Tax Relief on Third Level Tuition Fees

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Tax-payers who pay third level fees on their own behalf or on behalf of another person will be happy to know that they can claim tax relief.

Tax relief at the standard rate is available in respect of certain third-level tuition fees paid to approved colleges. Revenue publishes a list each year of both private and public colleges approved for tax relief. The relief is given by way of a tax credit equal to the fees paid multiplied by 20% (the standard rate of tax). A credit for third level fees cannot result in an income tax refund.

What is an Approved College?

Revenue have provided guidance on what constitutes an approved college. This is a college or higher education institute in the state which provides approved courses (definition below) or an institute in the UK or another EU Member state which is maintained by recurrent grants from public funds of any EU Member State. The college in either the Irish State, the UK or in an EU Member State must be a duly accredited university or institution of that country.

What is an Approved Course?

Revenue have also provided guidance on what constitutes an approved college course. A full-time or part-time undergraduate course must be at least two academic years. A postgraduate course leading to a postgraduate award based on a thesis or on the results of an examination or both, which is between one to four years and requires the student to have a prior degree or an equivalent qualification.

Who can claim & how much can be claimed?

An individual can only claim the relief if they themselves incurred the cost of the fees. Relief is calculated on aggregated fees paid subject to a maximum of €7,000 per person, per course, per academic year where the first €3,000 (full-time) or €1,500 (part-time) is deducted.  The general effect of this is that claimants who are claiming for more than one student will get full tax relief for 2nd and subsequent children in their claim.

Relief does not extend to payments such as registration fees, administration fees or student accommodation.

If in receipt of any grant or payment towards the fees, this must be deducted from the claim being made when claiming the relief.

How to claim tuition fees?

There is no specific form required to claim relief for tuition fees paid for third level education courses. An individual can use PAYE services in myAccount to apply for relief for tuition fees by completing the Form 12 or if income tax registered can claim this through their yearly tax return.

Should you require any further information or assistance in claiming the tax relief, please contact us.

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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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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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eWorking Tax Relief

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With the recent outbreak of COVID-19, employees throughout the country have been asked to work from home. While these are challenging times for both employers and employees, Revenue offer a measure of relief for employers and employees who are engaged in “eWorking”. Revenue have today confirmed in their eBrief No. 045/20 that the current Government recommendations for employees to work from home as a result of COVID-10 meet the conditions for the “eWorking” tax relief.

Revenue define eWorking as where an employee works:

  • at home on a full or part-time basis
  • part of the time at home and the remainder in the normal place of work

eWorking involves:

  • logging onto a work computer remotely
  • sending and receiving email, data or files remotely
  • developing ideas, products and services remotely.

Employers can make a payment of €3.20 per workday to an employee who is working from home without deducting PAYE, PRSI or USC. This payment is to cover expenses such as heating, electricity and broadband costs. Amounts paid in excess of €3.20 are subject to tax as normal. Records of payments made must be retained by the employer for the purpose of any potential future Revenue compliance intervention.

In addition, where employers provide any of the following equipment to their employees, no benefit-in-kind arises as long as it is primarily for business use:

  • computer, laptop or computer equipment (eg. printers, scanners)
  • software to allow you to work from home
  • telephone, mobile and broadband
  • office furniture.

There is no obligation on employers to make this payment. If employers do not make this payment, employees can instead make a claim online at the end of the year by filing a tax return. Employees are not entitled to claim the round sum of €3.20. They are entitled to claim for vouched expenses that are incurred wholly, exclusively and necessarily in the performance of their duties of the employment. For most office workers this would be their home heating and electricity costs.

Any reimbursement of these expenses that has already been paid by the employer should be deducted from the claim amount. While receipts are not required to file the return, Revenue can request these for a period of up to six years after the year in which the claim relates, so employees should always keep a record of these.

In the case of utility bills, Revenue have advised that they are willing to accept that the average proportion of the house attributable to a home office is 10%. Therefore, for every day an employee works at home as a result of the current Government recommendations, they are able to make a claim for 10% of the utility bills for that day.

It is important to note that outside of the current Government recommendations regarding working from home, the eWorking relief does not apply to workers who bring work home outside of normal working hours, ie. evenings and weekends.

If any further information is required or if you have questions on the above, please don’t hesitate to contact our dedicated COVID-19 Client Response Team or our Tax Department.

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Amendments to Dwelling House Exemption

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There were two amendments made to the Capital Acquisitions Tax Dwelling House Exemption by Finance Act 2017, in such cases where the recipient of the dwelling house is a dependent relative of the disponer.

A ‘dependent relative’ is defined as a relative who is permanently and totally incapacitated due to mental or physical infirmity from maintaining himself or herself, or who is of the age of 65 years or over at the date of gift or inheritance.

The position following the amendments is as follows:

  1. In the case of a gift or an inheritance of a dwelling house taken by a dependent relative, the dwelling house is not required to have been the only or main residence of the disponer.
  2. A gift of a dwelling house that becomes an inheritance as a result of the disponer dying within two years of making the gift can qualify for the dwelling house exemption, where the beneficiary is a dependent relative.

All other provisions to the exemption remain unchanged.

The amendments to the Dwelling House Exemption take effect from the date of passing of the Finance Act 2017, 25 December 2017.

Should you require any further details on the above, please contact a member of our Tax Department.

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Revenue moves to PAYE Modernisation and Real Time Reporting

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What is PAYE Modernisation?

With effect from 1 January 2019, employers will be required to notify Revenue with details of the amount of the emoluments and the tax due for each employee on/ before the payment date on a real time basis. This means that each time an employee receives a payment or benefit from their employer, the PAYE due and remitted to Revenue must be 100% accurate.

This real time reporting (RTR) process abolishes the requirement to file P30’s, P35’s, P45’s, P46’s and employers will no longer have to produce P60’s at the end of each tax year.

A Revenue Payroll Notification (RPN) will replace the current Tax Deduction Card (P2C) and from the 1 January 2019 all employers will be required to:

  • Obtain the most up to date RPN before making any payments to employees
  • Report employee payments (amount of pay, payment date, amount of PAYE, USC and PRSI deductions) to Revenue in real-time, and
  • Reconcile Revenue’s response to the payroll submission

At the end of each month, employers will receive a statement from Revenue with payroll submission totals. Employers must either:

  • Accept the statement as their monthly return, or
  • Correct payroll data if the statement is incorrect

The statement issued by Revenue will be deemed to be the return if no amendments or corrections are made before the return due date i.e. 14 days after the end of the month (23 days for ROS users who file and pay online).

The legislation governing the new regime, provides that a failure by an employer to correctly operate PAYE on a payment/ benefit to an employee, may result in the employer being liable for the payment of income tax on a grossed up basis. In addition, the existing €4,000 penalty for non-operation of PAYE may be enforced more readily.

Employers should take the time now to review their employee data, payroll processes, policies and systems to ensure that they are ready to comply with their RTR requirements on 1 January 2019.

Should you require any further details on PAYE modernisation or real time reporting (RTR), please contact Anne Comber, Manager of Payroll Services.

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Salary Sacrifice Arrangements

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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

If you have any questions about salary sacrifice arrangements or other employee benefit queries, please contact us.

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New tax deduction of up to €5,000 for pre-letting expenses incurred by landlords

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Up to recently, landlords were not entitled to a tax deduction for pre-letting expenses such as mortgage interest, insurance and repairs incurred before the date a property was first let out.

To encourage owners of vacant residential properties to offer those properties for rent, Finance Act 2017 has introduced a new tax deduction for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months or more.

The pre-letting expenses are now given as a deduction against rental income from that property in the first year it is let out.

Conditions

The property in question must have been vacant for a period of at least 12 months prior to its first letting during the period 25 December 2017 and 31 December 2021.

The expenditure must have been incurred in the 12 months before the property was let out and a cap of €5,000 per vacant property applies.

Claw Back

Where the landlord

  • ceases to let the property as residential premises or
  • sells the property

within 4 years of the first letting, this tax deduction will be clawed back in the year the property ceases to be let by the landlord.

If you have any questions about pre-letting expenses or other rented residential property queries, please contact Eddie Murphy, Partner and Head of Tax Services.

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Changes to Benefit-in-Kind: Private Use of Company Vans

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Normally, where a van is available for the private use of an employee as a result of their employment, the employee is chargeable to PAYE, PRSI and USC in respect of that private use. Travel to and from work is considered private use.

The notional pay in which PAYE, PRSI and USC must be applied is determined the ‘cash equivalent’ of the private use of the van. The cash equivalent is 5% of the (OMV) Original Market Value of the vehicle.

No taxable benefit will arise in relation to the use of a company van where all the below conditions are met:

  1. The van is supplied by the employer for the purpose of the employee’s work.
  2. The employee is required to bring the van home after work.
  3. Apart from travelling to and from work, other private use of the van is forbidden by the employer.
  4. During work, the employee spends at least 80% of his or her time away from the premises of the employer to which he or she is attached.

An exemption to the Benefit-in-Kind (BIK) rule takes place from 1 January 2018 and applies to used and new company vans. If an electric van is made available for an employee’s private use, then no taxable benefit will arise in relation to that private use. This only includes vans that derive their motive power solely from electricity.

Definition of a van

A van is a mechanical vehicle which:

  • Is made solely/mainly for the transport of goods or other burden, and
  • Has a roofed area to the rear of the driver’s seat, and
  • Has no side windows or seating fitted in that roofed area.

Where a crew cab or other similar type of vehicle meets all these criteria, it is regarded as a van rather than a car.

Please contact us if you require assistance with the above.

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KEEP – Share Option Scheme

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The Finance Bill 2017 has introduced a tax efficient share option scheme for employees of SMEs. The Finance Bill provides that from 1 January 2018, SMEs in Ireland will be able to grant KEEP (Key Employee Engagement Programme) share options to their employees.

The change in a tax treatment of these share options means an employee may exercise a “qualifying” share option without incurring the liability to income tax, PRSI and USC that he would have under the current rules. Currently, gains arising on the exercise of a share option at a discount on market value are subject to income tax, PRSI and USC. However, KEEP provides that tax on such shares will be deferred until the shares are disposed of and the employee will pay only capital gains tax at 33% on his profit when the shares are sold.

The KEEP Scheme was introduced to facilitate the use of share-based remuneration to attract and retain key employees in unquoted companies.

A number of conditions must be satisfied in order to avail this tax advantageous KEEP Share Option incentive, which are briefly set out below:

Qualifying share options

  • Shares must be new, ordinary fully paid up with no preferential, current or future rights to dividends or assets on a winding up or redemption
  • Share options must have an exercise price that is not less than the market value of the underlying shares on the date the option is granted
  • There must be a written contract in place setting out number and type of shares, option price and exercise period
  • Share options cannot be exercised within 12 months of grant other than in limited circumstances and options cannot be exercised more than 10 years after date of grant
  • Share options must be granted for bona fide commercial purposes the main purpose of which is to recruit or retain employees in the company and not part of a tax avoidance scheme or arrangement.

Qualifying company

  • For the purpose of the relief the company must be a “qualifying” company i.e. must have been Ireland/EEA incorporated and Irish resident or carrying on a business in Ireland through a branch or agency
  • Qualifying company must be carrying on trading activities with the exception of certain excluded activities set out in legislation. The most notable of these excluded activities include professional service companies, companies dealing in or developing land, financial activities and the building and construction industry
  • The company must be unquoted and remain within the definition of an SME i.e. a company with less than 250 employees and with turnover less than €50m or less than €43m balance sheet
  • The company can only have a maximum of €3m value of share options in issue and unexercised at any one time.

Qualifying individual

  • Must be a fulltime employee/director working at least 30 hours per week
  • The employment held must be capable of being held for at least a further 12 months from the date the option is granted
  • The employee must not acquire or be connected to a person who controls more than 15% of the ordinary share capital of the company during option period
  • Market value of all shares which can be granted in any year of assessment to an employee cannot exceed €100k in any one tax year, €250k in any three consecutive years or 50% of the employee’s annual emoluments for the year in which the option is granted.

KEEP will be available for qualifying share options granted between 1 January 2018 and 31 December 2023. As State Aid approval will be required to introduce this scheme, the scheme is subject to a Ministerial Order.

Contact our Tax Department if you have any questions about KEEP share options or other employee share scheme matters.

 

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