Archive for the ‘Tax Adviser’ Category

Who needs to file an Income Tax return?

Monday, January 4th, 2010

A common assumption is that only business owners need to file a personal tax return. In fact, quite a number of other people must complete a return.

Basic Rule

You must file a return if your non-PAYE income is higher than can be catered for by Revenue adjusting your credits and allowances. In practice, this is about €3,510.

Certain categories of people must always file a return, regardless of amount e.g.

  1. Proprietary directors owning over 15% of a company even if paying PAYE
  2. Employees who receive share options.

Some other examples of income which can mean your having to file a return are

Dividends

  1. Business profits
  2. Deposit Interest
  3. Loan interest receivable
  4. Rental Income
  5. Mutual Funds
  6. Capital Gains

If you need help with a tax return you should get professional advice

Employed or Self-Employed Status

Monday, January 4th, 2010

Revenue are increasingly querying the status of self-employed contractors such as

  • Consultants
  • Tradesmen
  • Locum doctors, opticians, pharmacists

Why is this happening?

Revenue prefer employee status. They can collect tax easier through PRSI

Some self-employed schemes were shams used for tax avoidance

Employees pay higher PRSI

What does it mean to you?

As a business owner you need to be careful in this area. If you treat someone as self-employed and revenue deem it an employment

  1. You could be assessed for PAYE and PRSI on top of previous payments
  2. The “employee” might acquire rights like redundancy .

How is the issue decided?

There are no set rules. Each case is decided on its own facts. The legal basis is whether the person is in fact “in business on their own account” The main guidelines are

  • Previous cases decided
  • Guidelines issued by the Committee on the Status of Employment. Key Factors
Does the employee provide labour only?.  Favours employment
Can they send a substitute? Favours self-employed
Can they make a loss in the activity? Favours self-employed
Are they integrated into your business e.g. Holiday pay, pension?. Favours employment
Are they closely supervised e.g. working hours, routine task monitoring. Favours employment

 If faced with a challenge on these issues you should consult your tax adviser for support

Tax Residence – What can it mean to you

Monday, January 4th, 2010

Residency issues can play a large part in your tax affairs if you

  1. Come to live in Ireland
  2. Leave Ireland

What does resident mean?

You are resident if

  1. You spend over 183 days here in any tax year or
  2. You spend 240 days between one year any the preceding year. Any year when you are here less than 30 days is ignored.

Ordinarily Resident

This is another important concept.

You become ordinarily resident when you are resident in 3 successive years

You remain so until you have been non-resident for 3 years

If you are resident and ordinarily resident for a tax year you are taxable on worldwide income

Coming to Ireland

If you are resident but not ordinarily resident you are taxed on

Irish income

Foreign income remitted here

This is called the remittance basis

Before coming to ireland, consult a tax advisor to manage how you bring over funds

Leaving Ireland

If you leave you will be ordinarily resident but not resident for a year. You will be taxed on worldwide income excluding

Trade, profession or employment income wholly exercised abroad

Other income below €3,810. If you exceed this it is all taxable

Domicile

This is a very complex area based on case law. I will give a simplified example

Bob is born in England, of English parents. he is U.K. domiciled. He will keep this unless he choses to change it. To change he would have to break allies with the U.K.

If Bob moves to Ireland but keeps British citizeneship etc he would keep U.K. domicile

How can this affect you?

If you are not domiciled here, you are taxed on the remittance basis. This means you are taxed on

Irish income

Foreign income sent into Ireland

This is a general outline only. residence and domicile issues always need the help of a good tax adviser

Tax Tips for Company Directors

Monday, January 4th, 2010

 

Directors of Small Companies – Some Do’s and Dont’s

The director of a small company is normally an owner-manager. He/she faces a number of challenges. They must run the business while remaining tax and legally compliant. This leaflet briefly outlines a few issues which often cause problems

DO!

Use the audit exemption to reduce costs. Your accountant will advise you

File CRO returns and accounts on time. This avoids penalties. Being late will lose you the audit exemption

Manage your pension plan. Use company contributions where cash allows

Have shareholder agreements. These help minimise disputes

Have first option on other shareholders holdings on their leaving/death. There are insurance policies to help in this area

If you are a professional services company e.g. consultants, avoid building up retained profits in the company. This incurs non-refundable surcharges

DONT!

Take loans from the company. This may breach company law and incur witholding taxes on advances

Hold rental property in a trading company. This can lead to tax surcharges

Take assets at below value. This will be a distribution taxable at the high rate. There will also be Dividend Witholding Taxes. For tax-efficient methods of asset extraction e.g. properties, consult your tax adviser.

Renting out a property

Friday, August 14th, 2009

Renting Out a Property

Especially in today’s challenging rental markets, it is important to manage the tax aspects of your rentals. There are several critical areas affecting different taxes and types of property.

Income Tax

Rents

Keep a record of your rents. Ideally get them paid by standing order or direct debit.

If the tenant pays for repairs which are your responsibility, this is rent.

Lease premiums have largely disappeared. However, any premium for a rental under 50 years is partly liable to income tax. This can be onerous. Your adviser can help to claim hardship provisions.

Mortgage interest

This is probably your biggest cost. From 2009 you can reclaim 75% of this interest. The critical points are

The loan must be to buy, refurbish or repair the actual rental property. 

For residential property you must register the tenancy with the Private Residential Tenancies Board.

Interest is only allowed after the first tenant moves in.

Other costs

Repair costs are only allowed after the first tenant moves in

Avoid paying cash in hand. You will save VAT at 13.5%. You lose income tax and levy deductions at 48%. This makes no sense

Professional fees and advertising are allowed pre-letting e.g. auctioneers, solicitors

Capital Allowances

Certain non-residential buildings get Industrial Buildings Allowances, normally 4% per annum. If you don’t have enough rental income you can use these against other income e.g. trading profit.

Other capital costs may be deemed as plant. These get 12.5% per annum, but only against rental profit. It can be valuable to identify these. For example, murals in a hotel or bar have qualified for this.

If you cannot use these in a year, they are carried forward against other rental income

Losses

Rental losses are allowed against other rental profit. If not used up, you carry them forward

Non-resident landlord

If the landlord is non-resident tax at 25% must be deducted from the rent and paid over to the Revenue.

The letting agent or the tenant can do this.

Stamp Duty

This is normally straightforward based on rental and lease premium values. However, there is a trap to be avoided for residential property!

Some householders may for personal reasons decide to rent out what is now their main residence. Many will have claimed stamp duty exemptions like first-time buyers relief.

 If, they rent out the property within two years of this, the stamp duty exemption is clawed back with interest.  Revenue has audited these transactions. Make sure to get your solicitors advice.

Capital Gains Tax

This is complex and you should consult your tax adviser.  For landlords it will arise on matters like

  • Selling a freehold
  • Granting a lease
  • Selling a lease

VAT

VAT on property is very complex. All property transactions need good VAT advice as the amounts involved are large.

You must also keep a VAT history of the building, with particular reference to how much deduction you are allowed each year.

Important Note

This leaflet is meant only as a brief guide. It is not meant to replace professional tax advice.

Small Companies Tax Issues

Friday, July 31st, 2009

Small Companies and Tax

In tax terms most small companies are “close companies”. This means that they are controlled by five or fewer people or companies.  A person and their spouse or relative count as one person

Example

A Ltd is owned as follows

Shareholder %
John   15
John’s Wife   15
John’s Brother   15
Fred Smith   10
Others   45
Total 100

 

A Limited is a close company. John’s relatives control it.

What does this mean for you?

Tax authorities have always been wary of close companies. They fear that the owners will manipulate matters to give themselves favourable treatment e.g. by taking tax free payments. Therefore, they put several ant-avoidance measures in place. If you are involved in such ba company you need to be careful. Several of these measures can mean you get hit by non-recoverable surcharges.

What are they?

Giving perks to associates of the shareholders.

If you give a perk to, say, a relative who is not an employee it is treated as a dividend. For example, you might give your wife an expensive company car.

  1. The benifit in kind will be valued.This is now the value of a dividend.
  2. The dividend is taxed at the individual’s marginal rate.
  3. The company gets no tax deduction

Dividend Witholding Tax at 20% is due. This may be forgotten, incurring interest and penalties

Taking Director’s Loans

This is always dangerous for Company Law reasons.  However, there are also tax problems. Your company must

  1. Gross up the loan for standard rate tax at 20%.If you get €8,000 the grossed up amount is €10,000.
  2. They tax the gross figure at 20%. €10,000 @ 20% = €2,000.
  3. They must then pay over the €2,000 to Revenue. They can reclaim this when you repay the loan
  4. If the cpmpany forgives the loan, you will be
    1. Be taxed on the €10,000 at your highest rate
    2. Get credit for the €2,000

Rental Property and Investments held in the company

If a company has income from these which it does not distribute as dividends it will be surcharged at 20%. This surcharge is not recoverable. The calculation for this is complex and needs professional assistance

Proffessional Service Companies Surcharge

If a close company’s income is mainly from professional services undistributed income is surcharged at a non-refundable 15%.

What are professional services?

Revenue issued guidelines on what constitutes such services. Someexamples are

  1. Accountants and tax advisers
  2. Architects
  3. Engineers
  4. Management consultants
  5. Auctioneers (but not livestock marts)
  6. Opticians
  7. Private schools
  8. Geologists.

They exclude

  1. Retail pharmacists
  2. Advertising agencies

The two surcharges above are often overlooked and get caught on revenue audits, wit attendant interest and penalties.

The above comments are general guidelines only. Professional advice should always be used on such matters