Budget 2018 – VAT Compensation Scheme for Charities

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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 contact us.

 

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Rent a Room Relief

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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 contact us if you require assistance with the above.

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VAT Treatment of Education and Vocational Training

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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 us if you require assistance with the above.

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Companies Act 2014

The Companies Act 2014 commenced on the 1st June 2015.

The Act consolidates and reforms existing Irish Company Law into a single piece of understandable legislation, bringing changes that will affect every company.

We set out as follows what we consider to be the key features of the Act.

Key Highlights of the Companies Act 2014

The Act consolidates and reforms existing Irish Company Law into a single piece of understandable legislation, bringing changes that will affect every company.

All existing private limited companies will need to make the decision to either convert to a new model Company Limited by Shares (“LTD”) or to a Designated Activity Company (“DAC”). Additionally, it is an opportunity to identify what companies are now dormant and will no longer be required as there may be a possibility of winding some of them up.

There is also a requirement for other company types to take action during the transition period, including a company limited by guarantee and a private unlimited company.

Some of the other key features of the Act that companies should be prepared for are:

  • The requirements regarding director’s loans to and from a company whereby the Act encourages loans to be in writing.
  • Change to the qualifying criteria for a “small company”. Companies Limited by Guarantee, Unlimited Companies and Group Companies will be able to qualify for audit exemption and there will be a new audit exemption available to Dormant Companies.
  • The requirement to prepare a Directors Compliance Statement for certain companies.
  • The requirement to have an Audit Committee for certain companies.
  • The ability to revise defective financial statements.
  • Changes to the approval of financial statements.
  • Director’s duties have become codified under the Act with eight key duties.
  • Directors are now required to make sure that the Company Secretary has the skills or resources necessary to discharge his or her statutory and other duties.

If you have any queries regarding how the Act may impact on your Company or its Directors please contact Emma Dunne, Manager in our Corporate Compliance Department.

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New income tax exemption for Irish resident non-executive directors

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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 us.

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Taxation of Exam Setters, Invigilators and Correctors

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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 us.

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Changes to requirement to submit income tax returns

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A chargeable person is defined as a person who is chargeable to tax on that person’s own account or on another person’s account in respect of a chargeable period.

There is an exception to this definition in which some conditions must be met. It is these conditions that from today, 19 May 2017, Revenue have amended and the amendments as outlined below will be applicable from 2016 onwards.

The exception to a “chargeable person” definition is that an individual is not a chargeable person for a tax year where, for that year, they were in receipt of:

  • PAYE income only, or
  • PAYE income and non-PAYE income (rent or investment income…etc) where the total non-PAYE income assessable to tax-
    • does not exceed €5,000 (this was previously €3,174 for 2015 and previous years), and
    • is taken into account in determining the individual’s tax credits and standard rate cut-off point or is taxed at source under section 261 TCA 1997, i.e. deposit interest subject to D.I.R.T.

Revenue may take account of an individual’s gross income from non-PAYE sources in considering whether non-PAYE income should be taxed under the PAYE system.

In this regard, an individual whose gross non-PAYE income from all sources exceeds €30,000 (this was previously €50,000 for 2015 and previous years) is regarded as a chargeable person notwithstanding that his or her assessable income from non-PAYE sources does not exceed €5,000 (this was previously €3,174 for 2015 and previous years).

The exception to this rule is that this does not apply to directors of trading companies or to their jointly assessed spouses or civil partners.

In the case of married couples or civil partners who are jointly assessed, the income thresholds are applied to the joint non-PAYE income of both spouses or civil partners. In the case of married couples or civil partners who opt for separate assessment or single treatment, the thresholds are applied separately to each spouse or civil partner.

Note: An individual whose non-PAYE income (rent or investment income…etc) is nil due to an allowance which reduces his or her taxable profits to zero is a chargeable person, as nil profits cannot be taxed through the PAYE system.

For more information, please contact us.

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Tax Relief for Assistance Dogs

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Tax relief at 20% has now been made available by the Revenue Commissioners in respect of Assistance Dogs which are supplied and trained by an organisation accredited by Assistance Dogs Europe (ADEu). Assistance Dogs Europe (ADEu) are the European chapter of Assistance Dogs International (ADI), a worldwide coalition of non-profit programmes that train and place Assistance Dogs. The tax relief may be claimed in the following two situations:

Blind Person’s Guide Dog

Where a blind person maintains a trained guide dog, supplied by an organisation accredited by the Irish Guide Dog Association, an agreed sum of €825 may be claimed as a health expense by that person (i.e. total tax credit of €165).

For an individual to be eligible to claim this relief they must be entitled to the Blind Person’s Tax Credit and provide written confirmation from the Irish Guide Dogs Association that he/she is the registered owner of a trained dog.

A letter from the organisation which supplied the dogs confirming that the claimant is the registered owner of a guide dog should be submitted with the first claim and the relief will be granted for each year thereafter during which the person maintains the dog.

Assistance Dogs for Disabled Individuals including Children with Autism

If a person maintains a trained Assistance Dog, a sum of €825 may be claimed as a health expense by that person (i.e. total tax credit of €165).

To qualify for this relief an individual must prove that he/ she maintains a trained dog which has been supplied by an organisation accredited by the Assistance Dogs Europe. A statement from the organisation which supplied the dog will be sufficient for the first claim and the relief may be granted each year thereafter during which the individual maintains the dog.

Assistance dogs are trained to meet specific needs of their owner which can include the following:

  • Help their owner stand and walk by providing a stable base and forward motion
  • Provide warning of an approaching seizure or a fall in blood sugar levels, to allow the owner to take preventive action
  • Alert a deaf owner to a variety of sounds
  • Help a person dress/undress
  • Bark to raise the alarm in an emergency e.g. in the case of a fall/seizure
  • Retrieve items such as telephone/keys/a bag
  • Help the person/child to get out and about more easily and have a calming effect, especially for children
  • Detect danger or certain medical symptoms that the person may develop and give warning

For more information on the new tax relief available for Assistance Dogs, please contact Siobhán O’Hea, Partner in our Tax Services.

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