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.

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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.

 


Tax on Rental Income – The Basics

April 14, 2016

Rental Income is taxable under the Irish tax system. For a given year, you can estimate your tax liability using the following formula:

Gross Rental Income  – Allowable Expenses – Capital Allowances = Taxable Rental Income x  Your marginal income tax, PRSI & USC rate = Your tax liability.

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Allowable Expenses

You can deduct the following expenses in arriving at your taxable rental income.

  • Mortgage Interest paid “on monies borrowed for the purchase, improvement or repair” of the property (note the restrictions below)
  • Mortgage Protection policy premiums
  • Water rates, Ground rent, Service charges, Waste Collection charges etc
  • Insurance costs
  • Management & rent collection costs
  • Advertising Costs
  • Legal fees for drawing up leases or collection of unpaid rent
  • Accountancy fees relating to rental income
  • Repairs, decorating and general maintenance
  • Cleaning & related costs
  • Cost of any unreimbursed services or goods provided to tenants by the landlord i.e. electricity, heating, etc

Mortgage Interest – Restrictions              

Your mortgage interest deduction is restricted to 75% of the total interest you incur.

Mortgage interest is only allowed as a deduction against rental income on a residential property if you have complied with your legal obligations under the Residential Tenancies Act, including registering tenancies with the Private Residential Tenancies Board (PRTB).

It is generally not possible to claim for the following expenses:

  • Pre-letting expenses, apart from auctioneer’s letting fees, advertising fees and associated legal fees
  • Capital expenditure.

Capital Allowances

You can claim an allowance for Wear and Tear on furniture and fittings in your property.   This normally will cover such items as carpets, electrical appliances, central heating, furniture, etc.    The allowance is 12.5% per year, each year for 8 years.

Rental Losses

You can only offset a rental loss against other rental income, in current or future years.

It is not possible to offset such losses against other non-rental income sources (e.g. PAYE, business profits etc).

Self-Assessment Tax Collection

The tax due on rental income is normally collected under the Self-Assessment system. A  PAYE taxpayer with low rental income can arrange to have their tax collected via the PAYE system if Revenue agree to adjust their tax credits and standard rate cut-off point accordingly.


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.


Revenue Exchange Rates for 2015 Tax Returns

February 11, 2016

The Revenue Commissioners have just published their official 2015 average foreign currency exchange rates for 2015 tax returns.

When preparing your 2015 Income Tax return, you should use the specified Revenue rate to convert any income denominated in Sterling, Dollars or another currency, to Euro.

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The rates for 2015 and earlier years are as follows.

                          Average Market Mid-Closing Exchange Rates v. Euro
2012 2013 2014 2015
Australian dollar AUD 1.2407 1.3777 1.4719 1.4777
Brazilian real BRL 2.5084 2.8687 3.1211 3.7004
British pound GBP 0.81087 0.84926 0.80612 0.72585
Canadian dollar CAD 1.2842 1.3684 1.4661 1.4186
Chinese yuan CNY 8.1052 8.1646 8.1857 6.9733
Danish krone DKK 7.4437 7.4579 7.4548 7.4587
Indian rupee INR 68.5973 77.9300 81.0406 71.1956
Japanese yen JPY 102.49 129.66 140.31 134.31
Norwegian krone NOK 7.4751 7.8067 8.3544 8.9496
Russian ruble RUB 39.9262 42.3370 50.9518 68.0720
Swedish krona SEK 8.7041 8.6515 9.0985 9.3535
Swiss franc CHF 1.2053 1.2311 1.2146 1.0679
US dollar USD 1.2848 1.3281 1.3285 1.1095

Lloyds Accounts

A special rate applies to convert Lloyds Account amounts from sterling to euro.

This is based on the sterling mid-closing rate on the last market day of the calendar year, as per the Central Bank.

The rate for 2015 is Stg £1 = €1.3625.

The new Revenue eBrief publishing these details is here.


The Companies Office’s Crazy Policy on Postal Delays

February 5, 2016

For some time now, the Companies Registration Office (CRO) have adopted a hardline “zero tolerance” approach to company annual return submissions which are mislaid or otherwise delayed in the postal system.

Basically, if your company return is delayed or lost in the post en route to the CRO, it’s your problem, and they don’t want to know. Even if you have strong evidence that you sent your submission in good time before the applicable deadline.

Today, the new CRO monthly eZine reiterates this unforgiving policy in stark terms:

“Where a document is delivered to the CRO after its filing deadline as a result of being lost or delayed in the postal system, the law leaves the CRO with no option but to treat it as being late.”lost and found road sign illustration design

It gets worse. Even if you’ve been prudent enough to send your return by Registered Post, they will still punish you if you’re late:

“If a document is sent to the CRO by Registered Post and is delivered after the filing deadline, CRO has no option but to treat it as being late.”

You might just be in luck if you’ve used An Post Express Post or a similar time-guaranteed delivery service:

“The only circumstance where CRO will consider an application for an exception to be made to this rule is where the company has sent the document using a time guaranteed service on a date which, under the guarantee, should have resulted in on-time delivery to the CRO and where the service provides proof of delivery or tracks the document to its destination.”

And even then, they can still reject your plea:

In such circumstances, CRO will require the presenter to provide independent documentary evidence  to support their case and will also take account of our own internal systems for recording the contents of envelopes delivered using a time guaranteed service.”

And if you fall foul of this, you’ll have to shuffle off to your local District Court, and pay a solicitor or barrister to plead with the judge for an extension of your annual return deadline.

This will cost you at least €500 – maybe more  – and there’s no guarantee of success.

If the Judge has had a bad day, or just doesn’t like the cut of your jib, you’ll lose your audit exemption, and you can look forward to mandatory audits of your accounts (each costing the guts of €2,000, and maybe more) for two years.

And you will be forced pay an extortionate penalty of €100 + €3 per day for the entire period between your original annual return date and the date when your audit is completed, and your audited accounts are finally ready for filing with the CRO.

This, by any measure, is a ludicrously harsh policy which, let’s remember, actually punishes those who endeavour to comply with their CRO filing obligations.

I’m not a lawyer but it wouldn’t surprise me if it’s illegal too, as it seems to offend the basic legal precepts of force majeure and natural justice.

If the CRO aren’t themselves willing to change it, their bosses in the Department of Jobs, Enterprise and Innovation should insist on a more humane and customer-friendly policy.

Are you listening, Minister Bruton?

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Revenue To Self-Employed: Drop Dead

January 20, 2016

Two Revenue eBriefs in the past 24 hours outline new income tax exemptions on travel expense payments to teachers who do State exam work, and non-executive directors who attend corporate board meetings.

Yet no such concessions are available to self-employed small business owners and entrepreneurs.

Instead, their travel expense claims are subject to a battery of arbitrary and complex restrictions – with no leeway and serious penalties for disallowed motor and subsistence costs.

angry aggressive woman driving car

In Ireland, it always pays to pursue a career in the public or corporate sectors.

Because, if you’re brave & independent enough to stand on your own two feet and run your own small business, you’ll be nailed to the wall at every turn.


New Report Slays Tax Myths

January 8, 2016

The Irish Tax Institute (ITI) has today released Reshaping Ireland’s Personal Tax System, a fascinating analysis of Ireland’s personal tax system.

It’s a bold document, slaying many common tax myths.

Among its key findings are:

  • Ireland has the second most progressive personal tax system in the OECD, with only Israel ranking higher.
  • Irish taxpayers earning above the average industrial wage pay more personal tax than their counterparts in other countries
  • Irish low-income taxpayers pay less personal tax than their counterparts elsewhere.

New Report Slays Personal Tax Myths

  • 29% of income earners pay no personal tax whatsoever.
  • The top 1% of income earners pay 22% of all income tax and USC. The bottom 75% pay just 19%.
  • Our tax system continues to discriminate against the self-employed.

The Institute warns that the heavy tax burden on higher earners is likely to damage Ireland’s international competitiveness, both in attracting business investment and skilled workers to locate here.

It’s good to see these important issues being highlighted. Hats off to the ITI.