Revenue have published a new Tax and Duty Manual VAT – Postponed Accounting. It contains information on procedures, conditions and the operation of the new postponed accounting system for import VAT. The publication of this manual brings welcome clarification for traders importing goods to Ireland from all non-EU countries (including the UK post-Brexit) from 1st January 2021.
The Stay and Spend Scheme begins today, 1 October 2020 and runs until 30 April 2021. This new tax credit can be used against Income Tax or USC liabilities for the years 2020 and 2021.
To qualify for the Stay and Spend credit a minimum spend of €25 is required per transaction. Qualifying expenditure includes holiday accommodation and “eat in” food and non-alcoholic drink from a “registered service provider” only. A list of all registered service providers can be found on Stay and Spend Scheme.
The Stay and Spend Tax Credit is equal to up to 20% of qualifying expenditure incurred. A €625 expenditure limit has been introduced for individuals and €1,250 for jointly assessed spouses and civil partners. The maximum tax credit that can be claimed under this scheme in respect of the 2020 and 2021 year of assessment is either €125 per person or €250 per couple for jointly assessed spouses and civil partners.
To claim the Stay and Spend Tax Credit, you must submit an income tax return and submit a copy of your receipt to Revenue. Tax returns can be submitted via MyAccount for PAYE workers or via ROS for the self-employed. The easiest way to submit a copy of your receipt to Revenue is to use the new Revenue Receipts Tracker App, which is available to download for free from the Apple App Store and the Google Play Store.
The introduction of this scheme should provide a welcome boost to the tourism and hospitality sector.
Please contact us if you have any queries on how to avail of this tax credit.
Budget 2019 increased the Home Carer Tax Credit from €1,200 to €1,500 per annum. This tax credit is available to married couples or registered civil partners, where one spouse stays at home to care for a “dependant”.
A dependant can be:
- a child for whom child benefit is payable;
- a person aged 65 years or over; or
- an incapacitated individual.
It does not include a spouse or partner. Often there may be one or more dependants being cared for by the carer spouse. This does not increase the tax credit available.
The Home Carer Tax Credit is often unclaimed as there is a misconception that you must be caring for a sick relative. This is not the case.
Conditions to qualify:
- You must be jointly assessed for income tax.
- The dependant person must normally reside with the carer for the tax year. However, if the dependant person is a relative, they can live next door, on the same property or within 2kms of the carer. A relative includes a relative by marriage or a person for whom the claimant is a legal guardian, but not a spouse or civil partner. However, there must be a direct communication link between the two residences such as a telephone or alarm system.
- The carer spouse must have income of €7,200 per annum or less (excluding any carers benefit or payments received from the Department of Social Protection). If you earn more than €7,200 but less than €10,200 per annum, you may claim a reduced credit:
For example, if the carer spouse earns €8,200 per annum, the maximum tax credit that can be claimed is reduced by the additional earnings as follows €8,200-€7,200=€1,000/2 = €500. The tax credit is reduced by €500 giving a maximum credit of €1,000 available.
If the carer spouse earns €10,200 or above, no Home Carer Tax Credit is available.
This tax credit cannot be claimed alongside the increased standard rate bands for married couples/civil partners. Revenue will grant you the more beneficial option.
Remember; if you qualified for the Home Carer Tax Credit in any of the past 4 tax years (2018, 2017, 2016, and 2015), you can still make a claim to Revenue for it.
A recent High Court decision has a significant bearing on the application of dwelling house exemption to beneficiaries who inherit a mixed asset estate, comprising of a number of residential properties.
The dwelling house exemption allows someone to inherit a property tax-free provided that they have lived in it for three years before the homeowner’s death and that it was the main home of the person who has died. Critically, if a person owns even a share in another property “at the date of inheritance”, they lose their entitlement to the relief. Revenue has always been of the view that if someone who would otherwise qualify for dwelling house relief inherits not just the main home of the disponer but another property, or a share in another property, they no longer meet the eligibility criteria.
A Court ruling on 25th September 2018 has changed the rules on dwelling house exemption. The High Court ruled in the case of a successor, who inherited both the family home where the successor had lived with the disponer and an interest in four other properties, was entitled to the dwelling house exemption. The judge held that the successor did not have a beneficial interest in either of the dwelling houses at the date of the inheritance, as a successor cannot become beneficially entitled to a house which forms part of the residue of an estate until the assets available for distribution have been ascertained.
The impact of the Court case is that you will no longer be disbarred from dwelling house relief if you inherit property other than the family home in the same will. Revenue has now adopted a revised approach in distinguishing between dwelling houses inherited as a specific legacy and those inherited in the residue of an estate.
Accordingly, a dwelling house forming part of the residue of an estate is not to be taken into account in determining whether a successor has an interest in another dwelling house at the date of an inheritance. Ownership of property received as part of the residue of a will would occur at a later date than “at the date of inheritance”.
Anyone receiving a specific legacy of an interest in a property as well as receiving the family home will continue to be excluded. This is because, as a specific legacy, beneficial ownership of the “other” property would transfer at the same time as the family home.
Revenue acknowledged that if any taxpayers find themselves in a similar set of facts as this case then they may be entitled to a refund of the tax paid, bearing in the mind the four year limit that applies to refunds of tax.
Should you require any further details on the dwelling house exemption, please contact us.
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.
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 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.
What is a salary sacrifice arrangement?
The term salary sacrifice is generally understood to mean an arrangement between the employer and employee under which the employee forgoes the right to receive any part of his or her remuneration due under the term of his/her contract of employment and in return their employer provides a benefit of a corresponding amount to the employee.
Where an employee forgoes salary payable under an existing contract of employment in exchange for a benefit, the employee remains taxable on the “gross” income payable. The salary sacrificed will be an application of income earned by the employee, not an expense incurred by the employer.
However, there are Revenue approved salary sacrifice arrangements which are exempt from the tax treatment outlined above. These include the following scenarios where the employee’s gross salary is reduced in return for:
- bus, rail or ferry travel passes through a travel pass scheme
- exempt shares appropriated to employees under approved profit sharing schemes, provided certain conditions are met
- the provision of bicycles and safety equipment through the cycle to work scheme
Many companies operate share option schemes for their employees. Please see below a summary of the tax treatment and reporting requirements in relation to Unapproved Share Option Schemes.
What do I receive when I am granted a share option by my employer?
When a company grants a share option to an employee, they are given the right to acquire a pre-determined number of shares at a pre-determined price for a predetermined period. Such option schemes are commonly referred to as “unapproved share option schemes”.
What information will I get from my employer when I am granted a share option?
Where a company grants a share option to an employee, it will generally issue documentation covering the following:
- the number of shares that the employee can acquire
- the price that the employee has to pay for the shares (“Option Price”)
- the dates from which, and by which the employee may exercise his or her option (“Exercise Period”), and
- the conditions regarding the right to exercise the option
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.
What are the tax consequences if I exercise a share option?
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. RTSO is payable within 30 days of an option being exercised.
Will my employer look after the payment of tax when I exercise a share option?
No. RTSO is payable within 30 days of an option being exercised and as it is outside the PAYE collection system the employee is responsible for making this payment to the Collector General.
What forms must I file with the Revenue Commissioners if I exercise a share option?
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. 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).
Employees liable to pay RTSO must then submit the usual self-assessment 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.
What happens if I decide to sell the 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.
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.
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.
The Revenue Commissioners have issued guidance which sets out the VAT treatment of transactions concerning the transfer of money.
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:
- Exemption can only relate to transactions which form a distinct whole, fulfilling in effect the specific, essential functions of such transfers.
- An exempted service must be distinguished from the supply of a mere physical or technical service.
- 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.
- 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.
- The transaction which produces the change is solely the transfer of funds between accounts, irrespective of its cause.
- 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.
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.