Revenue abandon Lenihan’s Professionals’ Tax Plan

Revenue have today abandoned Brian Lenihan’s plans to tax employees on professional subscriptions and membership fees.

In an eBrief unveiled this evening,  Revenue confirm that most professional subscriptions will continue to be exempt from tax under Benefit in Kind rules.

This reverses the former Finance Minister’s announcement in last December’s Budget, that the existing Benefit in Kind exemption on these fees would be scrapped from January 2011. This would have meant that where an employer paid a professional membership or subscription fee on behalf of an employee, the employee would have faced a tax, PRSI and USC charge on the amount paid.

Today, Revenue confirm that the exemption will still apply

• Where the employee is required by law to be a member of a professional body, in order to carry out their work. This includes architects who (under the Building Control Act 2007) must be registered with the Royal Institute of the Architects of Ireland; and Health care professionals who are obliged by the  Health and Social Care professionals Act 2005, to be registered with the Health and Social Care Professionals Council.

• Where the employer requires the employee to hold a practising certificate or licence, eg accountants  working in professional practices.

• In certain other situations, where the employee is a member of a professional body which is relevant to their occupation.  This will cover accountants, engineers and others working in professional capacities in industry.

Revenue stress that the BIK exemption applies only where the professional subscription is relevant to the employee’s work. They cite practical examples to show that the exemption will not apply to a qualified architect who works as a HR manager, or a trained solicitor working as a media presenter.

The Revenue eBrief on this subject outlines 11 practical examples which illustrate how these rules will work in practice. Revenue also stress that Benefit in Kind PAYE, PRSI and USC must be charged on all cases not covered by the exemption.

I think this is a very positive move on Revenue’s part. The original plans to scrap this BIK relief were badly thought out, and a very poor appreciation of the much-vaunted ‘knowledge economy’.  It is nice to see Revenue taking action to restore this relief in most cases.

That said, I wonder would  such a u-turn have been politically possible if Mr. Lenihan was still Minister for Finance. Maybe it is time for his successor Michael Noonan to work alongside  Revenue in reversing some of the anti-business and anti-employment measures introduced in recent Budgets – several of which have proved in the meantime to be counter -productive.

Revenue’s USC Guide is now 38 pages long!

Revenue have now updated their frequently asked questions (FAQ) on the Universal Social Charge (USC) in an attempt to address a seemingly endless sequence of queries that have arisen in relation to this charge

Among the issues now covered by the FAQ are:

• Clarification on the application of the USC to medical card holders.
• How the USC is calculated for self-employed high earners who also have  PAYE income.
• How the USC affects over 65′s with DIRT-exempt interest earnings.

What I find most interesting about the FAQ is the fact that it now extends to a mind-boggling 39 pages!

When former Minister Brian Lenihan introduced the USC in his Budget Speech last December, he said he wanted “to move steadily in the direction of an income tax system that is fair, universal in its application and more easily understood”.

Three months later, with Mr. Lenihan is out of office, the ‘easily understood’ USC is proving so complicated that it now warrants a 38-page Revenue document to explain how it works in practice.  This fact alone would suggest to me that the USC has been an abject failure.

In fact, I believe that much of the current public resentment about the USC stems from the fact that people just don’t understand it.

The new Minister, Michael Noonan, and his officials should scrap the USC, and adjust income tax rates and credits  in order to achieve the same outcome.

Budget 2011 Latest

The 2011 Budget has been announced by Brian Lenihan, Minister for Finance.

The key tax measures announced by the Minister in his Budget Speech are as follows:

• Income Levy & Health Levy to be replaced by a new Universal Social Charge.

• Tax Bands and Credits to be cut by 10%

• Nine tax relief schemes are to be abolished

• Restrictions on the carry forward of property-based capital allowances and Section 23 reliefs.

• Capital Acquisitions Tax tax-free thresholds to be cut by 20%

• D.I.R.T. tax increases to by 2% from 25% to 27%.

• Pension Tax relief employee PRSI & levy relief to be abolished.

• No change to 12.5% Corporation Tax rate.

• Employer PRSI relief on employer Pension contributions to be cut by 50%

• Business Expansion Scheme to be revamped & renamed – a new investment limit of €10 million will apply up to 2013.

• Accelerated Capital Allowances scheme for energy efficient equipment is to be extended.

• Major revamp of Residential Stamp Duty with a 1% flat rate on transactions  up to €1m, 2% thereafter. All current Residential Stamp Duty exemptions & reliefs to be abolished – changes apply from tomorrow 8 December, transitional arrangements for contracts in progress, once they are completed by 30 June 2011.

• Major changes to Relevant Contracts Tax with a cut from 35% to 20% for contractors with an established compliant tax record. Existing rate of 35% will continue to apply to other contractors.

• Travel Tax to be cut to €3 from 1 March 2011, subject to review at end of 2011.

• Excise Duty rises of cent per litre on petrol, 2 cent per litre on auto diesel, applying from midnight tonight.

• Internet betting to be subject to Betting Tax as applies to Betting Shops.

The Minister’s speech is now online.