Non-resident landlords may have received a letter from Revenue advising of upcoming changes to the administration of withholding tax for non-resident landlords. Up to now, non-resident landlords had two options to report rental profits to Revenue:
Non-resident landlords asked their tenant to withhold 20% of the rent and to pay this to Revenue on their tenant’s personal income tax return. The tenant should have given the non-resident landlord a Form R185 (certificate of income tax deducted) so that a credit could be claimed for the tax deducted when submitting a personal income tax return.
Non-resident landlords appointed a Collection Agent, who registered for Income Tax on their behalf using a Collection Agent Income Tax Registration Form. Their Collection Agent was responsible for reporting the non-resident landlord’s rental profit for the year by filing an income tax return and paying any liability to Revenue on behalf of the non-resident landlord.
What are the upcoming changes?
A new Non-Resident Landlord Withholding Tax system is expected to go live from 1 July 2023 which will see changes to the obligations of tenants, collection agents and non-resident landlords.
Tenants will be required to withhold and pay to Revenue 20% of the rent by making a rental notification through the new withholding tax platform. They will not be responsible for paying the 20% tax deducted on their personal income tax return.
Collection Agents will no longer be responsible for filing an income tax return. A Collection Agent will be required to withhold and pay to Revenue 20% of the rent by making a rental notification through the new withholding tax platform.
Non-Resident Landlords will be responsible for filing their personal income tax returns. A credit will be allowed for the tax withheld in the new system.
What actions are required by non-resident landlords?
If you are a non-resident landlord whose tenants already withhold 20% of the rent or if you have appointed a Collection Agent, there are no actions required by you at this time. Further information will be released by Revenue shortly and a new Tax and Duty Manual will be published in due course.
All other non-resident landlords must now decide whether they want their tenants or a collection agent to withhold and pay to Revenue 20% of the rent under the new Non-Resident Landlord Withholding Tax system and take action accordingly.
Please contact us if you have further queries on this.
Employee share incentive schemes can be an effective way of offering tax savings to employees in addition to encouraging employee participation and loyalty. One type of share incentive scheme is an unapproved Share Option Scheme. We have set out below some frequently asked questions on the tax treatment of unapproved Share Option Schemes:
What do I receive when I am granted a share option by my employer?
When your employer grants you a share option, you receive the right to acquire shares in the company at a future specified date at a pre-determined price. You must actually exercise the option in order to take beneficial ownership of the shares.
What information will I get from my employer when I am granted a share option?
Your employer will generally issue documentation covering:
The number of shares that you can acquire,
The price that you have to pay for the shares (“Option Price”),
The dates from which, and by which you can exercise your option (“Exercise Period”), and
The conditions regarding the right to exercise the option, which may include good leaver and/or bad leaver provisions.
What is meant by “date of exercise”?
The “date of exercise” is the date at which the employee takes up their right to acquire shares.
Must I pay to acquire the shares under a share option?
The shares may be at no cost to the employee (nil option) or at a predetermined price that the employer has set. In some cases, the employee will have to pay something for the option itself.
Are there different types of unapproved share option schemes?
There are two types of share options for tax purposes:
(a) a ‘short option’ – which must be exercised within seven years from the date it is granted; and
(b) a ‘long option’ – which can be exercised more than seven years from the date it is granted.
There are tax implications for employees participating in unapproved share option schemes and reporting obligations for both employers and employees:
Tax Implications for Employees
Date of grant
There is no tax or reporting obligations due at the grant of short options. Where a share option is a long option, a charge to income tax may arise on both:
The grant of the share option (where the option price is less than the market value of the shares) and
The exercise, assignment or release of the share option.
Credit is given for any income tax charged on the grant of the share option against the income tax due on the exercise, assignment or release of the share option.
Date of exercise
When an employee exercises his/her right to the share options and acquires the shares at the pre-determined price, the difference between the price paid to acquire the shares (the exercise price) and the market value of the shares at the date of exercise of the option is called the share option gain. The share option gain can be reduced by any payment made by the employee for the initial grant of the option.
Where an employee exercises a share option he or she must pay what is referred to as “Relevant Tax on Share Options” (RTSO) in respect of any income tax due on any gain realised on the exercise of the share option. The relevant tax at 40% is calculated on the share option gain as well as universal social charge (USC) at 8% and PRSI at 4% (unless you have advance approval from Revenue to pay at a lower rate). RTSO is payable within 30 days of an option being exercised.
Example
Stock Option Exercise
Exercise of Shares
Market Price @ date of purchase
$100
Purchase price
$85
$15
Number of shares
10 shares
Total exercise price
$150
FX rate at date of purchase
1.1014
Share Option Gain
€136
Tax on exercise
Gross Gain
€136
Income tax @ 4%
€54
USC @ 8%
€11
PRSI @ 4%
€5
Total liability
€71
Net Gain
€65
Sale of Shares
An employee who acquires shares by the exercise of a share option is chargeable to capital gains tax (CGT) on any chargeable gain realised on the subsequent disposal of those shares.
Where due, CGT must be paid to Revenue within the following deadlines:
Date of Disposal
Payment Due
1 January – 30 November
By 15 December the tax year
1 December – 31 December
By 31 January in the following tax year
An individual must file a return by 31 October in the year after the date of disposal. A return is required even if no tax is due because of reliefs or losses. An individual must file a Form CG1 if not usually required to submit annual tax returns; Form 12 if a PAYE worker or a Form 11 if considered a chargeable person for tax purposes.
Reporting obligations for Employees
The employee must submit a Form RTSO 1 within 30 days from the date of exercise of the share option. A payment of Relevant Tax on Share Options must also accompany the submission.
Employees liable to pay RTSO must then submit an income tax return, containing details of all share option gains in a tax year, by 31 October following the year in which the gains are realised. The income tax return must be filed for the relevant year in addition to the form RTSO1.
Reporting obligations for Employers
The employer will have to complete and file a Form RSS1 by 31 March following the year of exercise.
Please contact us if you require assistance with the above.
From 23 April 2023, all Company Directors of Irish companies have a statutory filing obligation to disclose their Personal Public Service (PPS) Number to the Companies Registration Office (CRO).
PPS Numbers are to be disclosed when filing the following forms:
Form A1 – Incorporation Application.
Form B1 – Annual Return.
Form B10 – Change of company officers or their particulars.
Form B69 – Notice of cessation of company officer where a company has failed to file the notice.
What is a PPS Number?
Your PPS Number is a unique reference number that helps you access social welfare benefits, public services and information in Ireland.
A PPS Number is always 7 numbers followed by either one or 2 letters. It is sometimes called a PPSN.
You have a PPS Number if:
You were born in Ireland in or after 1971
You started work in Ireland after 1979
You are getting a social welfare payment
You are taking part in the Drugs Payment Scheme
Note: The CRO plan to redact the PPS Number from all forms, by placing hashes over the numbers and letter(s). No publicly accessible form or document will display your PPS number.
What if I do not have a PPS Number?
If a director does not have a PPS number but has been issued with an RBO number by the Central Register of Beneficial Ownership, then the director can use their RBO number as their Verified Identity Number (VIN) for CRO filings.
If a director does not have a PPS Number or an RBO Number, they must apply to the CRO for a VIN which will be issued by the CRO.
Consequences for non-compliance
This new requirement is being introduced to help with the identification of directors and to prevent fraud.
A director that fails to comply with the regulations commits an offence under Section 35 “888A (2)” of the Companies (Corporate Enforcement Authority) Act 2021 and shall be guilty of a category four offence.
What should you do next?
We strongly advise all clients who have not already provided us with their PPS number, RBO number or obtained a new VIN to do so, as a matter of urgency, to avoid any material discrepancies and delays with the next in-scope filings due at the CRO.
Directors should further ensure that the information held at the DEASP with the PPS number is consistent with the information held at the CRO.
https://www.crowleysdfk.ie/wp-content/uploads/shutterstock_1537199279-scaled.jpg14412560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2023-04-17 08:29:122023-04-17 08:29:12Director Obligations to Disclose PPS Number
A new Vacant Homes Tax (VHT) was introduced in Budget 2023. The primary objective of this is to increase the availability of housing, but landlords need to be aware of the restrictions on allowable pre-letting expenses when calculating their rental profits.
Vacant Homes Tax (VHT)
VHT applies to residential properties which have been occupied for less than 30 days in a chargeable period.
VHT is calculated at three times the residential property’s local property tax (LPT) liability.
The following will be exempt from the VHT:
Properties recently sold or listed for sale or rent.
Properties vacant due to illness or long-term care of the occupier.
Properties which were the principal residence of a deceased chargeable person in either the chargeable period or in the 12-month period prior to the commencement of the chargeable period.
Properties which were the principal residence of a deceased chargeable person where a grant to administer the estate issues in the chargeable period and for any chargeable period following such a grant, where the administration of the estate has not yet completed.
Properties which are vacant due to significant refurbishment work.
The first chargeable period runs from 1 November 2022 to 31 October 2023.
A VHT return will be due by 7 November 2023, with the tax payable by 1 January 2024.
Pre-Letting Expenses
In determining the taxable rental profits from the letting of residential property, a landlord may claim a deduction for the following expenses:
Costs not repaid by tenant – e.g., light & heat costs.
Capital allowances on qualifying capital items – e.g., furniture, white goods.
However, with the exception of property-related fees such as letting or legal fees incurred on the first letting, a deduction is not permitted for expenses incurred prior to the first letting of the property.
The Finance Act 2017 sought to address the above and introduced an allowable deduction of up to €5,000 for certain pre-letting expenses incurred on vacant residential properties. From 1 January 2023, this cap on the authorised deduction has been increased to €10,000 and the specified period for which the property was vacant has been reduced from twelve to six months. The landlord must incur the expenditure during the twelve months prior to first letting the property.
If the landlord ceases to let the property within four years, the deduction for the pre-letting expenses will be clawed back in the year in which the property ceases to be let as a residential property. Importantly, a clawback will be triggered if there is a change of use from residential or if the property is sold.
If you need any assistance with VHT or Pre-Letting Expenses, please contact Niall Grant, Partner in our Tax Services’ Department.
Budget 2023 saw the introduction of a new Rent Tax Credit which is available from 2022 to 2025.
The credit is 20% of the rent paid in a year, up to a maximum credit of either €500 for an individual or €1,000 for a couple, for:
A person’s principal private residence (i.e. sole place of residence).
A person’s ‘second home’ which they use to facilitate their attendance at their employment, office holding, trade, profession or a Revenue approved college course.
A property used by a child to facilitate their attendance at a Revenue approved college course.
Qualifying rents are any amounts paid in return for the use, enjoyment and special possession of the property but does not include payments made for security deposits, repairs or maintenance or any other services such as board, laundry, etc.
The main conditions of the relief are as follows:
The property must be a residential property located in Ireland.
The payment must have been made under a tenancy. Tenancy for rent tax credit purposes must fall under one of the following categories:
An agreement or lease which is required to be registered with the Residential Tenancy Board (RTB).
A licence for use of a room(s) in another person’s principal private residence. These arrangements are commonly known as “rent-a-room” or “digs”. (No RTB registration is required under these licences).
A tenancy for 50 years or more.
Tenancies under “rent to buy” arrangements.
The landlord and the individual making the claim cannot be parent and child. If they are otherwise related the credit may be available as long as the RTB registrations have been complied by. Therefore, the credit is NOT available where the tenancy is under different arrangements such as “digs” or “rent-a-room”.
The individual must not be a supported tenant (in receipt of any State housing supports such as HAP or RAS).
The landlord must not be a Housing Association or Approved Housing Body.
You can claim the Rent Tax Credit for rent paid during 2022 by submitting a 2022 Income Tax Return to Revenue. For 2023 and subsequent years the claim can also be made in-year using Revenue’s Real-Time Credit Facility.
If you are not registered for self-assessment, you can submit your Income Tax Return via Revenues’ MyAccount. By selecting “Review your Tax 2022” and requesting a “Statement of Liability”, you can input the information under the “Tax Credits & Reliefs” page.
The Real Time Credit Facility for 2023 and subsequent years enables you to claim the Rent tax credits in during the year. To claim the credit you must select “Manage your Tax 2023” and “Add new credits”, there it will give you the option to add the “Rent tax credit” and input the relevant information. Once the claim has been processed by Revenue, an amended Tax Credit Certificate is issued, and an amended Revenue Payroll Notification will be made to your employer.
For further information about the Rent Tax Credit, please contact us.
The R&D tax credit was introduced to incentivise large multinationals to locate an R&D unit here and to encourage Irish companies to invest in R&D activities.
Where a company meets the criteria to qualify for the R&D credit, it will be entitled to claim a tax credit equivalent to 25% of eligible expenditure incurred by it on qualifying R&D activities. As the claimant should also be entitled to claim a tax deduction at the standard rate of corporation of 12.5% on the same expenditure, it should result in an effective corporation tax benefit of 37.5%.
Is my company eligible to claim the R&D credit?
In order to qualify for the R&D tax credit the following must apply:
The applicant must be a company
The company must be within the charge to Irish tax
The company must undertake qualifying R&D activities either within Ireland or the EEA
The expenditure on which the company is making the claim must be wholly and exclusively incurred in the carrying on by it of qualifying R&D activities. As per Revenue guidance, it is crucial that claimants distinguish the term “carrying on” from “for the purposes of” or “in connection with”. Indirect costs such as recruitment fees, insurance and travel costs, which are not wholly and exclusively incurred in the carrying on of the R&D activity do not qualify as relevant expenditure.
Typically, expenses which qualify for the R&D credit include, materials, salary costs, subcontracted R&D and plant and machinery.
What are qualifying activities for the purposes of the R&D credit?
Qualifying activities must:
Be systematic, investigative or experimental activities;
Be in a field of science or technology;
Involve one or more of the following categories of R&D:
Basic research
Applied research
Experimental development
Seek to achieve scientific or technological advancement; and
Involve the resolution of scientific or technological uncertainty.
Essentially, the R&D activities being carried out must address an area of technological or scientific uncertainty where the outcome is unclear from the outset.
Claiming the R&D Tax Credit
Following recent changes introduced by budget 2023, there are a number of changes being made to how the credit is claimed, with the changes being more favourable to the claimant. These changes take effect for accounting periods beginning on or after 1 Jan 2023. Transitional measures will be in place for a period of 1 year to smooth out the transitionary period.
Accounting periods ending on or before 31 December 2022
The R&D tax credit is first set off against the corporation tax liability of the accounting period in which the credit is being claimed. A claim may be made to have any unused credit set off against the corporation tax liability of the preceding period. If an excess still remains, a claim can be made to have it repaid to the company in three instalments over a 33-month period.
Accounting periods beginning on or after 1 January 2023
Under the new system, a company will have an option to request either payment of their R&D tax credit or for it to be offset against other tax liabilities which will provide greater flexibility to the claimant.
Where a company opts to have the credit refunded, it will be refunded as follows:
The first €25,000 of an R&D claim will now be payable in full in year 1.
In year 2, the second instalment will equal three-fifths of the remaining balance.
The third and final instalment in year 3 will in effect be the remaining balance.
In addition to the above, the current limits on the payable element of the credit will be removed as part of the new system.
It is important that companies review their activities to determine if they qualify for the tax credit as the credit can prove to be a very valuable source of funding.
If you have any queries about the R&D tax credit, please contact us.
https://www.crowleysdfk.ie/wp-content/uploads/shutterstock_1682600923-scaled.jpg14402560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2023-02-08 09:14:592023-02-08 09:14:59Research & Development (R&D) Tax Credit – What is it and how can it be claimed?
As remote working becomes more popular, employees are no longer obliged to work at their employer’s premises or indeed in the same country as the employer’s premises. This presents a number of opportunities and challenges for employers.
In the second of this global mobility series, we focus on the payroll tax compliance obligations for foreign employers with employees working in Ireland under a foreign contract of employment (inbound workers).
This can occur where:
an employee relocates to Ireland, or
an employer sends an employee to Ireland for a short period to fulfil part of a contract e.g. as part of a construction or installation project.
The basic rule is that all foreign employers must register as an employer in Ireland and operate Irish payroll taxes on any salary attributable to employment duties carried out in Ireland by their employee. This applies even if the employer has no business premises in Ireland or the employee is working from home in Ireland. It applies irrespective of the tax residence status of the employee.
There are a number of exceptions to this rule, which come as a welcome release for foreign employers:
Business visits of up to 30 workdays in a year
A foreign employer need not operate Irish payroll taxes on the salary of an employee who is employed under a foreign contract of employment and carries out the duties of that employment in Ireland for no more than 30 workdays in aggregate in any year.If the employee exceeds the 30 workday threshold and an obligation to operate Irish payroll taxes exists, the employer must operate Irish payroll taxes from the employee’s first workday in Ireland.
Business visits greater than 30 workdays and not more than 60 workdays per year
A foreign employer can rely on this exception where an employee who is employed under a foreign contract of employment visits Ireland and is a resident of a country with which Ireland has a Double Taxation Agreement. In addition, the Double Taxation Agreement between Ireland and the employee’s country of residence must relieve the employment income from the charge to Irish tax. Not all Double Taxation Agreements are the same and foreign employers wishing to rely on this exception should examine the wording of the relevant Agreement carefully to establish if their employee’s employment income is relieved from the charge to Irish tax.Where the employment income of the employee is not relieved from the charge to Irish tax under the Double Taxation Agreement or where the workdays in Ireland exceed 60 and there is no PAYE dispensation in place, the employer must operate Irish payroll taxes from the employee’s first workday in Ireland.
Business visits greater than 60 workdays and not more than 183 days per year
The conditions for this exception are the same as those for business visits between 30 and 60 workdays. However in addition, a foreign employer must apply to the Irish Revenue authorities for a dispensation from the requirement to operate Irish payroll taxes on the employee’s salary. There are a number of conditions to be satisfied before the Revenue authorities will grant a foreign employer the dispensation:
(i) The foreign employer must register as an employer in Ireland;
(ii) The foreign employer must apply in writing to Irish Revenue for the dispensation giving the employer’s full name, its address, its Irish employer’s registration number and confirmation that the relevant Double Taxation Agreement relieves the employment income from the charge to Irish tax.
The application for a dispensation must be made within 30 days of the foreign employee starting to carry out their employment duties in Ireland. An application can cover more than one employee but a new application must be made each year.
Where an application for a dispensation is not sought within 30 days of the employee taking up duties in Ireland, Irish payroll taxes must be operated on any salary paid to the foreign employee from the date the employee takes up duties in Ireland.
If Revenue refuse to grant a dispensation, Irish payroll taxes should be operated on salary in respect of all workdays spent in Ireland in the year.
This article has dealt with the Irish payroll tax compliance obligations for foreign employers with an employee who is engaged under a foreign contract of employment working in Ireland. Where a foreign employer must operate Irish payroll taxes on an employee’s salary, Irish social security contributions (PRSI) are also due unless there is a valid certificate of coverage or exemption in place.
In addition, depending on the number of employees that the employer has in Ireland and the type of duties they carry out, the presence of an employee in Ireland may create a “permanent establishment” of the employer in Ireland. If an employer has a branch or permanent establishment in Ireland, it may be obliged to pay Irish corporation tax on the profits of that branch. For employers in the construction sector, there could be a requirement to register for Value-Added Tax and or relevant contracts tax (RCT).
For more information, please contact Siobhán O’Hea, Partner in our Tax Services’ Department.
https://www.crowleysdfk.ie/wp-content/uploads/shutterstock_183862550-scaled.jpg25602560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2023-01-18 11:33:002023-01-18 11:33:00Guide to Global Mobility – Managing Tax Obligations of Inbound Workers
Tax-payers who pay third level fees on their own behalf or on behalf of another person will be happy to know that they can claim tax relief.
Tax relief at the standard rate is available in respect of certain third-level tuition fees paid to approved colleges. Revenue publishes a list each year of both private and public colleges approved for tax relief. The relief is given by way of a tax credit equal to the fees paid multiplied by 20% (the standard rate of tax). A credit for third level fees cannot result in an income tax refund.
What is an Approved College?
Revenue have provided guidance on what constitutes an approved college. This is a college or higher education institute in the state which provides approved courses (definition below) or an institute in the UK or another EU Member state which is maintained by recurrent grants from public funds of any EU Member State. The college in either the Irish State, the UK or in an EU Member State must be a duly accredited university or institution of that country.
What is an Approved Course?
Revenue have also provided guidance on what constitutes an approved college course. A full-time or part-time undergraduate course must be at least two academic years. A postgraduate course leading to a postgraduate award based on a thesis or on the results of an examination or both, which is between one to four years and requires the student to have a prior degree or an equivalent qualification.
Who can claim & how much can be claimed?
An individual can only claim the relief if they themselves incurred the cost of the fees. Relief is calculated on aggregated fees paid subject to a maximum of €7,000 per person, per course, per academic year where the first €3,000 (full-time) or €1,500 (part-time) is deducted. The general effect of this is that claimants who are claiming for more than one student will get full tax relief for 2nd and subsequent children in their claim.
Relief does not extend to payments such as registration fees, administration fees or student accommodation.
If in receipt of any grant or payment towards the fees, this must be deducted from the claim being made when claiming the relief.
How to claim tuition fees?
There is no specific form required to claim relief for tuition fees paid for third level education courses. An individual can use PAYE services in myAccount to apply for relief for tuition fees by completing the Form 12 or if income tax registered can claim this through their yearly tax return.
Should you require any further information or assistance in claiming the tax relief, please contact us.
Our previous article on RCT and VAT pitfalls for non-resident contractors provided a general overview of the RCT regime in Ireland. We will now look at a case study analysis of RCT and VAT treatment and explore scenarios in which we have observed mistakes commonly being made among taxpayers.
1. Supply of Labour for Relevant Operations
We have observed cases whereby contractors in the construction industry, particularly non-resident contractors, engage recruitment firms to supply labour to carry out construction operations on a site in Ireland.
While it is commonly interpreted that RCT only applies to construction operations, in fact the definition of “relevant operations” extends to both the carrying out of and the supply of labour for the performance of, relevant operations in the construction industry.
Case Study – Example 1
Company A (based in Spain) is engaged by Company B (based in Ireland) to carry out demolition works on a number of properties in Ireland. Company A, in turn, engages Company C (a recruitment firm based in the UK) to provide the personnel required to complete the demolition works in Ireland.
RCT Obligations
Company B is a Principal Contractor in respect of these works and is required to operate RCT on the payments made to Company A. This brings Company A within the scope of RCT as it is regarded as a Subcontractor carrying out construction operations in Ireland.
Whilst Company A is a subcontractor in respect of its engagement with Company B, Company A is also a Principal Contractor in respect of its engagement with Company C. Company A will be required to operate RCT on the payments made to Company C because Company C has arranged the supply of labour for the performance of the demolition works on the sites in Ireland.
This brings Company C, the non-resident recruitment firm, within the scope of RCT, as it is regarded as a Subcontractor carrying out construction operations in Ireland.
In this example, Company B must register for RCT as a Principal Contractor, Company A must register for RCT as both a Principal Contractor and a Subcontractor, and Company C must register for RCT as Subcontractor.
VAT Obligations
The provision of the services by Company C to Company A and Company A to Company B falls within a reverse charge provision for the supply of labour and construction services, which is subject to RCT.
Company C, as a Subcontractor, does not have an output VAT liability in respect of the provision of services provided to Company A. As such, Company C will issue its invoices to Company A with no VAT charge.
Company A, as a Principal Contractor, must self-account for VAT on a reverse charge basis (typically at 13.5%) on receipt of the invoices from Company C. Company A should have an entitlement to a simultaneous VAT input credit as it has used the services to make taxable supplies to Company B.
Company A, as a Subcontractor, does not have an output VAT liability in respect of the provision of the services provided to Company B. As such, Company A will issue its invoices to Company B with no VAT charge.
Company B, as a Principal Contractor, must self-account for VAT on a reverse charge basis (typically at 13.5%) on receipt of the invoices from Company A. Company B should have an entitlement to a simultaneous VAT input credit as it has used the services to make taxable supplies to Company B.
In this example, only Company A and Company B are required to register for Irish VAT. Only Principal Contractors are required to account for VAT on the receipt of construction services that fall within the RCT regime.
Company C is not required to register for VAT in respect of its supplies to Company A.
2. Mixed Contracts
A major risk with the definition of a relevant contract arises for contracts that cover both RCT-type and non-RCT-type supplies.
Case Study – Example 2
Company A engages Company B to carry out repair and maintenance works on a number of properties in Ireland.
Is the contract liable to RCT?
The definition of “construction operations” includes contracts for repair work which is interpreted as the replacement of constituent parts i.e., the repair of a broken window by installing a new pane of glass, mending a faulty boiler etc.
However, the definition of “construction operations” specifically excludes maintenance work i.e., cleaning, unblocking of drains etc.
In this example, Company A and Company B have entered into a repair and maintenance contract. This is referred to as a mixed contract. Revenue’s view on mixed contracts is that if any part of a contract includes “relevant operations” then the contract as a whole is considered a relevant contract and all payments under that contract are liable to RCT.
As Company A and Company B have entered into a mixed contract, the contract as a whole, is considered a relevant contract, and all payments made by Company A to Company B are liable to RCT.
This treatment applies even where no repairs are actually carried out by Company B in completing a particular job under the contract.
In this example, Company A must register for RCT as a Principal Contractor and Company B must register for RCT as a Subcontractor.
A common pitfall we see in this area is for a company to raise separate invoices for the maintenance work and the repair work. They then only treat the invoice for the repairs as being subject to RCT. This is incorrect as it is the overall contract, not the elements being invoiced, that governs whether RCT should be applied or not.
However, if there are separate contracts, one covering maintenance and one covering repairs, then only the contract covering the repairs is subject to RCT.
3. VAT Reverse Charge
VAT is normally charged by the person supplying the goods or services. However, under the RCT regime, the person receiving the goods or services (i.e., the Principal Contractor) accounts for VAT as if they had supplied the service and pays it directly to Revenue. This is known as the VAT Reverse Charge.
We commonly see the VAT Reverse Charge being applied incorrectly in cases where a subcontractor supplies goods or services, other than construction services, as part of the overall contract.
Contractors must be aware that while the overall contract may fall within the RCT regime, that does not mean that the VAT Reverse Charge applies to all goods or services invoiced under that contract.
Case Study – Example 3
The facts are the same as in Example 2. See below for reference:
Company A engages Company B to carry out repair and maintenance works on a number of properties in Ireland.
In this case the repair and maintenance contract in place between the parties provides that a separate charge will apply where repairs are carried out.
Company B has now completed repair and maintenance works for Company A and is looking to raise a sales invoice to Company A for the following:
Repair Works – €4,500 (exclusive of VAT)
Maintenance Works – €10,000 (exclusive of VAT)
VAT Obligations
Generally, the VAT Reverse Charge only applies to payments that are in respect of construction operations which in this case, are the repair works.
Company B must therefore issue two VAT invoices as follows:
An invoice for the repair works of €4,500 on which the VAT Reverse Charge applies. Company A will be required to self-account for VAT at 13.5% on the receipt of this invoice from Company B.
An invoice for the maintenance works (i.e., not considered a construction service) of €10,000 on which VAT at the 13.5% rate is applied. Company A will be required to pay Company B the total invoice value including VAT amounting to €11,350.
RCT Obligations
As set out in Example 2, where a contract is for repair and maintenance, RCT applies to all payments under the contract.
As such, Company A is required to notify the total payment to Revenue. This should include the VAT exclusive payment for the repair works plus the VAT inclusive payment for the maintenance works. Assuming for the purposes of this example that only one payment is to be made by Company A to Company B for the works, Company A would file a Payment Notification with Revenue as follows:
Repair Works (VAT Exclusive) – €4,500
Maintenance Works (VAT Inclusive) – €11,350
Total Payment Reported to Revenue – €15,850
It is important to note that if a repair and maintenance contract provides for a single consideration for all works completed under the contract, then the VAT Reverse Charge must be applied to the full consideration.
Should you require any assistance in this area, please contact us.
https://www.crowleysdfk.ie/wp-content/uploads/pexels-pixabay-532079-scaled.jpg17032560Alison Bourkehttps://www.crowleysdfk.ie/wp-content/uploads/crowleysdf-chartered-accountants-1.pngAlison Bourke2022-08-17 08:48:542022-08-17 08:48:54RCT & VAT Pitfalls in the Construction Industry | Case Study Analysis
The Tax Appeals Commission’s (TAC) objective is to fulfil the obligations placed on it by the Finance (Tax Appeals) Act 2015 and the Taxes Consolidation Act 1997 (“TCA 1997”). To fulfil these, the TAC facilitates taxpayers in exercising, where appropriate, their right of appeal to an independent body against decisions and assessments of the Revenue Commissioners and the Criminal Assets Bureau.
The Issue for Determination
Recently, the TAC issued a determination regarding an Appellant’s complaint about the treatment of an IQA allowance he received in respect of his contributory pension for the years 2019 and 2020. The Appellant was dissatisfied with how he was assessed in relation to his contributory pension, in respect of which he received an increase for his spouse as a Qualifying Adult (Increase for a Qualifying Adult, or “IQA”).
The Background
The Appellant’s complaint related to how the Revenue Commissioners had interpreted an IQA allowance he received in respect of his contributory pension. According to the appellant, “this allowance [was] paid directly to his spouse”, who had “full and sole discretion over how it [was] expended”. In the appellant’s opinion, “whoever actually receives the money should pay the Tax on it. To expect someone else, who received none of that money, to pay the tax on it is unbelievable and very unfair”.
On 30 November 2021 and 6 December 2021, the Appellant received P21 Balancing Statements for the years 2019 and 2020. These indicated underpayments of income tax in the amounts of €3,660.36 and €3,810.69 respectively. On 16 December 2021, the Appellant duly appealed the P21 Assessments to the Commission, arguing that:
“Revenue’s position is that I am deemed to be the beneficiary of the Pension, plus the Increase for a Qualified Adult. They are clearly wrong in that stance. I am the beneficiary of the Pension only and my Wife is the beneficiary of the Qualified Adult Increase. Surely, the beneficiary has to be the person who actually receives the money and not somebody else? Regardless of what way the Government tricks around with the wording of the Acts, it cannot change that fact, which should override everything else.”
By contrast, the Revenue Commissioners’ position was that the IQA allowance was deemed to be the Appellant’s income for tax purposes, pursuant to section 126(2B) of the TCA 1997.
Opposing Arguments
The Revenue Commissioners submitted that “…it is incumbent upon [the Appellant] to demonstrate that Revenue has erred in the way he was taxed with regard to the QAD portion of his pension. Respectfully, the Respondent would argue that the assertion that Revenue is ‘clearly wrong’ does not meet that burden in a matter where the wording of the legislation is quite clear.”
For the Revenue Commissioners, that the appellant claimed “the government has tricked around with the wording of the Acts” implied dissatisfaction with the legislation itself, rather than with the Revenue Commissioners’ interpretation of the legislation.
Determination
The TAC in its determination considered all the facts and information presented, paying particular attention to the following:
Past case law examples – Lee v Revenue Commissioners [IECA] 2021 18 & Stanley v The Revenue Commissioners [2017] IECA 279.
The Commissioner determined that the Appellant had failed in his appeal and had not succeeded in demonstrating that the tax was not payable. It was noted that there is no discretion as regards the application of section 126(2B) of the TCA 1997 and the Revenue Commissioners were correct in their approach to the IQA income for the years under appeal.
X We use cookies in our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of the cookies explicitly. Visit Cookie Settings to know more about the cookies used on our website. RejectAcceptSettings
Cookies Policy
Privacy Overview
This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Our previous article on 