Finance Bill 2012: Blaas, Bagels, Cricket & Tax Scams

Finance Minister Michael Noonan has today introduced the 2012 Finance Bill.  Its highlights include:  VAT cuts on bagels, blaas and other specialist bread products; tax relief for professional cricketers; new Revenue powers to combat serious tax scams, and a new self-assessment system for Stamp Duty.

The Bill gives effect to the changes set out in the Budget announced last December, and also contains a raft of technical housekeeping measures, in addition to the following key points:

INCOME TAX

Tax Relief on Third Level Fees

The tax relief on third level tuition fees is being curbed.  For full-time students, the first €2,250 in annual fees will not qualify for tax relief. For part-time students, the first €1,125 in fees is ineligible for relief.

Civil Partnerships

The Bill proposes two notable changes to the tax regime for civil partnerships. Legally binding maintenance agreements made on the breakup of a civil partnership will now be treated for tax purposes in the same way as those for married couples.

The second change will allow that following the breakdown of a civil partnership, where there is a  legally binding agreement, and the parties are still living under the same roof, they will enjoy  the same tax treatment as formerly married couples in similar circumstances.

Revenue Job Assist

Individuals who are signing for PRSI credits with the Department of Social Protection can now qualify for the Revenue Job Assist scheme. This scheme allows an individual to claim a partial tax deduction in each of the 3 tax years after they take up employment having been unemployed for at least 12 months.

Share-Based Remuneration

The Bill provides for the following changes to share-based remuneration: mainly affecting the I.T. sector.

• Where employees and directors have deferred the payment of income tax on share option gains due to a drop in the share price, half of any after-tax gain on the sale of the shares must now go to pay down the outstanding income tax liability until that liability has been cleared.

• Income levy and USC refunds may apply where shares are forfeited.

• An employer can now withhold or sell sufficient shares awarded to employees, to fund the income tax charge on that award of shares, before transferring the remainder  to the employee. This applies only where the employee fails to provide the employer with sufficient cash to pay the income tax charge.

Sportspersons’ tax relief

Professional cricketers can now on retirement avail of the sportspersons’ tax relief already enjoyed by other professional athletes. They can also qualify for a higher rate of relief on pension contributions.

CAPITAL ACQUISITIONS TAX (CAT)

The Group B (uncle, aunt, sibling, niece, nephew etc) CAT tax-free threshold is rounded up to €33,500 and the Group C (non-relatives) threshold rises to €16,750 with effect from Budget Day 7 December 2011

The annual pay and file date for CAT on Gifts & Inheritances is being moved back from 30 September to 31 October.

CAT Agricultural Relief

The three-year residence condition for CAT agricultural relief is being removed. This is in order to comply with EU Treaty provisions on freedom of movement of persons and capital.

A loan against a principal private residence will only qualify as a deduction for CAT agricultural relief purposes where the loan proceeds were used to purchase, repair or improve that residence.

Heritage Properties

The exemption from CAT on the gift or inheritance of heritage properties sold to State bodies will now include properties sold to cultural institutions funded by the Department of Arts, Heritage and the Gaeltacht.

STAMP DUTY

A self-assessment system will now apply to Stamp Duty is to be put on a self-assessment footing, in common with other taxes.

• A 30-day time limit will now apply to the stamping of a transaction.
• Revenue will have power to make Stamp Duty assessments, and new audit and appeal procedures will be introduced.
• The existing adjudication procedure will be abolished;

PENSION TAXATION

A number of changes are being made to relieve the often penal taxation that arises where the capital value of an individual’s pension benefits at retirement exceed €2.3 million (or a higher Personal Fund Threshold –PFT – if applicable).

RELEVANT CONTRACTS TAX

This Finance Bill gives legislative effect to the implementation of the new electronic Relevant Contract Tax (e-RCT) system from 1  January 2012.

REVENUE POWERS

The current general six-year requirement to keep business records will now also apply to liquidated and dissolved companies.

Payment Transactions Returns

Credit & Debit card merchant services and third party payment processors will now be required to make regular automatic returns to Revenue of all funds credited to traders. This is in response  to a suspicion that “some businesses may be underreporting card payment transactions.”

The penalties for deliberately or carelessly making incorrect income tax returns will now also apply to Domicile Levy and the Universal Social Charge returns

Tax Debts

A tax debtor may now be required to complete a statutory statement of affairs to demonstrate their ability or otherwise to pay debts to Revenue. Failure to do so will now be a Revenue offence. This is designed to stymie efforts by some debtors to hide assets in negotiations with Revenue.

Serious Tax Criminality

The Bill proposes extended Revenue powers to counter tax evasion and the black economy, focusing on serious Revenue offences. This includes oil laundering and cigarette smuggling, Relevant Contracts Tax scams, and major cross-border VAT and other frauds.

VAT

VAT on Bread

The range of breads eligible for Zero rate VAT is being extended to include loaves, rolls, batch bread, bagels, baps, blaas, burger buns, finger rolls, wraps, naan breads and pitta bread.

Other bread products which are reckoned to have “excessively high levels of sugar and fat” will remain liable for VAT at either the 13.5% or 23% rate. These include croissants, brioche and Danish pastries

VAT on Property

A number of minor changes are being made to the VAT rules regarding property.

• A reverse charge will now apply where construction services are supplied between connected persons.

•  Under the capital goods scheme, the adjustment period for ‘transitional properties’ will not revert to 20 years “where development has taken place and where that development constitutes a ‘refurbishment’ for VAT purposes”.

iXBRL FINANCIAL STATEMENTS

Corporation Tax returns can now include iXBRL (inline eXtensible Business Reporting Language) accounts.

The full text of the Bill is online, while the Dept of Finance Explanatory Memorandum and List of Items explain the changes in (relatively) plain English.

Less Frequent Business Tax Returns on the way

Revenue have this week announced that more small businesses will be qualify for reduced frequency VAT, PAYE/PRSI, & RCT tax returns and payments in 2012.

With effect from 1 January 2012, businesses whose annual VAT bills are less than €3,000 will only be required to file VAT returns and pay VAT liabilities every 6 months. If their annual VAT bills are between €3,000 and €14,400, they will file and pay every 4 months.

In addition, employers and contractors whose annual PAYE/PRSI or RCT liabilities are less than €28,800 will be eligible to make quarterly P30 & RCT30 returns and payments.

Revenue state that this will mean improved cashflow and less form-filling for eligible businesses.

They will soon be writing to businesses that they believe to be eligible for these new arrangement. If you don’t hear from them, but feel that your business should be eligible, (for example due to falling turnover), you should get in touch with Revenue before the end of December.

Today is P35 & RCT35 Deadline Day

Today, 15 February, is deadline day for 2010 annual returns by employers and  construction, forestry and meat processing contractors.

15 February is the annual deadline for filing of paper-format P35 returns with Revenue. A later deadline of 23 February applies to P35 returns filed online, where the liability is also paid online using the  ROS system.  The Revenue.ie site contains some useful guidance in relation to P35 returns.

This year’s P35 deadline is also the final opportunity for employers to make Self Corrections to PAYE underpayments for 2009 under Revenue’s Self Correction rules.  This is especially relevant in the case of locum doctors engaged to work in GP practices and possible exposure to PAYE/PRSI arrears if  they are subsequently deemed to be working as employees.

Revenue have previously warned affected General Practitioners to regularise their 2009 PAYE/PRSI position, if appropriate, by today, 15 February, otherwise they may face penalties for non-compliance.  See this recent Revenue eBrief for more on this topic.   The ‘if appropriate’ qualification is important as in many instances the question of GP’s liability to PAYE/PRSI is not at all clear-cut.

Finally, today is also the deadline for principal contractors to file 2010 annual RCT35 subcontractors returns with Revenue.  A similar deadline extension to 23 February applies also to the RCT35 return.  Again this later deadline applies only where both the return and the RCT liability payment  are submitted to Revenue using  ROS.  A recent Revenue eBrief stresses the importance to contractors of filing the RCT35 return on time.

Contractors – Renew 2011 Payments Cards Now!

Contractors in the construction, forestry and meat processing trades must observe Relevant Contracts Tax (RCT) on payments to subcontractors.  If a contractor holds an RCT Payments Card for a subcontractor, they can make payments to the subcontractor without deducting tax, otherwise 35% tax must be deducted on all payments, and paid over to Revenue.

Payments Cards are renewable annually and contractors who currently hold 2010 Payments Cards for subcontractors, should now apply to Revenue as soon as possible to renew all such Payment Cards for 2011.

All payments to subcontractors must be paid net of 35%  unless the contractor making the payment holds a current RCT Payments Card for the subcontractor. This applies even if the subcontractor holds an up-to-date C2 certificate.

All 2010 Payments Cards expire on 31 December 2010 and it is up to the contractor to apply for new payments cards for 2011.

Form RCT46A can be used to renew a 2010 Payments Card for an ongoing contract, while Form RCT46 may be used to apply for a Payments Card for a new subcontractor.

There are heavy penalties for non-operation of RCT on subcontractor payments, and failure to observe RCT rules can cost contractors dearly.  Therefore, contractors should take extreme care to ensure that they are in full compliance at all times.

Budget 2011 – Business Measures

The Budget includes a range of measures affecting the Business sector including  changes to Relevant Contracts Tax, a revamp of the Business Expansion Scheme and the scrapping of several business tax reliefs.

Relevant Contracts Tax

The Relevant Contracts Tax (RCT) system, which applies to construction, forestry and meat processing contractors, is being reformed.

The current RCT withholding tax rate of 35% is being replaced by a two-tier system, in an effort to combat the black economy.

• A lower rate of 20% will apply to subcontractors ‘registered for tax with an established compliance record’

• The existing rate of 35% will apply to ‘subcontractors not registered for tax’.

The RCT monthly repayment system is being abolished, and will be replaced by an offset system.

In addition, Principal contractors will be subject to a stronger RCT reporting system in order to ‘enhance compliance and reduce the opportunities for fraud’.

Employment and Investment Incentive

The Business Expansion Scheme is to be revamped and renamed as the ‘Employment and Investment Incentive’, with a big increase in the amount that companies can raise under the Scheme.

Relief for Energy Efficiency Measures

A new scheme is to be introduced to encourage people to make their homes more energy efficient. Tax relief will apply to expenditure up to €10,000. This will be allowed at the standard rate of income tax.

Tax Reliefs Abolished

The following Tax Reliefs will be abolished, with effect from 1 January 2011 unless otherwise stated.

• Tax Exemption for Patent Royalties

• Tax relief on Loans to invest in certain companies.

• Accelerated capital allowances for Farm Pollution Control.

• Tax exemption from BIK for Employer Provided Childcare.

• Abolition of tax relief on subscriptions to professional bodies.

• Capital expenditure on Mining plant & machinery and plant

• Approved Share Options Scheme (from 24 November 2010)

• Tax relief for new shares purchased by employees.

• Tax exemption relating to National Co-Operative Farm Relief Services Ltd.

Revenue extend RCT Errors Grace Period

The Revenue have announced a 1-month extension to the limited “grace period” that they allow for disclosure and correction of RCT errors made in 2009.

The concession is now available until 15 April, with a further extension to 23 April for taxpayers who filed their 2009 RCT35 return on ROS before the recent 23 February deadline. It refers only to cases of genuinely once-off errors by otherwise compliant taxpayers.

I outlined  in a recent post how this concession works.  It is explained in more detail on a Revenue statement dating from 2007.

If you have recently completed an RCT35 return, you should now double-check your RCT compliance for 2009, to ensure that any outstanding matters can be resolved with Revenue within this grace period.

Unfortunately, the concession is of very limited use to small construction operators. This is because, under its terms,  a fixed penalty of €3,000 still applies to each separate RCT breach disclosed to Revenue.

This fixed-penalty system can have cruel outcomes for small operators, with limited means.

Take the hypothetical example of a minor builder, who discovers that he inadvertently neglected to apply for a 2009 payments card for a carpenter, who holds a C2, and to whom he made 2 payments totalling €20,000 last year.  The builder, a compliant taxpayer, now approaches Revenue and discloses these breaches. He gets hit with a €6,000 penalty for his trouble.

I would argue that this is a perverse incentive.  Human nature will dictate that errors will occasionally be made, by even the most scrupulous of taxpayers.  I think it is important that the tax code allows taxpayers some form of facility to notify errors to Revenue once they find them.   There must be a better way to encourage compliance with RCT.

The latest Revenue Statement is here.

P35 and RCT35 Deadlines Today

Today, 15 February, is the deadline for employers to file their annual P35 return for 2009 with Revenue.

If you file your P35 return online and pay your P35 liability online through ROS, you can avail of an extended deadline of 23 February.

Today is also the deadline for principal contractors to file their 2009 annual RCT35 subcontractors return with Revenue.  A similar extension to 23 February applies also to the RCT35 return. This applies only where both the return and the payment of the RCT liability are made through ROS.

Subcontractors Tax (officially known as Relevant Contracts Tax or RCT) can be a complex tax to administer.  Errors and omissions in RCT returns can prove very expensive, due to the substantial penalties for non-compliance.

Back in 2007 the Revenue published a statement outlining the limited circumstances where they do not impose full penalties for breaches of RCT regulations.  Some of these concessions are subject to the matter being notified to Revenue and rectified within one month of the RCT35 filing deadline.

If you are completing an RCT35 return, or have recently done so, you should review carefully all issues in relation to your RCT compliance for 2009, in order that any outstanding matters can be resolved with Revenue within the one month’s grace period.

As always in relation to complex tax matters, I recommend that you seek professional assistance where necessary.