New VAT & RCT Guidance for School Boards

May 23, 2016

Revenue have issued new Guidance Notes for School Boards of Management on how Relevant Contracts Tax (RCT) and VAT affect school building projects and repairs & maintenance works.

Revenue Guidance Notes for Boards of Management on RCT and VAT.jpg

The RCT tax system applies to construction contracts where a principal contractor deducts tax from payments due to building contractors and tradesmen.

Since 2012, school Boards of Management have been counted as ‘Principal Contractors’ for RCT purposes.

Where a Board of Management undertakes construction works (including associated repairs or alterations to a building or structure), they  must operate RCT procedures on all payments to contractors.

In addition, they must file VAT returns, and make VAT payments in respect of VAT withheld under the Reverse Charge system.

There are serious penalties for failing to comply with these obligations, so school Boards should take special care to ensure that their VAT and RCT affairs are fully in order.

If you’re not fully certain of what exactly to do, avoid a potential nightmare by getting proper professional advice.

 


The Tax Mistakes Builders & Tradesmen Are Making

March 25, 2016

Last August, the Revenue Commissioners warned builders and tradesmen to ensure they remain tax compliant as the construction industry recovers from the downturn.

They have obviously been busy in this area in the meantime, as they have now publicly flagged their concerns on some key areas where mistakes are being made.

These centre on the incorrect operation of the VAT Reverse Charge and Country Money systems.

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Under the VAT Reverse Charge system, each VAT-registered sub-contractor invoices a principal contractor net of VAT, and is paid the invoice total net of VAT.

The principal contractor must then calculate the appropriate VAT on the the sub-contractor’s invoice and must pay that VAT amount directly to Revenue in their VAT return.

Revenue have now highlighted the following specific problems in this area:

  • Failure by Principal contractors to calculate the VAT and remit it to Revenue.
  • Incorrect completion of VAT invoices by sub-contractors.
  • Incorrect application of the two thirds rule.
  • Errors in completing VAT returns (including ignoring the reverse charge altogether).
  • Failure to apply the VAT Reverse Charge to construction supply transactions between connected parties.

They have also issued a fresh reminder of the strict conditions for tax-free Country Money travel and subsistence payments  to transient building & electrical contracting workers.

In addition to the above issues, it almost goes without saying that full compliance with the Relevant Contracts Tax or eRCT system is absolutely essential for every contractor and sub-contractor in the building trade.

This system requires every contractor to register all contracts with, and payments to, all subcontractors, and obliges the contractor to deduct a percentage of tax from each payment where Revenue request this.

If you are a builder, tradesman or contractor, and have had difficulties or issues in complying with the various regulations, you may be liable to interest and penalties on any tax shortfall.

You can minimise your exposure by making an “unprompted voluntary disclosure” to Revenue and settling your tax, penalties and interest liabilities ahead of any Revenue audit or enforcement check on your business.

If you are considering such an option, I strongly recommend that you first obtain decent professional advice to protect your interests and ensure that you qualify for the concessions offered by the Revenue Audit Code of Practice.

Finally, here is the new Revenue eBrief outlining the above issues.


A Simple Solution to the Airport VAT Racket

August 13, 2015

Earlier this evening I was privileged to contribute to a discussion (50.35 minutes in) of the unfolding airport VAT controversy on Matt Cooper’s The Last Word radio programme on Today FM.

In response to my charge that airport retailers are unfairly pocketing a VAT advantage at the expense of their customers, the Dublin Airport Authority’s Paul O’Kane countered that the DAA are using this benefit to lower prices for everyone.

Paul’s claims incidentally give rise to further issues, which Aisling Donohoe raises in her excellent blog post, but I’d prefer here to concentrate on the key question of transparency for consumers – and what I see as the obvious solution to this mess.

A Simple Solution to Airport VAT racket

It is abundantly clear that airport retailers have sufficient point-of-sale system technology at their disposal to enable them to automatically allow the appropriate VAT exemption to non-EU customers, in the form of a reduction in their bill.

This would be a far more transparent and acceptable practice than effectively ripping off some customers and pledging to use the proceeds to benefit others.

During the discussion, Paul confirmed that the DAA already operate differential pricing for duty-free sales to EU & non-EU customers, so their point-of-sale systems are indeed equipped for this purpose.

Why not extend this functionality to VAT, and dispense altogether with the cloak and dagger approach?

At a stroke, this simple move would resolve this controversy, and kill the bad PR that continues to engulf the airport retailing sector.

And because everybody loves a bargain, I guarantee that will actually boost airport sales to non-EU travellers.

So everyone wins!


VAT at the Airport: The House Always Wins

August 12, 2015

I’ve often wondered, when making a small purchase at an airport, why the retailer wants to view and scan my boarding pass.

Such requests are often irritating, as when I travel with my family, my wife often carries all our boarding passes as far as the boarding gate.

Airport Retailers Win on VAT

On occasions, I’ve opted not to buy a book or magazine because I simply couldn’t be bothered going back to her to locate my boarding pass.

But, like everyone else, I’ve put it down as one of the multitude of pointless inconveniences that we all encounter when we travel by air.

But last weekend, it emerged that this practice is not pointless at all – but part of a lucrative VAT avoidance strategy by major UK retailers such as WHSmith, Boots and Dixons.

It enables them to take advantage on a little-known VAT exemption on goods sold “for export” outside the EU.

Today, the Dublin Airport Authority confessed that it operates a similar ploy to cut its own VAT bills.

But crucially, in common with the big UK airport retailers, it doesn’t pass those savings on to customers.

So we have a situation where an airport shopper pays €10 for an alarm clock, she automatically assumes that the price includes 23% VAT. If she is travelling within the EU, the store duly pays the €1.87 VAT element to Revenue, on her behalf

But if she is travelling elsewhere, to any non-EU destination, the shop conveniently gets to keep the VAT on her alarm clock.

Isn’t this a great system!  It is – but only for the retailer.

The lady with her new alarm clock is blissfully unaware that the she has overpaid for it by €1.87. We can safely assume that the retailer’s accountants aren’t as naive.

I’ve often remarked that VAT is the most complex, and the most evaded (and avoided) of all taxes – and in many cases its byzantine exemptions and loopholes are a lovely little earner for big retailers.

And its not only in airport shops that this is an issue.

Some years ago, a British economist drew attention to what he termed “the Mothercare subsidy” – the fact that VAT-exempt children’s clothing and similar items were no cheaper to consumers than other goods on which full-rate VAT was levied.

Over the years, this anomaly has lavishly boosted the fortunes of chains like Mothercare who sell a lot of baby wear – and charge remarkably high prices.

Over 30 years ago, an Irish government famously collapsed after it failed to impose a VAT charge on children’s shoes.

Yet today in Ireland, VAT-free kids’ shoes are every bit as expensive (or perhaps more so) as VAT-liable shoes for grown-ups.

This latest controversy is unlikely to ignite a much-needed root and branch reform of the VAT system.

But in the meantime, airport shoppers will be well advised to keep their boarding passes in their pockets, and produce them only when they’re happy that the retailer is passing on the full VAT saving to them.

A small victory, but hey, it’s your money. And you can be sure that they win the rest of the time.


Revenue To Enforce VAT Return Of Trading Details

July 29, 2013

Revenue are planning to withhold tax repayments and Tax Clearance Certs from VAT-registered businesses, who fail to submit an obscure statistical return of VAT sales and purchases.

The VAT ‘Return of Trading Details’, or RTD, is a mandatory form which requires each business to record their annual aggregate sales and purchases totals for each VAT rate.

VAT Return of Trading Details

The RTD was introduced in the early 1990s as part of the reforms to the VAT system following the adoption of the EU Single European market in 1992.

In those days, it was regarded as a very important form, as it enabled Revenue to monitor business sales and purchases for audit purposes, and compare  respective totals against the corresponding figures in business accounts.

However, the RTD seemed to fall into disfavour about 15 years ago, with dwindling numbers of businesses bothering to file it each year subsequently.

This non-compliance never seemed to bother Revenue too much, and it became increasingly rare for Revenue demand completion and submission of RTD’s, or to refer to RTD’s in official correspondence.

This has all changed with today’s Revenue eBrief, unveiling new plans to enforce RTD completion and filing.  This includes a new, “simplified” RTD, to be launched in late 2013, with local tax districts enforcing full compliance with RTD requirements from  1 September 2013.

Revenue state that, from that date, “taxpayers who are seeking repayments or refunds of tax may be requested by their local Revenue District to submit outstanding RTD forms in order for such repayments or refunds to issue.”

Time to get filing!


Tonight’s Tax Return & Payment Deadlines

January 23, 2013

Don’t forget that midnight tonight (23 January) is the deadline for filing the following tax returns:

  • Employer PAYE/PRSI P30 monthly return for December 2012 & quarterly return for the period October – December 2012
  • VAT3 return for periods ending in December 2012
  • RCT December 2012 monthly return for December 2012 & quarterly return for the period October – December 2012.

You must file each return online using ROS, and each return must be accompanied by your corresponding tax payment.

Tax Deadlines

In addition, tonight is also the deadline for

  • payment of Preliminary Corporation Tax, if your 2012/13 company accounts year ends in February 2013; and
  • filing of your Corporation Tax Return and payment of any remaining tax owing, if your 2011/12 company accounts year ended in April 2012.

For a full list of all Revenue tax deadlines in 2013, see the Revenue Key Dates Calendar. Note the extended filing dates for returns filed electronically via ROS.


Budget 2013: The Key Points

December 5, 2012

The main points of Minister Noonan’s Budget 2013 Speech, announced this afternoon:

Noonan Dec 2012

Business

The Minister announced a new 10 Point Tax Reform Plan which “includes measures that will make a real difference to SMEs”.

These include:

  • Reforms to the 3 Year Corporation Tax Relief for Start Up Companies
  • Increasing the cash receipts basis threshold for VAT from €1 million to €1.25 million and changes to the Close Company Surcharge.
  • A doubling of the initial spend eligible for the R&D tax credit  from €100,000 to €200,000
  • Extensions to the Foreign Earnings Deduction for work related travel.

In addition, a diesel rebate is to apply for hauliers from 1 July 2013.

A new “PlusOne initiative” will encourage employers to hire long-term unemployed individuals. This will replace the existing Revenue Job Assist and Employer PRSI Incentive schemes.

Farming

The 25% & 100% Stock Relief incentives will continue until 31 December 2015.

A wider range of registered farm partnerships (eg beef production) can now avail of an enhanced 50% rate of Stock Relief.

A new Capital Gains Tax relief will apply on disposals of farm land for farm restructuring purposes. This once-off relief  will apply from  January 2013 to December 2015,  and is subject to EU approval.

Film Industry & Tourism

The Film Tax Relief Scheme is extended to 2020, and the scheme will move to a tax credit model in 2016. These changes are aimed to ensure that production companies and not ‘high earner’ investors, will now benefit from the tax relief.

The 9% VAT rate for the tourism industry will continue  in 2013.

Property

A three-year Local Property Tax exemption will apply to:

  • All new or previously unoccupied homes bought before the end of 2016.
  • Purchases of any homes in 2013 by first time buyers.
  • Residences in unfinished estates.

In addition, the Budget 2012 Capital Gains Tax incentive for properties bought before 31 December 2013 means that they will be exempt from Capital Gains Tax if held for at least seven years.

New “Real Estate Investment Trusts” will allow commercial property investors “to finance property investment in a risk diversified manner”.

Pensions

  • Tax relief on pension contributions will only apply to schemes delivering a pension income of up to €60,000 per annum. This will apply from 1 January 2014.
  • Tax relief on pension contributions will continue at the marginal rate of tax.
  • The 2012 Pension Levy will cease after 2014.
  • the reduced rate of USC for over-70s earning over €60,000 will cease from 1 January 2013.
  • Top Slicing relief will no longer be available on ex-gratia lump sum termination /severance payments, where the non-statutory payment is over €200,000.
  • Individuals with AVCs may in 2013 withdraw up to 30 per cent of their value. Withdrawals will be subject to marginal rate income tax. This will apply for 3 years after Finance Act 2013 is passed.

PRSI

The minimum annual self-employed annual contribution will rise from €253 to €500.

The weekly €100 PRSI-exempt allowance for employees is being abolished.

“Unearned” trade or profession income will be subject to PRSI in 2013

From 2014, PRSI will apply to rental income, investment income, dividends and deposit interest.

Local Property Tax

The Local Property Tax will commence from 1 July 2013. Its main features are as follows:

  • It will be collected by the Revenue Commissioners
  • Owners of residential properties, including rental properties, will be liable for payment.
  • The tax will be payable on the basis of the self-assessed market value of the property. The Revenue Commissioners “will provide valuation guidance”.  Alternatively, “a competent valuer” can be used.
  • The tax will be 0.18% of the market value up to €1m, and 0.25% on values over €1m.
  • Properties valued between €100,000 – €1m will be charged “at the mid-point of valuation band of €50,000 width” eg where the value is between €150,001 and €200,000, the tax will be calculated at 0.18 per cent of €175,000.
  • Properties below €100,000 will be charged at 0.18% of €50,000.
  • Properties valued over €1 million will be liable at 0.18% on the first €1m and at 0.25% on the balance.
  • Payment options  will include direct debit; credit & debit cards, cash (!!)  or “deduction at source” from salary,pension or “certain State payments”.
  • Exemptions largely correspond to exemptions from the Household Charge.
  • A “system of voluntary deferral arrangements” will apply to
    • individuals earning up to €15,000, & couples earning up to €25,000.
    •  individuals earning whose “gross income less 80 per cent of mortgage interest” is below €15,000, (€25,000 for a couple).  Marginal relief will apply where the income is up to €10,000 over the income limit
  • Interest will be charged on deferred amounts at 4% per annum. Deferred property taxes and interest will have to be discharged on the sale/transfer of the property.

The Household Charge is abolished  from 1 January 2013 and the NPPR Charge will end on 1 January 2014.

The Revenue Commissioners will “strictly enforce”  the Local Property Tax and collect any unpaid Household Charge for 2012.  Unpaid arrears will rise to €200 per property from 1 July 2013.

Income Tax 

The only Income Tax measure mentioned in the Budget Speech relates to Maternity Benefit, which will be treated as taxable income from 1 July 2013. Maternity Benefit will remain exempt from the USC.

Excise Duties

There is no increase on excise duty on diesel and petrol

Immediate rises from midnight tonight:

  • 10 cent on a pint of beer or cider & on a standard measure of spirits
  • €1 0n a  standard 75cl bottle of wine
  • 10 cent on a pack of 20 cigarettes
  • 50 cent on a 25g pack of “roll your own” tobacco

VRT and motor tax will rise from 1 January 2013.

Carbon tax will apply to solid fuels at a rate of €10 per tonne from 1 May 2013, and €20 per tonne from 1 May 2014.

Capital Taxes

DIRT on deposit interest rises from 30% to 33%

Capital Gains Tax (CGT) & Capital Acquisitions Tax (CAT) rates similarly go from 30% to 33%

Capital Acquisitions Tax (CAT) thresholds are cut by 10% from midnight tonight.

Corporation Tax

The Minister remains fully committed the Corporation Tax tax rate of 12.5%

The Minister has confirmed that Ireland has agreed a new Inter-Governmental Agreement with the United States in relation to the US Foreign Account Tax Compliance Act, commonly, (if unfortunately), known as FATCA.