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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.

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.

Exceptions

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

Contact Michelle Mangan, Manager of Tax Services, if you have any questions about salary sacrifice arrangements or other employee benefit queries.

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.

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

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.

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.

 

Are you aware of the rent a room relief? If you let a room in your home, the income you receive may be exempt from tax.

If your gross rental income does not exceed the exemption limit below, you do not pay Income Tax, Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) on the rent you receive.

If it does exceed the limit, then you are liable to income tax, PRSI and USC on the profit from renting the room. This relief can only be claimed by individual taxpayers. It cannot be claimed by companies.

Annual exemption limit for Rent a Room Relief
Year Income amount exempt
2013 €10,000
2014 €10,000
2015 €12,000
2016 €12,000
2017 €14,000

What type of residence qualifies?

Sole or main residence

Your main residence is your home for most of the year and where friends would expect to find you. You do not have to own the property to claim relief.
The room or rooms must be in a residential property that is located in Ireland. You must use it as your main residence during the tax year.

Self-contained unit

The rented room or rooms can be a self-contained unit within the house, such as a basement flat or a converted garage. If this unit is not attached to the property it cannot qualify for the relief.

Business use or guest accommodation

Your tenants must use the room on a long-term basis. You cannot claim relief on rooms that are used for business purposes. Short-term stays provided through bed and breakfasts, a guesthouse or online booking sites do not qualify for relief.

You cannot claim the relief against income received for the use of the room(s) from:

• your child or civil partner
• an employer
• an employee
• short-term guests, including those who book accommodation through online booking sites.

There is a four-year time limit to claim relief. This is important if you have been paying tax on rental income which should have been exempt.

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

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.

Finance Act 2016 introduced an income tax exemption in respect of certain expenses of travel and subsistence of an Irish resident non-executive director of a company.

The expenses must be incurred solely for the purpose of attendance by a non-executive director, in his or her capacity as a director, at a “relevant meeting”.

The exemption applies to expenses incurred on or after 1 January 2017.

Payments to which the exemption applies may not exceed the Civil Service approved rates for mileage and subsistence as set down by the Minister for Public Expenditure and Reform. See details of the current Civil Service Rates for Travel and Subsistence.

Payments which come within the term of the exemption are also exempt from USC and PRSI.

Definitions

Relevant director”, in relation to a company, means a person holding office as a non-executive director of that company –

  1. who is resident in the State, and
  2. whose annualised amount of emoluments from the office for the year of assessment 2017 and for each subsequent year in which the person is a director of the company does not exceed €5,000.

Relevant meeting” means a meeting in the State attended by a relevant director in his or her capacity as a director for the purposes of the conduct of the affairs of the company.

Travel” means travel by car, motorcycle, bus, rail or aircraft.

For more information please contact Michelle Mangan, Manager of Tax Services.

With third level exams completed and State Examinations drawing to a close, Revenue has received a number of queries as to whether exam setters, invigilators and exam correctors can be engaged as “self-employed” individuals and paid gross or whether they should be engaged as “employees” with payments to them subject to deductions under the PAYE system.

In their recently published eBrief No. 48/17, Revenue have confirmed that whilst the facts of each case will determine whether an individual is self- employed or an employee, Revenue’s view is that exam setters, exam correctors and invigilators engaged by the State sector, private colleges or associations are, in general, likely to be employees and, therefore, deductions (tax, PRSI and USC) under the PAYE system should be made from the emoluments paid to them.

This is an important clarification for any educational establishment that engages individuals to set, invigilate or correct exams. It places responsibility for correctly deducting tax from payments to these individuals on the employer establishment and means that these individuals must be put on payroll even if they are engaged on an ad hoc basis or for a short period of time.

For more information please contact Michelle Mangan, Manager of Tax Services.