Revenue has recently clarified the taxation of couriers, specifically the tax treatment of motor cycle and bicycle couriers. The following treatment applies from 1 January 2019. Previous agreements will come to an end on this date.

Motor cycle and bicycle couriers are generally engaged under a contract for service i.e. they are self-employed individuals. Whilst the facts of each case may differ, this is the general view adopted by Revenue.

From 1 January 2019 motor cycle and bicycle couriers engaged under a contract for service i.e. self-employed individuals, will need to file a tax return self-assessment.

Expenses

Self-employed couriers can make a claim for any expenditure incurred wholly and exclusively for the purpose of their courier activity, for example, motor expenses & telephone/internet bills.

Revenue’s previous agreement of flat rate deductions for expenses (20%,40% or 45%) will no longer apply with effect from 1 January 2019.

Voluntary PAYE

Voluntary PAYE systems of tax have been implemented by several courier firms to assist couriers in ensuring that they are tax compliant. Revenue has no issue with these arrangements continuing, however Revenue has reiterated that income tax, USC & PRSI should be applied on gross income.

Van Owner-Driver Couriers

Similar to motor cycle and bicycle couriers, Revenue are of the view that van owner-driver couriers are engaged under a contract for service and thus they are self-employed individuals.

Pay and File System for Income Tax Self-Assessment

Under self-assessment there is a common date for the payment of tax and filing of tax returns. You must file your tax return on or before 31 October in the year after the year to which the return relates.

This system, which is known as Pay and File, requires you to:
• file your return for the previous year
• make a self-assessment for that year
• pay the balance of tax for that year
• pay preliminary tax for the current year.

For example, by 31 October 2019 you must:
• pay your preliminary tax for 2019
• file your 2018 self-assessment tax return
• pay any Income Tax (IT) balance for 2018.

When you pay and file through the Revenue Online Service (ROS), the 31 October deadline is extended to mid-November.

For more information on the taxation of couriers, please contact Michelle Mangan, Manager of Tax Services.

Exit tax regimes seek to impose a tax on unrealised capital gains where companies migrate their tax residency or transfer assets offshore.

Prior to Budget 2019, Ireland had a limited exit tax regime that was subject to several exceptions. While it was expected that new exit tax rules would be introduced before 1 January 2020 to comply with the EU’s Anti-Tax Avoidance Directive (ATAD), the implementation of new rules from 10 October 2018 was earlier than anticipated.

Old exit tax regime

Under the old exit tax regime, where a company changed its tax residence so that it was no longer within the scope of Irish tax, it was treated as disposing and reacquiring its assets at market value. This triggered a charge to tax at the rate of 33%, the standard capital gains tax rate.

The exit tax did not apply where the assets continued to be used in the State by a branch or agency of the migrating company or where the company was ultimately controlled by residents of a tax treaty country. The exit tax could also be avoided if the company transferring its residency was a 75% subsidiary of an Irish resident company and certain conditions were met for 10 years after the migration.

New exit tax regime

The new rules tax the unrealised gains of corporate entities where the following events occur:

  • A company transfers assets from its permanent establishment (PE) in Ireland to its head office or to a PE in another territory;
  • A company transfers the business (including the assets of the business) carried on by its PE in Ireland to another territory; or
  • An Irish resident company transfers its residence to another country.

The rate of tax applicable will generally be 12.5%. However, there is an anti-avoidance measure that applies a rate of 33% where the event triggering the tax forms part of a transaction to avail of the 12.5% rate rather than the standard capital gains tax of 33%.

Key points on the operation of the exit tax:

  • The exit tax will not apply to the transfer of assets that will revert to the PE or company within 12 months of the transfer, where the assets are:
    • Related to the financing of securities;
    • Given as security for a debt; or
    • Where the asset transfer takes place to meet prudential capital requirements or for liquidity management.
  • The tax may be paid in 6 annual instalments where the company migrates to an EU or EEA state.
  • Where a company ceases to be resident and an exit tax charge is imposed, the tax may be recovered from an Irish tax resident company within the group or from an Irish tax resident controlling director.

While the exit tax rate has been reduced, the new rules have significantly broader application than the old regime and transactions that previously would not have been subject to an exit tax may now trigger a tax charge.

For more information please contact Eddie Murphy, Partner and Head of Tax Services.

President Trump signed into law H.R. 1, originally known as the “Tax Cuts and Jobs Act”, on 22 December 2017, resulting in the most significant U.S. tax reform in over 30 years.

The key business measures in the U.S. tax reform package are:

  • The corporate income tax rate is reduced to 21% from 35% with effect from 1 January 2018.
  • There is a move to a full dividend exemption regime for dividends from non-US companies, requiring a 10% holding.
  • As part of the transition to a participation exemption regime, a one-time mandatory tax will be imposed on foreign earnings retained outside the US. This “deemed repatriation” tax applies in respect of any company in the world (including Ireland), if it is controlled by either a U.S. company or by U.S. citizens. This includes either:

(a) any company where the shares are owned (directly, indirectly or constructively) 50.01%+ by US shareholders, or

(b) where 10% of the shares are owned by a US corporate shareholder.

  • The deemed repatriation tax rates for the transition to a territorial tax system are 15.5% for earnings held in cash or liquid assets and 8% for the remainder.
  • There will be a minimum tax on profits arising to foreign subsidiaries of US multinationals from the exploitation of intangible assets, known as “global intangible low-taxed income” (GILTI).
  • A “base erosion anti-abuse tax” (BEAT) will be adopted. The BEAT will generally impose a minimum tax on certain deductible payments made to a foreign affiliate, including payments such as royalties and management fees but excluding cost of goods sold.
  • Interest deductions for tax years beginning after 31 December 2017 are restricted to 30% of EBITDA (earnings before interest, tax, depreciation and amortisation). For tax years beginning after 31 December 2021, the limitation will be 30% of a measure similar to EBIT (no add-back for depreciation and amortisation).
  • Other provisions target cross-border transactions, including revised treatment of hybrids and a new special tax incentive for certain foreign-derived intangible income.

Any business with U.S. connections should consider what exposure to U.S. tax (if any) may exist in light of the above changes.

Should you require any further details on the above, please contact Edward Murphy, Head of Tax Services.

Revenue has published a new Capital Acquisitions Tax (CAT) Strategy for 2018 to 2020.

We welcome the publication of the CAT strategy which aims to improve the management of CAT by improving service to support compliance and minimise interaction with compliant tax-payers. The improved services will help to increase customer awareness of Gift Tax and Inheritance Tax obligations.

All tax-payers should be aware of possible CAT liabilities and what they can do to reduce those costs when carrying out Estate planning.

Should you require any further information please contact Michelle Mangan, Manager of Tax Services.

Finance Act 2017 introduced a change to the current 7-year capital gains tax exemption (“CGT”) which allows for investors to sell their property after 4 years instead of the previous minimum 7-year holding period.

The recent amendment means that rather than holding the property for a minimum of 7 years, taxpayers can sell the property between the 4th and 7th anniversary of the acquisition date and qualify for full exemption from CGT. This change only applies to disposals on or after 1 January 2018.

No relief is available if the property is sold during the initial four-year acquisition period.

If the property is held for longer than seven years, relief will only apply to the portion of the gain relating to the first 7 years ownership and the balance is taxable in the normal way.

The relief continues to apply to both residential and commercial property situated in Ireland or a member of the European Economic Area and to property held by individuals and corporates.

Taxpayers must continue to meet the other conditions of the relief to qualify for the CGT exemption.

Example:

Purchase a commercial property on 1 January 2014:

  • Cost €200,000
  • Stamp Duty €4,000

Sell the commercial property on 1 March 2019:

  • Sales Proceeds €350,000

Capital Gains Tax:

  • Capital Gain = €146,000 (€350,000 – €200,000 – €4,000)

Relief:

  • Full CGT relief will apply as the property was disposed of between the 4thand 7th anniversary of the acquisition date. As such, no CGT is payable on the gain of €146,000

For more information on the above tax relief, please contact Michelle Mangan, Manager of Tax Services.

 

Personal Tax

  • Cuts to the two middle rates of Universal Social Charge – 2.5% rate cut to 2%; 5% rate cut to 4.75%.

  Incomes of €13,000 or less are exempt from the USC. Otherwise, rates are as follows:

Income €                      Rate

0- 12,012                          0.5%

12,012 – 19,372               2%

19,372 – 70,044               4.75%

70,044 +                            8%

Self-employed income in excess of €100,000 at 3%.
The USC relief for medical card holders is being extended fro another two years. Medical card holders and individuals aged 70 years and over whose aggregate income does  not exceed €60,000 will now pay maximum rate of USC of 2%.
Marginal tax rates on incomes up to €70,044 reduced from 49% to 48.75%.

  • Income Tax Bands – the threshold which an individual will pay tax at the 40% rate of income tax will rise from its current level of €33,800 by €750 to €34,550.
  • The Home Carer Tax Credit will increase from €1,100 to €1,200.
  • The Earned Income Credit will increase from €950 to €1,150.
  • There will be a tapered extension to mortgage interest relief for remaining recipients – owner occupiers who took out qualifying mortgages between 2004-2012. 75% of the existing relief will be continued into 2018, 50% in 2019 and 25% in 2020. The relief will cease entirely from 2021.
  • A new deduction for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months is being introduced. The cap on the expenditure is €5,000 per property and the relief will be subject to a clawback if the property is withdrawn from the rental market within 4 years. The relief is available for qualifying expenses incurred up to the end of 2021.
  • A share based remuneration incentive – Key Employee Engagement Programme (KEEP) is being introduced to facilitate the use of share based remuneration by unquoted small to medium enterprises to retain key employees. Gains arising to employees on the exercise of KEEP shares will be subject to capital gains tax as opposed to the current liability to income tax, USC and PRSI on exercise. This incentive will be available for qualifying share options granted between 1 January 2018 and 31 December 2023.

VAT

  • Standard rate of VAT will remain at 23%.
  • The reduced 9% rate of VAT for the tourism and hospitality sector, introduced in 2011, will remain.
  • The rate of VAT on sun-bed services is being increased from 13.5% to 23% from 1 January 2018 in line with the government national cancer strategy.
  • A charities VAT compensation scheme is being introduced in 2019 in respect of VAT expenses incurred in 2018. Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive.

Stamp Duty

  • The rate of stamp duty on non-residential property will increase from 2% to 6%.
  • In relation to commercial land purchased for the development of housing, there will be the introduction of a stamp duty refund scheme. The refund will be subject to conditions, including a requirement that developers will have to commence the relevant development within 30 months of the land purchase.
  • Consanguinity stamp duty relief at 1% for inter-family farm transfers is extended for a further three years.
  • The exemption for young trained farmers from stamp duty on agricultural land transactions continues.
  • The vacant site levy will increase from 3% to 7% in the second and subsequent years. In practical terms, the owner of a vacant site on the register who does not develop their land in 2018 will pay the levy of 3% in 2019 and then become liable to the increased rate of 7% from 1 January 2019.

Capital Gains Tax and Capital Acquisitions Tax

  • There is a change to the 7-year CGT relief that will allow the owners of qualifying assets to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy full relief from CGT on any chargeable gains.
  • The leasing of agricultural land for solar panels is to be classified as qualifying agricultural activity for the purposes of CAT agricultural relief and CGT retirement relief. This initiative is subject to the panels no more than covering 50% of the total farm holding.
  • The life time thresholds for capital acquisitions tax remain unchanged.

Corporation Tax

  • Confirmation of the 12.5% rate of tax.
  • The deduction for capital allowances for intangible assets, and any related interest expense, will be limited to 80% of the relevant income arising from intangible assets in an accounting period.
  • Accelerated capital allowances for energy efficient equipment is being extended until the end of 2020.

Other Measures

  • The excise duty on a packet of 20 cigarettes is being increased by 50 cents with a pro-rate increase on other tobacco products, and an additional 25c on roll your own tobacco. This will take effect from midnight on 10 October 2017.
  • A sugar tax is to be introduced on the 1 April 2018. A tax of 30c will apply to drinks with a sugar content of 8 grams or more per 100ml. A tax of 20c will apply to drinks with a sugar content of between 5 grams and 8 grams per 100ml. These levels are consistent with the rates being introduced in the UK in April 2018 and Ireland’s sugar tax will commence at the same time as the UK.
  • A 0% benefit-in-kind (BIK) is being introduced for electric vehicles for a period of one year. Electricity used in the workplace for charging vehicles will also be exempt from benefit in kind.
  • State Pension will rise by €5 per week with effect from the last week in March 2018.
  • All other weekly social welfare payments to increase by €5 per week, including the carer’s allowance, disability allowance and jobseeker’s benefit and allowance.
  • Prescription charges are to be reduced for everyone with a medical card under the age of 70 from €2.50 to €2 per item and the monthly cap for prescription charges decreased from €25 to €20.
  • There will be a reduction in the threshold for the Drugs Payment Scheme from €144 to €134.
  • In order to assist small and medium businesses prepare for Brexit, a Brexit Loan Scheme will be introduced. A loan scheme of €300m, will be available at competitive rates to SMEs, to assist them with short term working capital requirements.

If you would like further information, please contact our Tax Team.


View our Budget 2018 Analysis

Download a PDF of the key highlights from Budget 2018

 

 

 

Budget 2018 was delivered by Minister Donohoe in the continuing context of an Irish economy in good shape and with strong and sustainable future growth predicted.  However, with potential Brexit headwinds forecast and being mindful of not returning to the days of giveaway budgets (remember them?), he delivered a constructed ‘balancing act’ that didn’t significantly affect many.

So how does this budget affect your disposable income?

The reductions in the rates of the USC will benefit everyone with particular focus on middle incomes. The point at which the marginal tax rate kicks in was increased by €750 to €34,550. For the self-employed, the earned income credit increases from €950 to €1,150.

Pensioners and those in receipt of social welfare payments will also benefit with an increase of €5 from March 2018. The Christmas bonus for social welfare recipients has remained at 85%.

Prescription charges are further reduced to €2 and this charge now applies to medical card holders of all ages.

However, if you are partial to a cigarette whilst sipping your fizzy drink, then prepare from tomorrow to pay an extra 50c on a pack of 20 cigarettes and to start paying Sugar Tax of 20c/30c per litre from April 2018.

Housing and other matters

With the Minister noting the “corrosive impact of homelessness” on the State in his speech, he announced an allocation of €1.8 billion for housing next year, which he said would help to fund the building of 3,800 new social homes next year.

Other measures to increase the supply of housing/land, include the tax deductibility of pre-letting expenses, the reduction of the CGT ‘hold period’ from 7 years to 4 years and the increase vacant site tax rate from 3% to 7%.

However, the rationale of raising the Stamp Duty rate three-fold to 6% on commercial property, apart from funding many other tax cuts/spending increases, appears to fly in the face of the residential property ‘supply measures’.

The Budget also continues the commitment to repair the State’s public services with increases in the number of teachers and guards, and significant additional funding being made available for education and health. The litmus test will be whether anyone will experience a notable improvement in services during 2018.

The tourism sector will continue to benefit from the reduced rate of VAT at 9%. The agri-food sector, in particular, will benefit from the introduction of a Brexit Loan Scheme.

Foreign Direct Investment

The Minister took the opportunity to reaffirm Ireland’s corporation tax rate at 12.5%. This is and will remain the central plank of Ireland’s FDI offering. However, restricting the deduction for capital allowance and interest on Intangible Assets to 80% of relevant income is a backwards step.

Overall, Budget 2018 is the final (Balancing) Act in Ireland achieving a projected deficit by end of 2018 at near 0% of GDP.

It may take you until then though to have worked out if this was a good Budget for you or your business!

Edward Murphy
Partner and Head of Tax Services
edward.murphy@crowleysdk.ie

 

 

 

If you would like further information, please contact our Tax Team.


View the key highlights from Budget 2018

Download a PDF of our Budget 2018 Analysis