Tag Archive for: Tax tip

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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Capital Acquisitions Tax (CAT) Strategy

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Revenue has published a new Capital Acquisitions Tax (CAT) Strategy for 2018 to 2020.

We welcome the publication of the CAT strategy which aims to improve the management of CAT by improving service to support compliance and minimise interaction with compliant tax-payers. The improved services will help to increase customer awareness of Gift Tax and Inheritance Tax obligations.

All tax-payers should be aware of possible CAT liabilities and what they can do to reduce those costs when carrying out Estate planning.

Should you require any further information please contact us.

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VAT and Payment Services

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The Revenue Commissioners have issued guidance which sets out the VAT treatment of transactions concerning the transfer of money.

Guiding Principles

Transactions are defined according to the purpose and nature of the service provided and not according to the person supplying or receiving the service.

The principles that need to be considered when determining if a service qualifies for exemption are as follows:

  1. Exemption can only relate to transactions which form a distinct whole, fulfilling in effect the specific, essential functions of such transfers.
  1. An exempted service must be distinguished from the supply of a mere physical or technical service.
  1. A transfer is a transaction consisting in the execution of an order for the transfer of a sum of money from one bank account to another.
  1. A transfer is characterised by the fact that it involves a change in the legal and financial relationship existing, on the one hand, between the person giving the order and the recipient and, on the other, between those parties and their respective banks; and in some cases, between those banks.
  1. The transaction which produces the change is solely the transfer of funds between accounts, irrespective of its cause.
  1. The mere fact that a service is essential for completing an exempt transaction does not warrant the conclusion that the service is exempt

Status of the Supplier

When considering whether a service qualifies for exemption, the nature of the person supplying the service is not relevant (i.e. the supplier does not have to be a regulated financial institution). It is the nature of the service being supplied that needs to be considered.

Means by which the service is supplied

The means by which the service is supplied e.g. electronically or manually is not a decisive factor when considering the application of the exemption. Again it is the precise nature of the service being supplied that will determine the VAT treatment.

Physical or Technical Services

Where a supplier provides the infrastructure that facilitates the transfer of funds, those supplies cannot qualify for VAT exemption unless they themselves fulfill the specific and essential function of a transfer, in particular creating the change in the financial and legal relationship between the parties.

Charges for Using Certain Payment Methods

Where a supplier supplies goods or services to a customer and charges an additional fee to accept payment via a specified method, e.g. credit card, this charge is not independent from the supply of goods or services and cannot qualify for VAT exemption.

The receipt of a payment and the handling of that payment are intrinsically linked to any supply of goods or services provided for consideration. It is inherent in such a supply that the provider should seek payment and make appropriate efforts to ensure that the customer can make effective payment in consideration for the goods or services supplied.

Please contact us if you require assistance with the above.

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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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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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