Crowleys DFK are currently running a series of CPD accredited VAT on Property briefings for solicitors in Cork and Dublin. The purpose of the seminars, presented by Tax Partner Siobhán O’Hea, is to raise awareness of common VAT pitfalls on property transactions.

VAT on property can be a complicated area but it is vital to thoroughly investigate the potential VAT impact before embarking on any property transaction, Siobhán advises.

“We are seeing problems crop up in many different situations. For example, more people have got involved in letting property in recent years and this is an area where VAT issues can often arise. While lettings are exempt from VAT, landlords can opt to tax the letting and charge 23% VAT on the rent. This can be advantageous if the landlord wants to claim repayment of VAT incurred on the acquisition or development of the property, however it is important to be aware that there are restrictions. For example, you cannot opt to tax the letting if the property is occupied for residential purposes or occupied by the landlord or a person connected with the landlord.

“On sales of commercial property, liability to VAT depends on whether the property is considered ‘new’. There are Revenue rules governing the definition of ‘new’ for property VAT purposes. Generally, the supply of older properties is exempt from VAT however, in some circumstances, the vendor and purchaser may jointly opt to have the transaction subject to VAT.

“Where property is supplied in connection with an agreement to develop the property, these transactions are always taxable.

“In our experience, there are VAT pitfalls in many every day property transactions and these can prove very costly for clients. This is why Crowleys DFK are running these seminars for solicitors. It’s an opportunity to raise awareness and to help ensure common mistakes are avoided,” Siobhán concluded.

For further information on Crowleys DFK VAT briefings, please get in touch.

Talk to us

Siobhán O’Hea
Partner, Tax Services
siobhán.ohea@crowleysdfk.ie

Businesses based in Ireland who provide electronically supplied services (e-services) to customers need to understand how to apply VAT correctly, explains Siobhán O’Hea, Partner of Tax Services.

Value Added Tax can be a complicated area for businesses who provide electronically supplied services to customers in the EU or elsewhere.

While the rules may appear daunting, it is important to familiarise yourself with the basics as getting it wrong can be costly.

What are e-services?

The first step in getting to grips with VAT is understanding what is considered an ‘electronically supplied service’ for VAT purposes.

Electronically supplied services, sometimes called ‘e-services’, cover a broad range of services delivered over the Internet or an electronic network. Examples include electronically supplied software and software updates, web hosting, online publications and e-books, the provision of online advertising on websites, music downloads, online games, distance learning programmes which are delivered wholly online without human intervention, and so on.

What these services have in common is that they could not be provided in the absence of information technology.

Tangible products, such CDs and DVDs or printed matter such as books, newspapers and journals, are not e-services even though they may be purchased online.

It is beyond the scope of this article to list everything that is, or is not, considered an e-service, however detailed listings can be found on Revenue website.

If you are in any doubt, it is advisable to seek advice from an experienced tax practitioner familiar with VAT as there is a risk that if you make an error on a sale, you will repeat it on subsequent sales. Errors that go unnoticed for a period of time can be very expensive in the long run.

Place of supply and your customer

Once you have determined whether or not your services are ‘e-services’ for the purposes of VAT, the next step is to look at the ‘place of supply’. This is because ‘place of supply’ rules determine whether a supply is subject to VAT.

If your customer is a business, the place of supply is the place where the business receiving the services is established. Businesses based in Ireland do not normally charge Irish VAT on services to a business established in other EU member states. Instead, the business customer must self-account for VAT in their own country.

If your customer is non-business (a consumer) based in the EU, the place of supply for e-services is the place where the consumer resides. This means that businesses based in Ireland who provide electronically supplied services to consumers in other EU member states are liable to register and account for VAT in each EU member state where they have customers. Revenue provides an optional mini one-stop-shop (MOSS) scheme which aims to reduce the administrative burden and cost of complying with this requirement.

Countries outside the EU

If your business is based in Ireland and you provide e-services to a business or consumer based outside the EU, no EU VAT is charged. However, if the service supplied is effectively used and enjoyed in an EU country, that country can decide to levy VAT.

E-services, provided by suppliers established in a non-EU country to consumers in the EU, must also be taxed at the place where the customer resides or has a permanent address unless the supplier has opted to use the mini one-stop-shop (MOSS) scheme. The non-Union MOSS scheme enables these suppliers to register for VAT in one EU country only.

Complying with EU VAT law

VAT is a complicated tax at the best of times and this article touches on just some of the aspects that create confusion for businesses providing e-services.

For further information and to find out how Crowleys DFK can help you comply with EU VAT law, please get in touch.

TALK TO US

Siobhán O’Hea
Partner of Tax Services
siobhán.ohea@crowleysdfk.ie

The Revenue Commissioners have issued guidance which sets out the VAT treatment of transactions concerning the transfer of money.

Guiding Principles

Transactions are defined according to the purpose and nature of the service provided and not according to the person supplying or receiving the service.

The principles that need to be considered when determining if a service qualifies for exemption are as follows:

  1. Exemption can only relate to transactions which form a distinct whole, fulfilling in effect the specific, essential functions of such transfers.
  1. An exempted service must be distinguished from the supply of a mere physical or technical service.
  1. A transfer is a transaction consisting in the execution of an order for the transfer of a sum of money from one bank account to another.
  1. A transfer is characterised by the fact that it involves a change in the legal and financial relationship existing, on the one hand, between the person giving the order and the recipient and, on the other, between those parties and their respective banks; and in some cases, between those banks.
  1. The transaction which produces the change is solely the transfer of funds between accounts, irrespective of its cause.
  1. The mere fact that a service is essential for completing an exempt transaction does not warrant the conclusion that the service is exempt

Status of the Supplier

When considering whether a service qualifies for exemption, the nature of the person supplying the service is not relevant (i.e. the supplier does not have to be a regulated financial institution). It is the nature of the service being supplied that needs to be considered.

Means by which the service is supplied

The means by which the service is supplied e.g. electronically or manually is not a decisive factor when considering the application of the exemption. Again it is the precise nature of the service being supplied that will determine the VAT treatment.

Physical or Technical Services

Where a supplier provides the infrastructure that facilitates the transfer of funds, those supplies cannot qualify for VAT exemption unless they themselves fulfill the specific and essential function of a transfer, in particular creating the change in the financial and legal relationship between the parties.

Charges for Using Certain Payment Methods

Where a supplier supplies goods or services to a customer and charges an additional fee to accept payment via a specified method, e.g. credit card, this charge is not independent from the supply of goods or services and cannot qualify for VAT exemption.

The receipt of a payment and the handling of that payment are intrinsically linked to any supply of goods or services provided for consideration. It is inherent in such a supply that the provider should seek payment and make appropriate efforts to ensure that the customer can make effective payment in consideration for the goods or services supplied.

Please contact Michelle Mangan, Manager of Tax Services, if you require assistance with the above.

Budget 2018 introduced a Charities VAT Compensation Scheme. This will take effect from 1 January 2018 but will be paid one year in arrears i.e. in 2019 charities will be able to reclaim some element of the VAT costs arising 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.

For example, where a charity’s gross income for 2018 involves 30% funding from State/EU/international organisations and 70% privately sourced income including fundraising, subscriptions and donations, they may claim 70% of their VAT input costs for the year.

Not eligible for relief under the scheme will be VAT incurred on private non-charity-related expenses; VAT incurred that is subject to an existing VAT refund order and VAT incurred that is otherwise deductible.

From 2018 onwards, charities will need to ensure that their accounting systems are designed to enable them quantify the total VAT cost and the proportion that is eligible for refund.

We would be happy to assist charities with implementing/upgrading their accounting systems to identify VAT costs so they can easily be reclaimed and on how best to structure their activities to ensure they maximise the amount of VAT they can reclaim.

You can view the Department of Finance’s document in full here.

If you would like further information, please 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

 

 

 

 

 

 

Finance Act 2015 amended the VAT treatment of education and vocational training. The amendment was to ensure that Irish VAT legislation reflects judgements of the Court of Justice of the European Union.

The wording of the amended legislation caused uncertainty for many training providers in the private sector as it stated that only training or retraining services provided by a “recognised body” could continue to be exempt from VAT. The definition of “recognised body” made it difficult for many private sector training providers to qualify.

If a supply if not exempt, VAT is chargeable on that supply.

Revenue did comment at the time of Finance Act 2015 that it did not believe that the changes would lead to divergence from existing practices but there was no written guidance from Revenue on the subject to give training providers comfort.

Thankfully, this uncertainty has now been resolved with Revenue’s recent e-Brief on the subject.

Revenue confirm that vocational training and retraining services continue to be exempt from VAT where certain conditions are met. They confirm that where each of the conditions (listed below) are met, there is no requirement that the provider must be a “recognised body”.

They list these conditions as:

  • The training must be vocational in nature; that is, it must be directed towards an occupation and its associated skills.
  • It must be provided to improve the vocational rather than the personal skills of the trainee.
  • The vocational skills that the trainee acquires can be transferable from one employment to another, or to self-employment.
  • The training will generally be provided by means of a structured programme, have concise aims, objectives and clear anticipated outcomes.
  • There should be a clear trainee/trainer relationship between the student and the teacher or instructor.

Where any of the above conditions are not met or the course is primarily directed towards personal development or undertaken for recreational purposes, the course will be subject to VAT at the appropriate rate.

This is a very welcome clarification for training providers in the private sector who now have written guidance from Revenue to assist in deciding if their supplies are subject to VAT or exempt.

It is also useful for Irish businesses and public bodies who receive education and training services from abroad. The responsibility for correctly self-accounting for VAT on the receipt of these services falls on the Irish recipient and there is now written guidance from Revenue to assist in deciding whether to self-account for VAT at the appropriate rate or whether the receipt of the service is exempt from VAT.

Please contact Michelle Mangan, Manager of Tax Services, if you require assistance with the above.