Budget 2016 was the final in a series of five Budgets during the lifetime of the thirty-first Dáil. As with all Budgets, the Minister was faced with demands well in excess of the resources available. In reality, the Minister needed to deliver a Budget at satisfying three requirements, as follows:-

• the need to demonstrate a degree of restraint so as to satisfy our EU partners and adhere to the requirements of the EU fiscal agreements;
• the numerous demands on the domestic front (global competitiveness, improved regime for entrepreneurs, parity of treatment for self-employed, and demands for greater social protections, etc.) against a backdrop of a perceived return to prosperity;
• the political reality of a pending General Election.

Overall, the Minister did a reasonably good job in satisfying all requirements. He was at pains to stressed the positive macro-economic position and focussed on a projected growth rate of 6.2% for 2015, 4.3% for 2016, and 3% per annum thereafter. He referred to projected 97% and 93% debt to GDP ratio at 31 December 2015, and at 31 December 2016, respectively, and a longer-term projection of 80% by 31 December 2021. Furthermore, the Minister indicated that the proceeds from the disposal of shareholdings in AIB, Bank of Ireland, and PTSB, would further enhance these figures. These statistics should satisfy our EU partners as they demonstrate a trend towards a 60% debt to GDP ratio as enshrined in the fiscal treaties.

The Minister announced changes to improve the attractiveness of Ireland as an international business location through the announcement of the Knowledge Development Box (KDB). He also announced a modest move towards establishing parity of treatment between employed and self-employed individuals through the announcement of a new Earned Income Credit, with the promise of further parity measures in future Budgets. For the entrepreneur, an enhanced capital gains tax regime was announced, while on the social inclusion side, expenditures of €750m were announced.

There was something too in the Budget for the so-called ‘squeezed middle’ with the announcement of reductions of up to 1.5% in the rate of USC, with this reduction aimed primarily at individuals earning less than €70k per annum. With an eye to the future, the Minister announced his intent, subject to resource availability, to the abolition of the USC over the course of the next Dáil. The Government will no doubt hope that these measures will be remembered when the taxpayer next visits the ballot box.

As ever, the detail of all the Budget measures will be set out in the Finance Bill, due or publication on 22 October next.

Indviduals

The following package of tax measures was introduced, aimed at reducing the burden for individuals, with a particular emphasis on the largest cohort of income tax payers comprising the so-called ‘squeezed middle’:-

1. The changes to the USC rates and bands are as follows:

The exemption limit below which no USC arises is to increase from €12,012 in 2015 to €13,000 in 2016.

In terms of an individual earning €70,000, the USC change will give rise to an annual saving of €902 in 2016.

Disappointingly, there was no reduction in the 8% rate of USC applying to incomes in excess of €70,045, nor in the 11% rate of USC applying to certain self-employed individual with income in excess of €100k. This penal rate of USC for certain self-employed individuals represents the biggest disparity between the treatment of employees and self-employed individuals, and is difficult to justify in the context of the Minister’s stated intention of fostering a culture of entrepreneurship.

Finally, it is perhaps worrying that the charges will take 42,500 earners out of the tax net – a clear narrowing of the tax base. This was previously identified as a significant factor in the collapse of tax revenues in 2008.

2. The Minister announced the introduction of an Earned Income Credit of €550 which, broadly speaking, is to apply to individuals not qualifying for the PAYE credit. While this is to be welcomed, it is to be hoped that the level of the earned income credit will steadily increase to the point where it equates to the PAYE credit, which currently stands at €1,650 per annum.

3. The Minister announced an increase in the Home Carer tax credit from €810 to €1,000 per annum. The Home Carer income threshold will also be increased from €5,080 to €7,200 per annum. This measure is to be welcomed in the context of the very valuable services provided by carers and represents a modest cost to the Exchequer in comparison to the cost that would arise in the absence of their commitment.

4. The Minister announced a minor change to the regime of employee PRSI. This relief is aimed at reducing the impact of stepped increases in PRSI and applies to annual income levels of between €18,305 and €22,048.

5. The Minister announced an extension of the Home Renovation Incentive (HRI) until 31 December 2016. The HRI was initially introduced to encourage individuals to spend money on the renovation of their homes and the relief was granted in the form of a tax credit equal to 13.5% of the value of the work undertaken, subject to a limit of €30,000. The relief was later extended to landlords. The extension of the relief until 2016 is to be welcomed.

6. There had been much pre-Budget speculation in relation to a relaxation of the Capital Acquisitions Tax (CAT) burden. The impact of a 65% increase in the rate of CAT, coupled with a c. 55% reduction in thresholds during the austerity years, had the effect of bringing the beneficiaries of very modest estates within the scope of CAT. Today, the Minister has announced an increase in the parent to child tax-free threshold of €55,000, bringing the tax-free threshold to €280,000.

While any increase in the threshold is to be welcomed, the change is unlikely to significantly improve the genuinely difficult financial position in which the beneficiaries of modest estates can find themselves. This is evidenced by the fact that the Government’s own estimate is that the annual cost of this measure is €33M. Furthermore, it is disappointing that no specific provision was introduced to deal specifically with the transfer of the family home. It is to be hoped that this is an area that will be revisited and substantially improved in the coming years.

7. As had been well signposted, the revaluation date for the purposes of Local Property Tax (LPT) will be rescheduled from 2016 to 2019. This is a welcome development, particularly for those living in the larger urban areas, as it means that the impact of substantial growth in property values over the last three years will not be reflected in increased LPT charges for another four years.

Corporates

An overriding theme of the Minister’s speech was the aim of protecting Ireland’s competitiveness and increasing activity in innovation. These objectives are particularly important in light of international tax developments and measures being adopted by the UK in terms of reducing corporate tax rates and an introduction of key incentives.

Measures which will assist indigenous Irish business include the following:

• a commitment to extend the three-year Corporation Tax Relief for start-up companies to the end of 2018;
• availability of Earned Income Credit for owner-managers of €550;
• a commitment to retain the 9% VAT rate for the hospitality sector for another year;
• an increase in the productivity levels for micro-breweries, while still qualifying for Excise Relief;
• a reduction in fees charged to retailers for accepting payments by debit card;
• a simplification of the commercial motor tax bands, coupled with an overall reduction in the level of motor tax for commercial vehicles.

Knowledge Development Box

The Minister announced last year, his intention to introduce a Knowledge Development Box (KDB) for Ireland with a public consultation having taken place in the intervening period. The Finance Bill will contain detailed provisions relating to the KDB which will essentially provide for a special 6.25% corporate tax rate (i.e. 50% of the mainstream corporate tax rate of 12.5%) on profits generated from R & D and intellectual property. The detail will be set out in the Finance Bill to be published on 22 October next.

However, the legislation will ensure that the incentive is compliant with OECD guidelines.

This measure, together with the existing R & D Credit Relief is a key measure in maintaining Ireland’s attractiveness as a location for R & D activity.

It is anticipated that the main qualifying assets for the special rate will be patents and copyright of software. It is further envisaged that the definition of qualifying R & D expenditure will broadly be the same as the definition currently used for the R & D tax credit, with the following exceptions:-

• expenditure on R & D outsourced to related parties, the cost of acquired IP and expenditure on buildings will be excluded;
• expenditure on R & D outsourced to unrelated parties would be fully included.

Travel & Subsistence Expenses

It is hoped that following on from the recent consultation in relation to the tax treatment of Travel & Subsistence payments that some changes will be included in the Finance Bill in this regard.

The commitment to provide clarity in relation to the issue of expenses to employees who are, for example, based at home, or for travel expenses incurred by non-executive directors is welcome as this can prove to be a problematic area due to changes in work practices over the years. It is interesting to note that the UK Government has launched a discussion paper on proposed reforms of the existing rules in the UK in relation to travel and subsistence expenses which proposes a revision of the concepts of ‘temporary’ and ‘permanent’ workplaces by the introduction of a ‘base’ concept. An employee’s base would be where they spend more than a specified percentage of their working time. It is hoped that new guidelines introduced will provide for clarity and simplicity.

International Business

As expected, the Budget sets out some measures aimed at adopting the Base Erosion and Profit Shifting (BEPS) policies published by the OECD last week. The Minister has announced that the Finance Bill will include provision for the introduction of Country-by-Country reporting to tax authorities. Essentially, multinational companies with consolidated revenues exceeding €750M will be required to submit a Country-by-Country report to their parent company. This annual report will provide details including revenues, profits, taxes paid and accrued, number of employees, capital retained earnings and tangible assets in each jurisdiction in which they do business. In terms of timing, the reporting applies to accounting periods commencing on or after 1 January 2016, with reports being submitted to the ‘home country’ within twelve months of the accounting year-end.

Investors

The following package of measures was announced by the Minister:-

1. The Employment and Investment Incentive Scheme (EIIS) was introduced some years ago as a replacement for the Business Expansion Scheme (BES). Since the outset, uptake has been poor due to certain unattractive elements of the relief package, and also due to the lack of investment appetite. The Minister has announced changes to the EIIS, effective 14 October 2015. Firstly, the doubling of the amount a company can raise annually from €2.5M to €5M, subject to a lifetime maximum of €15M (previously €10M) is welcome. Secondly, the EIIS has been extended to include investments in the extension, management and operation of Nursing Homes. Finally, one of the previous limitations of the relief was its non-application in certain geographical locations. This geographical location restriction has now been removed in respect of all otherwise eligible SMEs. These are welcome changes which will, hopefully, improve uptake. However, it is regrettable that the current system of granting income tax relief on a phased basis has not been replaced by a simple full year 1 benefit.

2. Earlier this year, the Department of Finance carried out a public consultation process in relation to developing a focussed package of tax measures for entrepreneurs. Following on from this process, the Minister has announced a reduced rate of CGT (20% rather than 33%) for individuals on the sale of part or all of their businesses. The relief will only apply in respect of chargeable gains up to a limit of €1M. This measure is to be welcomed as it does provide an immediate tax benefit to entrepreneurs. It also represents a significant improvement on a relief introduced in 2013 which provided relief from CGT on a very restricted basis. However, the proposed relief falls well short of the corresponding UK relief which provides for a 10% rate of CGT, with a limit of STG £10M applying. While the relief introduced today is modest in comparison with the corresponding UK provision, nevertheless, it is welcome and should be seen as the first step on the journey towards a more comprehensive relief.

3. The Minister announced that he intends extending the three-year corporation tax exemption that currently applies for certain start-up companies to 31 December 2018. Interestingly, the Minister commented that the availability of this relief cost the Exchequer €4.9M in 2013 but assisted in underpinning 11,750 jobs, thereby representing an average cost per job of €417. Given the substantial spin-off benefits for the economy of every reduction in the Live Register, the related cost is modest and demonstrates the value of targeted reliefs aimed at the entrepreneurial sector.

4. Finally, as a welcome development, the Minister announced that the annual pension levy of 0.15% of the value of private pension assets is to be abolished with effect from 1 January 2016. The pension levy was introduced some years ago as part of the package of austerity measures and generated much debate, given that it was targeted solely at private sector pension savings. Its imminent abolition is to be welcomed.

Farming

Finance Act 2015 implemented a number of measures set out in the report of the Agri-Taxation Working Group in terms of increasing land mobility and incentivising the transfer of farms to younger farmers. These measures included exemption from income tax in respect of rent from leased land, and amendments to CAT Agricultural Relief and CGT Retirement Relief. The Minister enhances these measures in this year’s budget by providing for a mechanism for two people, e.g. a father and son, to enter into a partnership arrangement which would provide for outright transfer of the farm to the younger farmer at the end of a specified period which is to not to exceed ten years. This mechanism would be implemented in tandem with an income tax credit of up to €5K per annum to be allocated on a pro rata basis to the partners in the partnership. The attractiveness of this proposal is to allow continued participation by the existing farmer while, at the same time, providing a transfer mechanism within a defined timeframe.

We await the Finance Bill for the detail of the provisions. The existing Stock Relief provisions and stamp duty exemption for young trained farmers is being extended to the end of 2018. In addition, farmers will benefit from the additional Earned Income credit of €500 being introduced for self-employed individuals.

Finally, woodlands’ income is no longer to be regarded as a ‘specified relief’ for the purposes of the Higher Earner Restriction. The practical impact of this is that the level of tax-free woodlands’ income (together with any other specified reliefs) will no longer be capped at €80,000 per annum per individual.

You make a self-assessment when you file your annual tax return by completing the self-assessment panel in that form.   You must complete this panel in full and make the declaration at the end of the panel before submitting the form to Revenue.

Each self-assessment must include:

1. the amount of the income, profits or gains for the period;
2. the amount of tax chargeable for the period;
3. the amount of tax payable for the period;
4. the amount of any late filing surcharge;
5. the balance of tax payable after taking into account any tax paid direct to the Collector General.

In addition to these amounts, an income tax self-assessment should include a breakdown of the amount of tax chargeable showing the amount of income tax, USC, and PRSI due.   No appeal can be made against your self-assessment or an amended self-assessment made by you.

The ROS Form 11 will provide a calculation of your tax liability.  You can agree with these figures to make your self-assessment.   In the event that the tax calculation provided by Revenue is incorrect and you have made a self-assessment in accordance with that calculation (and have paid the tax in accordance with that calculation):

1. any additional tax due by reason of Revenue’s tax calculation being incorrect shall be due and payable not later than one month after the date of the amendment of the self- assessment; and
2. interest and penalties will not apply to the extent that you have included a self-assessment that was in accordance with Revenue’s calculation.

Where you self-assess, Revenue will acknowledge receipt of your self-assessment, but no longer issue a notice of assessment instead you receive a self-assessment letter.   It is important to note that you must include details of tax already paid (preliminary tax) when completing your self-assessment.

If you do not include the details of the tax already paid to the Collector General, it will be necessary for Revenue to issue a notice of assessment to bring the correct amount of tax already paid into account.   As a result you will not be regarded as having self-assessed correctly and Revenue may impose a penalty of €250.

If you require assistance in completing your tax return, please do not hesitate to contact us.

The focus will be on compliance risks including the following;

•  Proper operation of the eRCT system generally, to include;                                                   – Ensuring the principal contractors are fully reporting payments through the eRCT system                                                                                                               – Principal contractors reporting “Unknown” sub-contractors
• Reconciling reported activity under the Home Renovation Incentive with VAT returns file;
• Reconciling reported activity under the eRCT system, PAYE / PRSI returns, VAT returns and examining profit margins;
• Proper operations of the VAT reverse charge;
• Proper operation of PAYE / PRSI obligations;
• Ensuring employees are not misclassified as subcontractors;
• Ensuring obligations of non-resident principals / sub-contractors are being fully met.

Given this notification from Revenue it is strongly recommended that anyone operating in the construction sector would perform a self-review of their tax affairs and address any irregularities before any Revenue compliance intervention begins.

If you require any assistance in this area or require more information in relation to the areas on which Revenue are likely to focus, please do not hesitate to contact us

With effect from 1 January 2015, any unused capital allowances which are carried forward beyond the tax life of the building or structure to which they relate are immediately lost.

Essentially, this means that if the tax life has ended at any time up to the end of 2014, then the unused allowances are lost in 2015. On the other hand, if the tax life is due to end later than 2014 then the allowances are lost in the year following that in which the tax life of the building expires.

A key point to note is that the allowances are terminated by reference to the end of the “tax life” of the property and not by reference to the period over which allowances are available. In many instances, the “tax life” will extend far beyond the period over which allowances are available, as follows

It should be noted that any unused capital allowances carried forward purely by virtue of the application of the high earners’ restriction to the individuals concerned are not within the scope of these provisions and can therefore continue to be carried forward indefinitely. In addition these provisions do not apply to ‘normal’ industrial buildings allowances e.g. factories or section 23 reliefs.

The application of these provisions can be extremely difficult the rules in relation to the make-up of carried forward reliefs and the order of offset can be complex.  It is strongly recommended that individuals who may have a claim to such capital allowances should carry out a detailed review of all capital allowances carried forward with a view to determining the quantum that may be affected by these “guillotine” provisions.

Revenue have issued an e-brief recently to remind taxpayers and agents that when preparing capital allowance computations, in order to complete their income tax return, that they should adjust the 2015 carry forward amount, for inclusion in their subsequent return, to take account of any building or structure whose “tax life” has ended in 2014 or prior to this. This will ensure that the amount brought forward for the purposes of the capital allowances computation for 2015 will be correct.

If we take an example of an individual who invested in a nursing home and an urban renewal programme in 2005. The individual has total capital allowances of €20k forward at 31 December 2014 attributable evenly to both investments.  The allowances relating to the nursing home investment have expired and will not be available in future periods but the urban renewal allowances continue to be available until 2030 due to the longer tax life. The adjusted allowance figure for carry forward to 2015 is €10k

If you require further information on the impact of these provisions for you, please do not hesitate to contact us. 

The iXBRL requirement applies to all companies in respect of tax returns filed on or after 1 October 2014, relating to accounting periods ending on or after 31 December 2013 unless the company meets all three of the following exemption criteria;

1. The Balance Sheet total of the company does not exceed €4.4 million;
2. The turnover of the company does not exceed €8.8 million;
3. The average number of employees does not exceed 50.

Revenue have confirmed that up to 31 October 2015 the balance sheet total of a company will be based on the “total net assets” of the company. This is the total assets of the company less the company liabilities.

However, after 31 October 2015 the balance sheet total must be calculated based on the “Aggregate of Assets without deduction of liabilities”. This amounts to the total assets of the company without deduction of liabilities.

Therefore, this new method of calculating the balance sheet total of the company is likely to bring many more entities within the requirement to file iXBRL financial statements where the balance sheet total under the new calculation method exceeds the €4.4million threshold.

A recent publication from Revenue in respect of iXBRL has also noted the following;

1. An additional 21 days after the corporation tax return filing dates is applied to the filing of iXBRL statements;
2. Where financial statements are prepared for a long accounting period (in excess of 12 months) the iXBRL financial statements are only required to be filed with the CT1 for the latter period;
3. From 1 December 2015 a fully tagged detailed Trading & Profit & Loss Account must be included with every iXBRL return filed.

If you were unaware of these upcoming requirements and wish to get a greater understanding of what is involved or the steps you need to take to mitigate risk of non – compliance, please do not hesitate to contact us

To read Mary Gara’s article in Irish Tax Review  ‘Click here’

‘This article is copyright of the Irish Tax Institute and first appeared in the Irish Tax Review, Vol. 25, No. 3.’

Gara Ryan are delighted to have sponsored this very worthwhile charity event.

Since its opening in 2004, the Ronald McDonald House has been providing a home-away-from-home for families of seriously ill children who are hospitalised or undergoing extended treatment at Our Lady’s Children’s Hospital in Dublin.  To date, over 1,800 families from all over Ireland have stayed there – some for just a few nights, others for longer periods.

Conor Coughlan (front right), with from left, Isaac Boss, Sean O'Brien, Gordon d'Arcy. Back row: Jamie Hagen and Shane Jennings