry “country money”,
  • allowable subsistence for foreign travel and,
  • the Budget 2012 Special Assignee Relief Programme and Foreign Earnings Deduction schemes.
Clearly this debate is far from over.

For more, see The Irish Tax Institute statement , Revenue Tax Briefing No 03/13 & my recent Blog Post on this subject.

Why Joan Burton Wants to Hit the Self Employed

August 13, 2013

Some people have been rather upset today to learn that Social Protection Minister Joan Burton is plotting another yet another tax hike on self-employed workers.

According to the Irish Independent, Ms Burton is targeting the self-employed for increased PRSI in Budget 2014, from the current 4% rate to 6%.

Why Joan Burton Wants to Hit Self Employed

However, this news doesn’t surprise me in the slightest.

Why so?, I hear you ask. Isn’t it beyond obvious at this stage that tax hikes increase unemployment? And, surely the Social Protection Minister wants to shorten, not lengthen, the dole queues?

But therein lies the rub, and the cold and cunning method in Ms. Burton’s apparent madness.

When a self-employed worker goes out of business, they normally won’t be entitled to Jobseekers Benefit.

So they don’t become a drain on the social welfare budget.

This explains why Joan Burton is quite happy to target a dwindling pool of self-employed workers for PRSI hikes.

She knows full well that if they lose their livelihoods, they can go hang, fend for themselves, or better still, emigrate.

Meanwhile, on another planet entirely,  the political pensions gravy train rolls on undisturbed.

The Irish Independent report is here.

Is Your Company’s R&D Tax Credit Claim In Order?

August 12, 2013

Revenue are examining claims for Research & Development (R&D) Tax Credit, as audits reveal that some companies have overclaimed tax credits and refunds.

This is according to a Revenue statement quoted in Carl O’Brien’s article in today’s Irish Times.

Revenue probe R&D Research & Development Tax Credit Claims

The R&D Tax Credit Scheme allows companies a 25% tax credit for the cost of carrying out qualifying R&D activities.

This is in addition to the normal 12.5% writeoff against income for Corporation Tax purposes, and means that companies can recoup 37.5% of such costs against their tax liabilities.

For example a company spends €100,000 (eg wage costs) on a qualifying R&D activity.

They claim this expenditure as a deduction in their accounts and Corporation Tax return. This yields a 12.5% tax saving, worth €12,500.

They can also claim a further 25% credit if the cost relates to a “qualifying R&D activity”. This yields a further 25% tax saving, worth €25,000.

The total tax saving is €37,000, on spending of €100,000.

It is easy to see that the scheme can be very lucrative. Over 1,200 companies have availed of it to date, and in 2010 they claimed approx. €224 million in tax reliefs. However it is not a free lunch and there are detailed terms and conditions.

Revenue are now concerned that some firms have breached these terms by overclaiming R&D credits, and they are now beefing up their audit programme in response.

The Irish Times claim that audits of 32 companies have uncovered 26 cases where a total of €6 million was overclaimed. However the majority of cases are said to have involved “accounting errors” and in only one case was a tax credits claim ruled fully out of order.

If you own or work in an R&D claimant company, the lessons are clear:

  • You must ensure that each claim refers to a properly qualifying research and development activity.
  • Where a cost refers only partly to an R&D activity (eg staff hired to carry on R&D and other work) it is important to correctly apportion the R&D and other elements. If anything, it pays to be conservative in apportioning R&D and non-R&D costs.
  • All R&D spending must be clearly documented as such and you must keep detailed records of all R&D activity.
  • Don’t forget that the scheme only covers incremental expenditure over the total of such spending in the 2003 base year, and is also subject to further limits based on historic Corporation Tax payments and payroll costs.
  • Remember that grant-aided expenditure is wholly excluded from the R&D credit scheme.

For more, see:

  • The Revenue Commissioners Guidelines for the Research & Development Tax Credit.
  • The webpage for the R&D Credit.
  • Today’s Irish Times article.

If you have any queries or concerns on the R&D Tax Credit, you should seek quality professional advice.

Are All Our Income Tax Eggs in the One Basket?

August 2, 2013

The top 22% of Irish taxpayers pay 82% of all personal taxes, according to Revenue Chairman Josephine Feehily who this week addressed the MacGill Summer School in Co. Donegal.

This, in her opinion, makes “the Irish personal tax system is one of the most progressive in the world”.

Josephine Feehilly RevenueIn progressive taxes systems, the tax rate increases as incomes rise. So high earners bear a disproportionately high  burden of tax liabilities.

In many ways, progressive tax systems make sense, after all basic intuition would suggest that the highest earners should bear a higher share of the overall tax burden than lower earners, simply because they can afford it more.

That said, I’m reminded of the old cliche about never putting all your eggs into the one basket.

With the highest 22% income earners paying over 80% of the tax take, what happens tax revenues if their incomes fall, even marginally?

Ongoing public sector cutbacks and private sector redundancies mean that the numbers of high income earners are dwindling, as are their average incomes.

As these are the people who pay the most taxes, their misfortune is bad news for the rest of us, who will have to bear more and more of the tax burden that the high-earners are currently bearing.

So we face a grim prospect of more income tax, more PRSI and USC levies, more property tax and more stealth taxes.

The case for fundamental reform of the Irish tax system was never more urgent than it is now.

Josephine Feehilly’s speech is online, as are her speaking notes.