Budget 2023 – What to Expect

Budget 2023

Eddie Murphy, Partner & Head of Tax Services, outlines what to expect in Budget 2023.

Budget 2023 is being delivered on 27th September. This is a few weeks earlier than planned, demonstrating the urgency and seriousness of the cost-of-living crisis we are all facing.

A once-off financial package close to €3 billion is to be made available to help struggling households.

It is also expected that the income tax package in the budget will include increasing standard income tax rate bands to reduce the amount of income being taxed at the 40% rate.

This same budget must also encourage investment and future growth in Irish businesses. This can be achieved by strengthening and improving the Employment Investment Incentive Scheme and Entrepreneur Relief. For indigenous Irish businesses, these are key determinants and drivers of their initial and onward growth.

Budget 2023 is expected to contain short-term measures of financial assistance to individuals and businesses alike. However, the Government must continue to also look at the medium and longer term to ensure it continues to support both FDI and Irish SME businesses in their drive to create and grow sustainable employment in this country.

Stay tuned for our Budget analysis next week.

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New Obligations for Overseas Entities with UK Properties

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Do you have property in the UK, or are you about to acquire or have you recently sold property there? If so, you must comply with new anti-money laundering legislation for UK properties.

On 1 August 2022, the new Register of Overseas Entities, came into effect through the Economic Crime (Transparency and Enforcement) Act 2022.

Any overseas entity that wants to buy, sell, or transfer property or land in the UK, must register with the UK Companies House and declare the identity of their beneficial owners or managing officers before 31 January 2023.

Overseas entities that disposed of property or land since 28 February 2022 (when legislation for the register was first announced) are required to provide a statement to Companies House.

The register applies to property acquired in:

  • England and Wales since 1 January 1999;
  • Scotland since 8 December 2014; and
  • Northern Ireland since 1 August 2022.

Failure to comply with these new obligations is a criminal offence and will lead to fines of up to £2,500 per day or a prison sentence of up to 5 years.

For further information, please Emma Dunne, Assistant Manager of Corporate Compliance.

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Everything You Need To Know About The Protected Disclosures (Amendment) Act 2022

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Protected Disclosures (Amendment) Act 2022

In July 2022, the Protected Disclosures (Amendment) Act 2022 was signed into Irish law. This Act gives effect to an EU Directive regarding the protection of whistleblowers and serves to amend and extend the Protected Disclosures Act 2014. This Act has made several substantial changes to the laws relating to whistleblowing in Ireland, generally expanding both the protections available to whistleblowers and the responsibilities imposed on companies regarding whistleblowing.

New Definitions of Protected Disclosures

The Amendment Act significantly expands the range of activities or acts of wrongdoing which are relevant to the purposes of the act. Whereas the 2014 Act describes a set of practices which may be relevant, the Amendment Act provides a broad list of areas in which, should an individual consider wrongdoing to be occurring, a Protected Disclosure may be made.

The Amendment Act has also clarified and expanded the types of individuals who can claim its protections when making a Protected Disclosure. The 2014 Act provides a definition of the types of “workers” who can claim the Act’s protections; the Amendment Act expands this definition both by adding new types of workers and also by clarifying that the information subject to a Protected Disclosure need only to have come to light in a “work-related” context.

Protections when making a Protected Disclosure

Under the Amendment Act, the range of protections available to individuals making a Protected Disclosure has also expanded. In particular, the Amendment Act has made extensive changes to the laws relating to any penalties an individual who has made a Protected Disclosure may have suffered. The 2014 Act provided a range of activities which it considered to be unfair penalisations of individuals who have made a Protected Disclosure; the Amendment Act has increased this list of penalties to include acts such as the withholding of training, negative performance assessment, harm to the individual’s reputation, and others.

Significantly, the Amendment Act also places the burden of proof on employers to prove that, should an individual who has made a Protected Disclosure suffer any of these penalties, that the penalty has no connection to the Protected Disclosure.

Requirements of Organisations under the Amendment Act

Under the Amendment Act, any organisation with 50 or more employees is obliged to develop internal reporting channels and procedures to facilitate whistleblowing for their staff. These obligations extend to private section organisations. A provision in the Amendment Act states that, for employers of between 50 and 249 employees, all obligations under the Act will not come into effect until December 2023.

The Amendment Act provides specifications regarding how these reporting channels should operate. These specifications are quite extensive and include timeframes for responding to Protected Disclosures, the appointment of an appropriate individual to investigate the Disclosure, provision of clear information to staff regarding the operation of these channels, as well as effort to ensure the confidentiality of individuals who make Protected Disclosures.

Click here to download a copy of our Guide to Everything You Need To Know About The Protected Disclosures (Amendment) Act 2022.

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RCT & VAT Pitfalls in the Construction Industry | Case Study Analysis

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Our previous article on RCT and VAT pitfalls for non-resident contractors provided a general overview of the RCT regime in Ireland. We will now look at a case study analysis of RCT and VAT treatment and explore scenarios in which we have observed mistakes commonly being made among taxpayers.

1. Supply of Labour for Relevant Operations

We have observed cases whereby contractors in the construction industry, particularly non-resident contractors, engage recruitment firms to supply labour to carry out construction operations on a site in Ireland.

While it is commonly interpreted that RCT only applies to construction operations, in fact the definition of “relevant operations” extends to both the carrying out of and the supply of labour for the performance of, relevant operations in the construction industry.

Case Study – Example 1

Company A (based in Spain) is engaged by Company B (based in Ireland) to carry out demolition works on a number of properties in Ireland. Company A, in turn, engages Company C (a recruitment firm based in the UK) to provide the personnel required to complete the demolition works in Ireland.

RCT Obligations

Company B is a Principal Contractor in respect of these works and is required to operate RCT on the payments made to Company A. This brings Company A within the scope of RCT as it is regarded as a Subcontractor carrying out construction operations in Ireland.

Whilst Company A is a subcontractor in respect of its engagement with Company B, Company A is also a Principal Contractor in respect of its engagement with Company C. Company A will be required to operate RCT on the payments made to Company C because Company C has arranged the supply of labour for the performance of the demolition works on the sites in Ireland.

This brings Company C, the non-resident recruitment firm, within the scope of RCT, as it is regarded as a Subcontractor carrying out construction operations in Ireland.

In this example, Company B must register for RCT as a Principal Contractor, Company A must register for RCT as both a Principal Contractor and a Subcontractor, and Company C must register for RCT as Subcontractor.

VAT Obligations

The provision of the services by Company C to Company A and Company A to Company B falls within a reverse charge provision for the supply of labour and construction services, which is subject to RCT.

Company C, as a Subcontractor, does not have an output VAT liability in respect of the provision of services provided to Company A. As such, Company C will issue its invoices to Company A with no VAT charge.

Company A, as a Principal Contractor, must self-account for VAT on a reverse charge basis (typically at 13.5%) on receipt of the invoices from Company C. Company A should have an entitlement to a simultaneous VAT input credit as it has used the services to make taxable supplies to Company B.

Company A, as a Subcontractor, does not have an output VAT liability in respect of the provision of the services provided to Company B. As such, Company A will issue its invoices to Company B with no VAT charge.

Company B, as a Principal Contractor, must self-account for VAT on a reverse charge basis (typically at 13.5%) on receipt of the invoices from Company A. Company B should have an entitlement to a simultaneous VAT input credit as it has used the services to make taxable supplies to Company B.

In this example, only Company A and Company B are required to register for Irish VAT. Only Principal Contractors are required to account for VAT on the receipt of construction services that fall within the RCT regime.

Company C is not required to register for VAT in respect of its supplies to Company A.

2. Mixed Contracts

A major risk with the definition of a relevant contract arises for contracts that cover both RCT-type and non-RCT-type supplies.

Case Study – Example 2

Company A engages Company B to carry out repair and maintenance works on a number of properties in Ireland.

Is the contract liable to RCT?

The definition of “construction operations” includes contracts for repair work which is interpreted as the replacement of constituent parts i.e., the repair of a broken window by installing a new pane of glass, mending a faulty boiler etc.

However, the definition of “construction operations” specifically excludes maintenance work i.e., cleaning, unblocking of drains etc.

In this example, Company A and Company B have entered into a repair and maintenance contract. This is referred to as a mixed contract. Revenue’s view on mixed contracts is that if any part of a contract includes “relevant operations” then the contract as a whole is considered a relevant contract and all payments under that contract are liable to RCT.

As Company A and Company B have entered into a mixed contract, the contract as a whole, is considered a relevant contract, and all payments made by Company A to Company B are liable to RCT.

This treatment applies even where no repairs are actually carried out by Company B in completing a particular job under the contract.

In this example, Company A must register for RCT as a Principal Contractor and Company B must register for RCT as a Subcontractor.

A common pitfall we see in this area is for a company to raise separate invoices for the maintenance work and the repair work. They then only treat the invoice for the repairs as being subject to RCT. This is incorrect as it is the overall contract, not the elements being invoiced, that governs whether RCT should be applied or not.

However, if there are separate contracts, one covering maintenance and one covering repairs, then only the contract covering the repairs is subject to RCT.

3. VAT Reverse Charge

VAT is normally charged by the person supplying the goods or services. However, under the RCT regime, the person receiving the goods or services (i.e., the Principal Contractor) accounts for VAT as if they had supplied the service and pays it directly to Revenue. This is known as the VAT Reverse Charge.

We commonly see the VAT Reverse Charge being applied incorrectly in cases where a subcontractor supplies goods or services, other than construction services, as part of the overall contract.

Contractors must be aware that while the overall contract may fall within the RCT regime, that does not mean that the VAT Reverse Charge applies to all goods or services invoiced under that contract.

Case Study – Example 3

The facts are the same as in Example 2. See below for reference:

Company A engages Company B to carry out repair and maintenance works on a number of properties in Ireland.

In this case the repair and maintenance contract in place between the parties provides that a separate charge will apply where repairs are carried out.

Company B has now completed repair and maintenance works for Company A and is looking to raise a sales invoice to Company A for the following:

  1. Repair Works – €4,500 (exclusive of VAT)
  2. Maintenance Works – €10,000 (exclusive of VAT)
VAT Obligations

Generally, the VAT Reverse Charge only applies to payments that are in respect of construction operations which in this case, are the repair works.

Company B must therefore issue two VAT invoices as follows:

  1. An invoice for the repair works of €4,500 on which the VAT Reverse Charge applies. Company A will be required to self-account for VAT at 13.5% on the receipt of this invoice from Company B.
  2. An invoice for the maintenance works (i.e., not considered a construction service) of €10,000 on which VAT at the 13.5% rate is applied. Company A will be required to pay Company B the total invoice value including VAT amounting to €11,350.
RCT Obligations

As set out in Example 2, where a contract is for repair and maintenance, RCT applies to all payments under the contract.

As such, Company A is required to notify the total payment to Revenue. This should include the VAT exclusive payment for the repair works plus the VAT inclusive payment for the maintenance works. Assuming for the purposes of this example that only one payment is to be made by Company A to Company B for the works, Company A would file a Payment Notification with Revenue as follows:

  1. Repair Works (VAT Exclusive) – €4,500
  2. Maintenance Works (VAT Inclusive) – €11,350
  3. Total Payment Reported to Revenue – €15,850

It is important to note that if a repair and maintenance contract provides for a single consideration for all works completed under the contract, then the VAT Reverse Charge must be applied to the full consideration.

Should you require any assistance in this area, please contact us.

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Accelerated Capital Allowances on Energy Efficient Equipment

Are you considering investing in new plant or machinery for your business? It might be worthwhile considering the tax advantages associated with certain energy efficient equipment.

Traditionally the cost of qualifying plant and machinery used in a business is written off against taxable profits in the form of wear and tear capital allowances over an eight-year period. However, in the case of energy-efficient equipment the full capital expenditure cost can be claimed in the year in which the expenditure is incurred.

The scheme, which runs until 31 December 2023, is available to both companies and unincorporated businesses that incur expenditure on eligible energy-efficient equipment for use in their trade.

The energy-efficient equipment must be:

  • New;
  • Designed to achieve high levels of energy efficiency; and
  • Must fall within one of the 10 classes of technology specified in Schedule 4A of the TCA, 1997.

Products eligible under the scheme are included in a list of energy-efficient equipment published and maintained by the SEAI. A full list of qualifying equipment can be viewed on the SEAI.

A minimum amount of expenditure must be incurred on providing the equipment. This varies with the category to which the product belongs. For example, a minimum spend of €1,000 applies to heating an electricity provision, while lighting equipment and systems carry a €3,000 minimum spend.

Electric and Alternative Fuel Vehicles

To promote greater use of low-emissions cars the Finance Act 2008 introduced accelerated allowances for “electric and alternative fuel” cars. The allowance is based on the lower of the actual cost of the vehicle or the specified amount of €24,000. As an alternative to claiming the qualifying cost of a car over the eight-year period, a business can elect to claim accelerated allowances in the year of acquisition.

For more information, please contact Niall Grant, Partner of Tax Services.

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Tax Appeals Commission Determination | Income Tax: Treatment of an IQA Allowance

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The Tax Appeals Commission’s (TAC) objective is to fulfil the obligations placed on it by the Finance (Tax Appeals) Act 2015 and the Taxes Consolidation Act 1997 (“TCA 1997”). To fulfil these, the TAC facilitates taxpayers in exercising, where appropriate, their right of appeal to an independent body against decisions and assessments of the Revenue Commissioners and the Criminal Assets Bureau.

The Issue for Determination

Recently, the TAC issued a determination regarding an Appellant’s complaint about the treatment of an IQA allowance he received in respect of his contributory pension for the years 2019 and 2020. The Appellant was dissatisfied with how he was assessed in relation to his contributory pension, in respect of which he received an increase for his spouse as a Qualifying Adult (Increase for a Qualifying Adult, or “IQA”).

The Background

The Appellant’s complaint related to how the Revenue Commissioners had interpreted an IQA allowance he received in respect of his contributory pension. According to the appellant, “this allowance [was] paid directly to his spouse”, who had “full and sole discretion over how it [was] expended”. In the appellant’s opinion, “whoever actually receives the money should pay the Tax on it. To expect someone else, who received none of that money, to pay the tax on it is unbelievable and very unfair”.

On 30 November 2021 and 6 December 2021, the Appellant received P21 Balancing Statements for the years 2019 and 2020. These indicated underpayments of income tax in the amounts of €3,660.36 and €3,810.69 respectively. On 16 December 2021, the Appellant duly appealed the P21 Assessments to the Commission, arguing that:

“Revenue’s position is that I am deemed to be the beneficiary of the Pension, plus the Increase for a Qualified Adult. They are clearly wrong in that stance. I am the beneficiary of the Pension only and my Wife is the beneficiary of the Qualified Adult Increase. Surely, the beneficiary has to be the person who actually receives the money and not somebody else? Regardless of what way the Government tricks around with the wording of the Acts, it cannot change that fact, which should override everything else.”

By contrast, the Revenue Commissioners’ position was that the IQA allowance was deemed to be the Appellant’s income for tax purposes, pursuant to section 126(2B) of the TCA 1997.

Opposing Arguments

The Revenue Commissioners submitted that “…it is incumbent upon [the Appellant] to demonstrate that Revenue has erred in the way he was taxed with regard to the QAD portion of his pension. Respectfully, the Respondent would argue that the assertion that Revenue is ‘clearly wrong’ does not meet that burden in a matter where the wording of the legislation is quite clear.”

For the Revenue Commissioners, that the appellant claimed “the government has tricked around with the wording of the Acts” implied dissatisfaction with the legislation itself, rather than with the Revenue Commissioners’ interpretation of the legislation.

Determination

The TAC in its determination considered all the facts and information presented, paying particular attention to the following:

  • Past case law examples – Lee v Revenue Commissioners [IECA] 2021 18 & Stanley v The Revenue Commissioners [2017] IECA 279.

The Commissioner determined that the Appellant had failed in his appeal and had not succeeded in demonstrating that the tax was not payable. It was noted that there is no discretion as regards the application of section 126(2B) of the TCA 1997 and the Revenue Commissioners were correct in their approach to the IQA income for the years under appeal.

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Crowleys DFK Announce a Series of Promotions and Role Changes

We are delighted to announce a series of promotions and role changes across Crowleys DFK.

Karen Murphy | Director | Operations & Innovation

 

Karen Murphy has been promoted to Director of Operations & Innovation. Karen will have the responsibility for leading the implementation of the firm’s operational strategies and for the continuing modernisation of our business through innovation and new technologies.

 

 

James O’Connor, Managing Partner, commented:

“I would like to congratulate Karen for her richly deserved promotion. In a short number of years, we have achieved a lot to transform our business processes and implement new technologies.  I am excited to see what we can achieve with continued innovation.”

Ruma Faltado | Assistant Manager | Risk Consulting

 

Ruma Faltado has been promoted to Manager of Risk Consulting. Ruma joined the Firm in 2021 as an Assistant Manager in our Risk Consulting Department. In just the last 18 months, she has led multiple large scale operational and organisational Internal Audits on a number of high-profile National Regulators, Central Government Departments and Local Authorities.

 

Ernest Mendoza | Assistant Manager | Risk Consulting

 

Ernest Mendoza has been promoted to Assistant Manager of Risk Consulting. Ernest joined the Firm in 2020 as a Senior Internal Auditor in our Risk Consulting Department. Within the last two years, Ernest has contributed greatly to his role, delivering workable solutions to our clients and fulfilling their enormous demands for risks and compliance audits.

 

 

In another exciting change within the Risk Department, Dr Conor Dowling has taken on the new role of Research & Policy Executive. This will see Conor conduct research on existing, new, and emerging legislation and EU Directives, surveys and benchmarking analysis on Internal Audit assignments.

 

Ruma and Ernest’s well-deserved promotions and Conor’s new role are a reflection of the continued strong growth and success across the Department.

Vincent Teo, Partner and Head of Public Sector and Government Services Department commented:

“Our Risk Department has seen unprecedent business growth in just the last 2 years. Our team have worked tirelessly to support this expansion and to ensure that our service delivery remains to the high standards of quality that our clients are accustomed to.

To that end, our firm remains steadfast in acknowledging and awarding employees’ efforts and their commitment to the firm. I’m proud of Ruma, Ernest and Conor for hitting all the KPIs on our Competency and Career Paths Development Framework and are now being promoted. We have no doubt they will continue to brilliantly represent Crowleys DFK and shine as part of our management team.”

If you are interested in developing your career with Crowleys DFK, please visit our Careers page.

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BIK on Employer-Provided Cars & Changes to Exemption for Electric Cars

BIK on Employer-Provided Cars

Where an employer makes a car available to an employee, that employee will be charged on the “cash equivalent” of the private use of the car. This is known as Benefit-in-Kind (BIK). This BIK is then taxed on an employee’s marginal rate for PAYE, PRSI and USC.

Cash Equivalent of a Car

The cash equivalent of the use of a car is currently 30% of the original market value (OMV), this being the market value of the car on the date of registration. Where the business kilometres for a tax year exceed 24,000km, the cash equivalent of the use of a car is reduced by a percentage which can range from 6% to 24% based on the number of business kilometres travelled. Business Kilometres are the kilometres an employee is required to travel in the vehicle when performing the duties of his or her employment. It does not include travelling to and from the general place of work. Employers are obliged to keep a record of the business mileage travelled by their employees.

As a result of the Finance Act 2019, from 01 January 2023 the cash equivalent of a car will be determined based on the car’s CO2 emissions. Similarly, the business kilometres percentages will also be dependent on the CO2 emissions.

There are other reductions available when calculating the cash equivalent of a car:

  • Where the car is only available for less than a full year.
  • Where an employee works an average of 20 hours a week.
  • Where an employee travels at least 8,000 kilometres annually on employer’s business.
  • Where due to the nature of the role, the employee spends at least 70% of their time working away from the employer’s premises.

Sample BIK Calculation

A car is provided by the employer with an OMV of €28,000.

The actual business kilometres travelled in the year are 31,630 kilometres, with an employee contribution of €1,000.

As of 2022, the cash equivalent of business kilometres of 31,630 is equal to the OMV x 24% (being the % which applies to mileage between 24,000 and 32,000). The cash equivalent of the use of the car is then reduced by the €1,000.

Cash Equivalent (OMV x 24%)     €28,000 x 24% =             €6,720

Less amount made good                                                             (€1,000)

Amount subject to BIK                                                                 €5,720

Electric Cars

For 2022, there is no BIK on fully electric cars with an OMV of €50,000 or less.

However, the Finance Act 2021 has introduced a tapered reduction in this BIK exemption from 2023 – 2025, at which point the BIK percentage rates will change in accordance with the Finance Act 2019. This will expire from 2026.

The reductions from 2023 – 2026 are as follows:

  • 2023 – fully electric cars with an OMV of €35,000 or less will continue to be BIK exempt
  • 2024 – fully electric cars with an OMV of €20,000 or less will be BIK exempt. The excess will be chargeable to BIK at the relevant rate.
  • 2025 – fully electric cars with an OMV of €10,000 or less will be BIK exempt. The excess will be chargeable to BIK at the relevant rate.
  • 2026 – the exemption will be abolished, and the full market value will be chargeable at the relevant rate*.

*This reduction applies irrespective of the actual OMV of the vehicle or when the vehicle was first provided to the employee.

For more information relating to BIK on employer-provided cars, please contact us.

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Tax Appeals Commission Determination | Income Tax: Payments Received Following a Termination of Employment

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Success Fees

The Tax Appeals Commission’s (TAC) objective is to fulfil the obligations placed on it by the Finance (Tax Appeals) Act 2015 and the Taxes Consolidation Act 1997 (“TCA 1997”). To fulfil these, the TAC facilitates taxpayers in exercising, where appropriate, their right of appeal to an independent body against decisions and assessments of the Revenue Commissioners and the Criminal Assets Bureau.

The Issue for Determination

Recently, the TAC issued a determination addressing a taxpayer’s assertion that their amended assessment for tax year 2016, issued by Revenue Commissioners in January 2018, was incorrect. The taxpayer’s assertion related to certain payments received following the termination of his employment. The taxpayer contended that this payment – “success fees” – was a payment linked to the termination of his employment, taxable under S123 TCA 1997 (to which certain reliefs can be applied via S201 and Schedule 3 of TCA 1997). The amended assessment, however, had treated the payment as being a payment made in connection with his employment and therefore liable to income tax under S112 TCA 1997 (Schedule E).

The Background

Prior to the above complications, the taxpayer had been a senior employee of a company, (“his Employer”) by way of employment contract, since 2010, holding an annual salary of €150,000 and certain conditional share option entitlements.  In July 2015, having had differences of opinion with the Chairman regarding the future strategic direction of the company, the taxpayer and his employer entered a further written agreement (“termination agreement”). The termination agreement included dates for the earliest termination of the employment. While the potential date of termination was dependent on certain deliverables, the final date for this was to be no later in any event than March 2016. The termination agreement stated that “your salary and other contractual benefits will be paid up to the Termination Date less tax, employee PRSI, USC and any other deductions required by law”.

The termination agreement set out various types of payments to be made on termination. These included payments in excess of €500,000 (“success fees”), on the successful raising of finance by the taxpayer for the employer.

Opposing Arguments

The taxpayer argued that the “success fees” were not contingent in fact on the raising of finance for the company as this work was already substantially completed. The taxpayer argued that the termination agreement in this respect was drafted to give the Board of the company a belief that they were getting most value for money for the large termination payment.

The Revenue Commissioners argued that the “success fees” were intrinsically linked to the performance of the taxpayer’s employment and were not termination-related payment.

Both sides quoted differing Irish and UK cases and indeed the Revenue Taxes and Duties Manual (part 05-09-19) to aid their respective positions.

Determination

The TAC in its determination considered all the facts and information presented, paying particular attention to the following:

  • The termination agreement expressly stated that all payments were conditional upon the taxpayer agreeing to all the terms of the agreement. These terms included the termination of his employment and no future right to sue his employer
  • The termination agreement drew a distinction between the taxpayer’s entitlements in connection with the termination and those from his employment contract
  • The taxpayer’s circumstances within in the company gave the taxpayer no option but to leave the company

The TAC determined that the taxpayer was entitled to succeed in his appeal, that he was overcharged to income tax, and that the Notice of Assessment be reduced accordingly.

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The Pensions Authority Publishes FAQs for Master Trusts

FAQs for Master Trusts

The July 1st deadline is fast approaching for compliance with the new provisions of the Pensions Act, 1990 (as amended) and the Code of Practice for trustees of occupational pension schemes and trust retirement annuity contracts.

In respect of this, the Pensions Authority has issued FAQs for master trusts in response to commonly posed questions on various aspects of the Code and new requirements.

If you require any assistance with your compliance obligations, please contact Tony Cooney, Partner and Head of Risk Consulting.

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