Budget 2024 Highlights

Budget 2024 Highlights

Minister for Finance, Michael McGrath delivered the final Budget today, 10 October 2023. Below we outline the highlights of Budget 2024.

Personal Tax
  • Income tax standard rate bands increase by €2,000 to €42,000 (single person), with the married single earner band increasing to €51,000.
  • Personal, PAYE, Earned Tax credits to increase by €100 to €1,875.
  • Home Carer Tax Credit will increase by €100 to €1,800.
  • Incapacitated Child Tax Credit to increase to €3,500.
  • Small change to the second rate-band of Universal Social Charge which will increase from €22,920 to €25,760. The 4.5% rate is reducing to 4% from 1 January 2024.
  • Increase in the exemption from Income Tax, USC and PRSI to €400 on profits arising from domestic microgeneration of electricity which is supplied to the grid.
Enterprise/SMEs/Agri-sector
  • Introduction of 15% Corporation Tax rate, under the OECD Pillar Two agreement, on trading profits of large companies. SME sector unaffected. Further details to be announced in the Finance Bill.
  • Capital Gains Tax relief for Angel Investment in innovative start-ups. Qualifying investments will be certified by Enterprise Ireland with a minimum investment in new shares of at least €10,000. Relief will apply if shares are held for at least 3 years. A reduced rate of Capital Gains Tax of 16% will apply on a gain of up to twice the initial investment. A lifetime limit of €3m will apply to the relief.
  • From 1 January 2025 the upper levels of Retirement Relief will apply on disposals to children and to others between the ages of 55 and 70. A €10m limit will be introduced for disposals to a child up to the age of 70.
  • With effect from 1 January 2024 the minimum holding period of investment to claim relief under the Employment Investment Incentive (EII) scheme is being standardised at 4 years with the limit on such investments being increased to €500,000. Further changes to EII will be set out in the Finance Bill.
  • The rate of the Research & Development Tax Credit is being increased to 30% in respect of 2024 expenditure. The first-year payment threshold, which allows for a claim to be repaid in full rather than spread over 3 years, is being increased to €50,000.
  • Section 481 Film Relief investment cap being increased to €125m.
  • Accelerated capital allowances for energy efficient equipment are to be extended for a further two years to the end of 2025.
  • Accelerated capital allowances for farm safety equipment are to be extended to 31 December 2026.
  • Stamp Duty Consanguinity relief which reduces the duty applicable on transfer of farmland between family members from 7.5% to 1% is being extended to 31 December 2028.
  • The threshold for Stock Relief for registered farm partnerships is increasing to €20,000, while the aggregate lifetime limit of stamp duty relief for young trained farmers is being increased to €100,000 from 1 January 2024.
Housing/Cost of Living Measures
  • The Rent Tax Credit is being increased to €750. The tax credit will also be extended to parents paying their children’s rental costs while in third level education in the case of Rent-a-Room accommodation or “digs”.
  • A new Rented Residential Relief is being introduced for Landlords. The relief will be granted at the standard rate of tax and will be as follows; €3,000 in 2024; €4,000 in 2025; and €5,000 in 2026 and 2027. The tenancy must be registered to the PRTB, or the property let to a Local Authority. The value of the relief will be €600 to €1,000. The relief will be clawed back if the property does not remain in the rental market for the 4 years.
  • The Help to Buy (HTB) scheme is being extended to the end of 2025. Amendments are being made to the scheme to enable contributions through the Local Authority Affordable Purchase scheme to be considered when calculating the 70% loan-to-value requirement.
  • A temporary one-year Mortgage Interest Tax relief of up to €1,250 is being introduced for homeowners on variable or tracker mortgages with outstanding mortgage of between €80,000 and €500,000 on the 31 December 2022 and fully LPT compliant. Relief will be at the standard rate on the interest rate increases between 2022 and 2023. The relief will be claimed on filing a tax return for 2023.
  • The rate of the Vacant Homes Tax is being increased with effect from 1 November 2023 to 5 times the property’s existing LPT liability.
 VAT
  • The registration thresholds are being slightly increased to €40,000 for the supply of services and €80,000 for the supply of goods from 1 January 2024.
  • From 1 January 2024 the rate of VAT on audiobooks and eBooks will be reduced to 0%.
  • The 9% VAT rate for Gas and Electricity supplies is being extended to 31 October 2024.
  • The supply and installation of solar panels in schools is being reduced to 0% from 1 January 2024.
  • The Farming VAT flat rate is being reduced to 4.8% from 1 January 2024.
 Other Measures
  • The fund for the Charites VAT Compensation Scheme is being increased from €5m to €10m.
  • The aggregate value of items donated in a year under the Heritage Donation scheme to be increased from €6m to €8m.
  • The tapering relief applied to benefit in kind on battery electric vehicles is being enhanced so that the current Original Market Value deduction of €35,000 remains until 2025 followed by €20,000 in 2026 and €10,000 in 2027. The universal relief of €10,000 to the OMV is being extended for a further year to end 2024.

Read our tax team’s analysis of Budget 2024.

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Ukraine Credit Guarantee Scheme provides low-cost loans to Irish businesses

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Ukraine Credit Guarantee Scheme

The Ukraine Credit Guarantee Scheme (UCGS) will provide €1.2 billion in more affordable funding to Irish businesses who have been impacted by the war in Ukraine.

Eligible borrowers will be able to access funds ranging from €10,000 to €1 million, capped at the greater of either 15% of their recent turnover or 50% of their annual energy expenditure. There is no personal guarantee or collateral required for loans up to €250,000.

Financing will be offered through a range of credit facilities, including term loans, working capital loans and overdrafts.

The scheme offers repayment terms of up to six years with discounted interest rates.

Who is eligible?

This funding is available to Irish SMEs, primary producers and small mid-caps (defined as businesses with up to 499 employees) who have been impacted by economic challenges arising from the war in Ukraine.

To be eligible for this scheme, operating costs must have risen by over 10% since 2020.

The scheme will be available up to the 31 December 2024 or until it has been fully subscribed.

How to apply?

Step 1: Apply for an Eligibility Code from the SBCI through their online hub.

Step 2: Provide this eligibility code to a participating finance provider to begin the credit application process.

If you require assistance with your application for this funding, please contact Carol Hartnett from our Accounting & Financial Advisory Department.

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Enhanced Reporting Requirements (ERR) – What You Need To Do

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Enhanced Reporting Requirements (ERR)

Signed into law in December 2022, the Finance Act 2022 has changed the requirements governing the reporting of expenses to Revenue. Under a new system referred to as Enhanced Reporting Requirements (ERR), companies are now required to report any “reportable benefits” paid to employees and/or directors. These are benefits which are not currently subject to tax under the PAYE system and are the following:

  • The remote working daily allowance of €3.20
  • The payment of travel and subsistence expenses
  • The small benefit exemption

Anyone wishing to examine these changes themselves should consult Section 897C of the Finance Act. However, here we will provide an overview of these changes, the system for reporting these expenses, and advice on how to prepare. The new ERR regime is effective from 1 January 2024.

There are 3 options from which employers can choose to make ERR submissions:

  1. Completion of an online form on ROS Online
  2. Manually upload a file to ROS Online
  3. Directly from their payroll or expense management system

What information does ERR require?

Compliance with the “reportable benefits” system involves sending on employee-related information such as the employee’s name, address, DOB, PPSN, staff number, and employment ID. Additionally, the payment date, value, and category are all be included. However, the three categories of expense all have slightly different requirements, which can be broken down as follows:

Travel & Subsistence: this covers payments an employer makes to an employee/director regarding travel or subsistence incurred by the employee, where no tax is deducted. When submitting a report to Revenue, the amount and date paid should be provided for each of the following categories:

  • Travel Vouched
  • Travel Unvouched
  • Subsistence Vouched
  • Subsistence Unvouched
  • Eating on site
  • Site based employees (includes “Country Money”)
  • Emergency Travel

Small Benefit: this covers any tax-free benefits that an employee/director may be provided by their employer. These can include vouchers but extends to many kinds of benefits. When making these payments, the employer should ensure the payment conforms to the standards set out in Section 112B of the Taxes Consolidation Act 1997.

Notable conditions here are that the voucher or benefit cannot exceed €1000 in value and only two vouchers or benefits may be given in any one tax year (it should be noted that these conditions have also only been in effect as a result of the Finance Act 2022; previous limits were €500 in value and only one voucher per year).

Employers are required to report the following:

  • Date provided
  • Value

Remote working daily allowance: this covers any payment an employee/director may receive from their employer which relates to days the employee worked from home. These payments can come to no more than €3.20 per day. Employers are now expected to report:

  • Number of days
  • Amount paid
  • Date paid

How can we help?

  • Provide bespoke training to key stakeholders.
  • Review and analyse how your organisation currently collects information related to the reportable benefits.
  • Review your organisation’s policies to evaluate the different types of employee expenses your organisation currently makes and update the language used, where necessary, to bring your own records of these expenses in line with the ERR categories.
  • ERR Reporting on an outsourced basis (including reviewing databases, enriching file with the required data for ERR, preparing the final file to be converted to Revenue approved format and making ERR submissions to Revenue).

For further information, please contact Carol Hartnett, Manager in our Accounting & Financial Advisory Department.

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Crowleys DFK take part in Customised Leadership & Management Programme

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Leadership & Management

A bespoke Leadership & Management Programme was recently completed by 27 members of our management team (senior managers, managers, and assistant managers).

The certified programme, which was delivered by UCD’s Professional Academy, required a significant commitment from the team as it took place over an 8-week period for a total duration of 24 hours.

The course was developed to give participants an understanding of how a successful and productive environment can be established and maintained over the long term through team development and performance enhancement. The broader aim of the course was to help develop quality leaders, who will in turn foster a positive and supportive workplace culture.

“I learned various strategies on how to effectively mentor my team members to be able to produce a quality output while developing their skills.”

– Kyna Lontok, Manager, Risk Consulting

The training took place over Zoom and brought together management from our Dublin and Cork offices for intensely interactive sessions. The sessions comprised eight classes that covered a range of interesting and relevant topics, such as Coaching and Mentoring as Managers, Getting the Best from Your People and Difficult Conversations. The programme made extensive use of case studies to ensure the sessions were applicable to real-world scenarios in the contemporary workplace.

 “The biggest takeaways for me was on communication together with motivation. What motivates me may not always motivate my team. I feel the course has made me more aware of the qualities required to both lead and manage a team.”

– Joanne O’Sullivan, Manager, Audit & Assurance

The programme aligns with Crowleys DFK’s commitment to learning and development, which is a key part of our overall business strategy and a core component of our Performance Development Programme (PDP). The firm recognises the value of supporting its management teams, both new and experienced, with ongoing training. Participating in this programme will help our managers more easily navigate daily challenges, handle their varied workloads, and ensure the continued success of their teams.

I gained valuable insight into the various forms of leadership, the difference between coaching and mentoring and the importance of both in developing team members.

– Brian O’Donoghue, Assistant Manager, Accounting & Financial Advisory

If you are interested in developing your career with Crowleys DFK, take a look at our career options.

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New Procurement Threshold to Significantly Increase Public Sector Accessibility to Goods and Services

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Changes to Procurement Rules, Changes to Procurement Thresholds

In March 2023, the Department of Public Expenditure and Reform issued updates to existing procurement guidelines This update, contained in Circular 05/2023, have made some significant changes to the thresholds for procurement and are intended to facilitate easier procurement for SMEs. To this end, there has been a loosening of procurement rules covering procurements of a value between €25,000 and €50,000. Below, we go through the most important changes to procurement regulations.

It should be noted that, at the time of publishing, the procurement guidelines PDF available on the Office of Government Procurement website has not been updated to take account of Circular 05/2023. However, Circular 05/2023 states that the new guidelines have come into effect immediately.

Changes to Procurement thresholds:

The updates have made changes to rules for procurement for goods and services and procurement for works. Under the previous guidelines relating to procurement for goods and services, there were three separate thresholds for procurement, each with a different set of requirements for a contracting authority. These thresholds were:

  1. less than €5,000;
  2. €5,000 – €25,000;
  3. €25,000 – EU threshold.

After the Circular 05/2023 revisions, these thresholds for procurement for goods and services are now as follows:

  1. less than €5,000;
  2. €5,000 – €50,000;
  3. €25,000 – EU threshold.

Guidelines for the €5,000 – €50,000 Procurement Threshold

The significant change here is clearly to the €5,000 – €50,000 threshold. What this means is that now procurement for goods and services for any amount within this range can be conducted according to the following guidelines:

  1. Seek at least three written tenders from interested and competent suppliers/service providers
  2. Evaluate offers against relevant requirements using a scoring sheet;
  3. Select the most suitable offer and advise all tenderers regarding the decision.

Previously, procurements above €25,000 were required to be conducted through a more extensive and formalized process. This included using an Open Procedure and advertising the contract on the eTenders website. These requirements now apply to procurements above €50,000. In other words, one way of understanding these changes is to see that the methods previously required for conducting procurement of a value between €5,000 and €25,000, now apply to conducting procurement of a value between €5,000 and €50,000.

However, it should be noted that there are several exceptions to this rule. Crucially, while procurement contracts between €25,000 and €50,000 do not have to be advertised on eTenders, contract award information does have to be published for these contracts. Upon award of the contract, you are still required to publish the contract information on eTenders, even if you are no longer required to advertise the contract on eTenders. Additionally, while there is no requirement to advertise on eTenders, the Circular still encourages contracting authorities to do so if they wish.

A further exception to the updates worth noting is that it remains the case that where Government Departments and Offices have agreed contracts above €25,000 without a competitive process, this should be reported to the Comptroller and Auditor General.

Works Thresholds and Other Issues in Circular 05/2023:

Similar to the goods and services changes, the thresholds related to works contracts have also been adjusted. Now, for works contracts of a value less than €200,000, it is sufficient to seek at least five written tenders from interested and competent contractors. As with procurement for goods and services, this represents a raising of the threshold.

However, the Circular is explicit in adding that “the threshold at which contracting authorities are required to advertise all contracts for works-related services remains at €50,000”. A typical example of this sort of service might be consultancy; for this sort of procurement, the threshold remains unchanged.

Finally, Circular 05/2023 does contain an extensive range of advice regarding how to go about conducting procurement. While this advice is not binding, it may be useful to for conducting procurement and includes recommendations such as:

  1. Undertake preliminary market consultations prior to tendering
  2. Subdivide contract into lots
  3. Sue Prior Information Notices to facilitate SMEs forming a consortium prior to tendering
  4. Use the “open procedure” for tendering where possible
  5. Ensure selection criteria set for tenderers are relevant and proportionate to the contract
  6. Ensure any turnover/financial capacity requirement is proportionate to the risk involved
  7. Indicate in tender documents where reasonable variants to the specifications are acceptable.
  8. Use a Dynamic Purchasing Systems (DPS) for the procurement of commonly used goods, works or services which are generally available on the market.

Contributors
                                                    

Vincent Teo | Partner & Head of Public Sector & Government Services

Vincent Teo
Partner & Head of Public Sector & Government Services

 Dr. Conor Dowling | Research & Policy Executive | Risk Consulting

Dr. Conor Dowling
Research & Policy Executive
Risk Consulting
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Benefits in Kind: Small Benefit Exemption

Benefits in Kind: Small Benefit Exemption

Employers will be familiar with the Small Benefit Exemption (SBE) which is a Revenue concession in respect of non-cash benefits/vouchers provided to employees. Finance Bill 2022 announced the extension of the SBE to allow for up to two vouchers/benefits to be granted by an employer in a year, with an increase in the annual exemption from €500 to €1,000 in aggregate.  These changes were applicable from the 2022 year of assessment.

Benefit for Employees:

Employees are not liable for PAYE, USC and PRSI on value of award.

Benefit for Employers:

Employers are not liable for employer PRSI (11.05%) on value of award.

Conditions for SBE to apply:

  • The award must be a “qualifying incentive” which is a non-cash incentive and:
    • in the case a single benefit is provided, the value does not exceed €1,000.
    • where two benefits are provided, the cumulative value of the first and second benefit does not exceed €1,000.
  • Where any award exceeds €1,000 in value the full value of that award is subject to PAYE, USC and PRSI.
  • If more than two benefits are given in a year, only the first two may qualify for tax free status.
  • Tax-free vouchers/benefits can be used only to purchase goods or services. They cannot be redeemed for cash.
  • The voucher or benefit must not form part of a salary sacrifice arrangement.

To maximise the tax efficiency of the SBE and avoid subsequent awards being liable to tax, some companies use a ‘recognition and rewards’ system which allows employees to accumulate points over the course of a year.  This minimises the tax liability where employees are recognised multiple times in a year.

Please see below some examples to further explain the SBE:

Example 1

Company A awards a voucher of €500 in February and a €500 voucher in December to an employee.

Tax Treatment

The employee can avail of the SBE and as the two vouchers do not exceed the annual exemption of €1,000, both vouchers can be provided to the employee tax free.

Example 2

Company B awards an employee a voucher worth €500 in January, a hamper in July worth €50 and a €500 voucher at Christmas.

Tax Treatment

The first two awards, which total €550 will be covered by the SBE, but the third award will be fully liable to PAYE, USC and PRSI. The value of the third voucher (€500) should be processed through payroll in the month the award is made i.e. the December payroll.

Had Company B awarded the second €500 voucher before the €50 hamper, the employee would have maximised the full benefit of SBE and only €50 would be subject to tax.

Example 3

Company C awards an employee a voucher worth €500 in April and another voucher in December worth €600.

Tax Treatment

Where two vouchers exceed €1,000 in value, the full value of the second voucher is subject to tax. The value of the second voucher (€600) should be processed through the December payroll and the relevant withholding taxes applied.

If you have any queries about the small benefit exemption, please contact Ciara Colbert, Senior Manager in our Tax Services’ Department.

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Are you ready for mandatory Charities SORP compliance?

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As you may be aware, the Charities (Amendment) Bill 2022 is with the Oireachtas to be passed into legislation. Upon the passing of this bill, this will bring significant changes to the Charities’ Act 2009.

The bill will make Charities SORP (FRS 102) mandatory for organisations who meet certain thresholds.

The proposed thresholds are as follows:

Charities SORP

The updated legislation will apply to all registered charities in Ireland. Please note the following:

  • There is an understanding that the exemption in place regarding educational bodies will remain, however university foundations will no longer be exempt.
  • It is also expected that a charity will be able to prepare in accordance with another industry wide recommended practice e.g. Housing SORP.

The Bill is expected to pass by the end of 2023 with the expected applicable dates to be accounting periods starting 01 January 2025. This will mean mandatory Charities SORP will be applicable for year ends 31 December 2025.

What steps should I take now?

  • As SORP will require two years of comparative figures with the breakdown of figures between restricted / unrestricted, you should ensure that from the 2024 accounting period, the information recorded in the accounts package is posted in line with SORP or presented in the SORP format in charities management accounts. This information will be essential for the annual audit.
  • A working should be prepared to ensure reserves are split between restricted and unrestricted as appropriate.
  • Ensure your current accounts package is adequate for the needs of Charities SORP postings.
  • Attend any webinars available over the coming months hosted to help you become familiar with the legislation and requirements.

While your organisation may be already preparing the financial statements in accordance with Charities SORP, you may need to review available resources to ensure FULL compliance is being met once Charities SORP is introduced.

Please contact Elaine Murphy, Assistant Manager in our Audit & Assurance department if you have any queries regarding the migration to SORP.

Disclaimer: The information contained above is accurate at the time of publication and as the Bill has not been fully published, the information is subject to final changes.

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Public Sector Climate Action Mandate 2023 – What you need to know

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Public Sector Climate Action Mandate

In May of this year, the Government approved the updated 2023 Public Sector Climate Action Mandate (PSCAM). The Mandate, first introduced as part of the Climate Action Plan (CAP) 2021, sets out the goals Public Sector Bodies must achieve as part of the government’s overall strategy for reducing emissions. The newly updated Mandate is an expansion of the 2022 Mandate. New actions have been added and existing actions have been expanded. This article will talk through the updated Mandate, explain its purpose and describe the new requirements it presents.

What is the Mandate?

The CAP’s overall aim is to achieve a 51% reduction in greenhouse gas emissions in Ireland by 2030. While the CAP acknowledges that the public sector is not the major driver of emissions, the Mandate has been introduced to facilitate the public sector in taking a leading role in reducing emissions. The Mandate must be followed for those bodies it applies to, but it should be noted that it does not apply to every public sector body. Local Authorities, Commercial Semi-State Agencies and Schools are all exempt from the Mandate. Size is also a consideration when adhering to the Mandate. The Mandate places greater responsibilities on government departments and also on organisations that consume over 50 GWh of energy per annum than it does on smaller bodies, which can fulfil the Mandate’s minimum requirements.

Status of the 2022 Mandate

For those public bodies the Mandate does apply to, many of the requirements found in the updated Mandate are unchanged from previous years. For instance, the requirement to establish and support Green Teams has not been altered. Furthermore, nothing has been removed from the Mandate. This means that any work completed to fulfil the previous Mandate remains valid. Any organisation still working on fulfilling the previous Mandate can continue to use the guides made available by the Sustainable Energy Authority of Ireland. We anticipate that updated guidelines will be made available for the new Mandate, however, no timeline for this is available so far.

Changes from the 2022 Mandate

For those who are subject to the Mandate, the following are the major changes to be aware of:

  • A new requirement has been added stating that senior management complete a climate action leadership training course in 2023.
  • The requirement that sustainability and emissions be addressed in the annual report has been amended. The annual report must now also address: a) efforts to implement the Mandate; b) compliance with Circular 1/2020 related to air travel emissions.
  • The requirement to review use of paper has been amended to include the need to eliminate paper-based processes and, where this is not possible, to use recycled paper as the default.
  • The requirement to achieve formal environmental certification has been amended with distinct requirements for organisations spending more or less than €2m per annum on energy.
  • A requirement to implement Green Public Procurement (GPP) has been added. This should be performed in line with the EPA Green Public Procurement Guidance.
  • The requirement to create bicycle friendly buildings has been amended to indicate that the priority should be to facilitate moving away from individual car use.
  • A new requirement to phase out the use of parking in buildings, without compromising on supports for those with physical mobility issues, has been added.
  • New recommendations for retrofitting large building have been added.
  • The requirement to procure zero-emission vehicles only has been amended to include a requirement that any procurement contracts a public sector body enters into should use zero emissions vehicles whenever possible.

Contributors
                                                    

Vincent Teo | Partner & Head of Public Sector & Government Services

Vincent Teo
Partner & Head of Public Sector & Government Services

 Dr. Conor Dowling | Research & Policy Executive | Risk Consulting

Dr. Conor Dowling
Research & Policy Manager
Risk Consulting
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Non-Resident Landlord Withholding Tax (NLWT) System

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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:

  1. 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.
  2. 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.

  1. 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.
  2. 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.
  3. 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.

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Tax Treatment of Unapproved Share Option Schemes

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tax treatment of unapproved share option schemes

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:

  1. The grant of the share option (where the option price is less than the market value of the shares) and
  2. 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.

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