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.

Budget 2012 Live Updates

Michael Noonan, Minster for Finance is now delivering his Budget 2012 speech to Dáil Éireann.

The Minister has announced the following Tax measures:

Corporation Tax

• No change in the 12.5% Corporation Tax rate.
• A special Assignee Relief Programme to attract multinationals’ executives to Ireland
• New Foreign Earnings deductions for individuals developing markets abroad
• International financial services sector boosted by measures to be announced in Finance Bill
• First €100,000 of Research & Development expenditure to be allowed for R&D credit.
• Corporation Tax exemption for new companies extended for a further 3 years.

Farming

• Farm transfers to the next generation are to be incentivised
• Significant fall in the rate of stamp duty for farmland and other commercial property
• Retirement relief for CGT to be modified – no detail of this measure included in the Budget Speech.
• Farm partnerships to be encouraged by 50% Stock relief for participating farmers and existing 100% Stock relief for young farmers
• The 9% rate of VAT to apply to Open Farms

Air Travel Tax

• Government are ‘prepared to negotiate’ with Aer Lingus and Ryanair to incentivise tourist routes into Ireland

Construction Sector

• Stamp duty for commercial property to be cut to 2% overnight – the previous top rate was 6%
• The current rates for residential property will apply
• CGT exemption for properties bought between tonight and the end of 2013 – if they are held for 7 years.
• Commercial properties – NAMA can now approve rent reductions in certain cases, even in cases where ‘upward only rent review’ clauses apply
• Those who bought homes at the end of the property boom will gain by an increase in mortgage interest relief to 30% for those homeowners
• First time buyers will get 25% mortgage interest relief for property purchases in 2012

Property Reliefs

• Detailed policy measures to be made in Finance Bill
• s.23 Reliefs to small scale investors will not be cut
• Surcharge of 5% will apply to sheltered income where one’s income is over €100,000

Income Tax

• No increase in Income Tax bands, rates or credits.
• Universal Social Charge to be changed to help low paid seasonal & temporary workers – the exempt income level rises from €4,004 to €10,036
• the USC will be collected on a cumulative basis in 2012

Value Added Tax

• The Standard rate of VAT will rise by 2% to 23%
• The other rates of VAT remain unchanged

Capital Taxes

• Capital Acquisitions Tax & Capital Gains Tax go from 25% to 30%
• Standard Exemption for Capital Acquisitions Tax (parent-child transfers) cut from €332,084 to €250,000

Investment Income

• Deposit interest retention tax (DIRT) increased from 27% to 30%
• PRSI will cover rental and investment income from 2013

Approved Retirement (ARF) Funds

• ARF ‘imputed distribution’ charge increased to 6%
• ARF tax on death of a child over 21 goes to 21%
• Citizenship condition on domicile levy is scrapped
• Carbon Tax goes up from €15 to €20 per tonne – a 33% increase. This increase does not apply to home heating oil or solid fuel.
• Double income tax deduction for Carbon tax for farming
• VAT Refunds on farm buildings will include wind turbines

Other

• The income tax relief on pension contributions remains unchanged – tax relief will remain at the marginal rate of tax.
• A household charge of €100 per household is being introduced. Certain limited waivers will apply.
• Motor Tax increases to raise €47 million
• A new export refund scheme will apply to exports of motor cars
• The existing tax exemption for the first 26 days of disability benefit per annum is to be abolished. The Minister described this as ‘an incentive for absenteeism’

Excise Duty

• Alcohol excise duty is unchanged.

 

 

 

 

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.

Govt Jobs Initiative – The tax measures

Finance Minister Michael Noonan has today unveiled the Government’s much-heralded ‘Jobs Budget’, including the following tax measures:

Pension Levy

A levy of 0.6% is to be applied on the capital value of pension assets held within the State.

PRSI

Employers PRSI on lower-paid employees is to be halved. This will apply until the end of 2013 for employees earning less than €356 per week (not the figure of €365 per week as announced by the Minister in the Dáil today).

Employers PRSI will no longer apply to share-based remuneration.

9% VAT

A cut in the lower rate of VAT to 9% on so-called ‘tourism-related’ goods and services. This will apply from 1 July 2011 until the end of 2013.  The VAT cut will apply to

• restaurant and catering services
• hotel and holiday accommodation,
• theatre, cinema, museum, fairground and other entertainment tickets
• hairdressing
• newspapers and magazines.

Air Travel Tax

The Air Travel Tax of €3 per passenger is to be abolished, but not with immediate effect. Its abolition is to be conditional on the major Irish airlines opening new tourist routes into Ireland.

R&D Tax Credit

The Minister intends to introduce a technical change to the Research & Development tax credit legislation, in order to allow companies more flexibility in how they account for the credit. This is intended to make the credit more attractive for qualifying companies.

Corporation Tax

Unsurprisingly, the Minister confirmed that ‘our 12.5% rate of corporation tax is here to stay’

The Department of Finance have just published full details of the Jobs Initiative on their website.

VAT Refund Scheme boost for Farmers

Ireland’s farmers received a welcome boost today as Revenue announced an extension to the VAT refund scheme for farmers.

Farmers who are not VAT-registered can reclaim VAT paid by them on:

• farm buildings
• fencing and other fixed structures
• land drainage and
• land reclamation

 

Today, a Revenue eBrief confirms that that VAT refunds may now be claimed in respect of

• Concrete underpasses,  installed to facilitate the movement of livestock beneath a public road.
• Hedgerows planted by a farmer for the purpose of stock proofing. This does not include hedgerows grown for decorative, ornamental or domestic shelter purposes.
• Ploughing and re-seeding works completed as part of a land reclamation project.

 

Eligible farmers can claim VAT repayments on Form VAT58 in accordance with the  Value Added Tax (Refund of Tax) (No. 25) Order 1993, which is also online. Farmers may claim VAT refunds within four tax years of incurring the relevant expenditure.

Please note that this scheme does not apply to VAT-registered farmers, who may reclaim VAT on their regular VAT returns but are subject to VAT on sales of farming produce and livestock.

UK Revenue don’t want VAT cheques

HM Revenue & Customs in the UK have announced new rules, to discourage taxpayers from paying VAT bills by cheque.

From 1 April 2010, most  UK VAT-registered businesses must submit their VAT returns online and pay their liabilities by electronic means. This will apply to all traders with turnover over £100,000, and all newly-registered businesses

Other traders will still have the option of paying by cheque. However also, from 1 April, HMRC will treat all cheques received by post as being received on the date when funds are cleared and reach HMRC’s bank account. If the cheque doesn’t clear by the deadline, a surcharge for late payment may arise.

As cheques can take several working days to clear, this is a serious disincentive to taxpayers to pay by cheque, unless of course they (and their accountants) are sufficiently organised to complete their VAT returns well before the deadline.

We can be certain about two things in relation to this news:

1. It isn’t an April Fools joke.
2. It won’t be long until the Revenue Commissioners in Ireland follow suit.

The days of paying tax bills by cheque are numbered…

No need for Consumers to suffer new VAT hit

The Government should act now to ensure that the imposition of VAT on public service charges does not cost consumers a cent.

Last week’s Finance Bill confirmed that council and public body fees for services such as waste collection, parking and road tolls will soon be subject to VAT of 13.5% or 21%.

This follows a recent European Court of Justice (ECJ) ruling, which found that the VAT exemption for Irish local authorities gave them an unfair advantage over private sector operators, who provide these services to the public on a commercial basis. The ECJ ruled that this VAT exemption must be removed in order to eliminate this unfair advanage. To this extent, the Government’s hands are tied.

That said, there is a very simple measure that the Government can take in order to protect consumers and households from any additional VAT cost arising from this move.

It should instruct all councils and public bodies to absorb the VAT charge within their existing revenue from these services. It should then calculate the net VAT cost for each council or public body, and refund this cost to them, from the proceeds of the new VAT charge. If these calculations are done correctly, it will not cost the Exchequer a cent.

On the other hand if the Government attempts to use this change as an excuse to extract more tax revenue from consumers, I believe it is doomed to fail.

Take the example of local council operating a refuse collection service. Normally a collection truck will visit each estate once weekly. If charges rise by 13.5%, at least some consumers will switch to private operators instead of paying the higher fee. To maintain their service, the collection truck will still have to visit each estate each week, but now collecting refuse (and revenue) from a dwindling base of customers. Its average cost per collection will increase and its revenue will decrease. Not a good result for the council.

Similarly, look at the M50 toll road, which is managed by the NRA on behalf of the State. If toll rates go up, less cars will use the road. As volumes decrease, so does revenue. Yet the NRA still must maintain the road to the same standard.

In a recession, the key to maximising toll revenue is not to jack up prices (a surefire way to lose revenue) but to increase the volumes of cars on the road. This is why the private-sector operators of the M4 Enfield toll plaza decided recently not to implement a price increase for 2010, even though they are legally entitled to increase tolls annually.

If the Government plays stupid on this one, demand answers from your T.D.

The Finance Bill – some initial thoughts

Some initial thoughts on the changes announced in today’s Finance Bill

• The mooted changes to the Capital Acquistions Tax system are welcome, IF they help to simplify how CAT works and remove some of the anomalies in the system.  Until we see the detail of the changes, it will be impossible to tell whether these objectives will be met.

• The imposition of VAT on refuse charges and other local services was inevitable since last year’s European Court ruling. That said, it is unfortunate that this measure will be accompanied by the scrapping of tax relief on service charges.  I estimate that this latter move will cost most householders €60-80 per year, from 2012.  In addition, the VAT charge will add a further €40-€55 to typical annual household refuse bills.  An unfortunate double-hit for consumers and families.

• Tax relief on service charges was always one of the tax reliefs that many taxpayers simply forgot to claim each year. At least its removal will make it a little easier for an individual to correctly complete their own tax return.  Every cloud has …

• The curbing of the 80% Windfall Tax is very welcome. Farmers and small landowners will not now have to worry about a punitive tax, when they wish to  sell an individual site  or give a site to their son or daughter.  This move might just give a little, and much-needed, boost to rural builders and tradesmen.  In the current climate the limit of €250,000 per 1-acre site is unlikely to affect (or worry) too many people.

More anon…



The 2010 Finance Bill is unveiled

The 2010 Finance Bill has been published earlier this afternoon.  In addition to the measures announced in the Budget, it contains a raft of new provisions, including the following:

• A new package of reforms to the Capital Acquisitions Tax system,  which are designed “to modernise and simplify the CAT regime, while delivering immediate and significant benefits to taxpayers, their legal advisers and the Revenue Commissioners”.



• Measures to facilitate the development in Ireland  of Islamic finance which  is compliant with the principles of Shari’a law.

• From 1 July 2010, VAT will apply to Public Bodies and local authorities, for waste collection, landfill, and recycling services; off-street parking; toll roads; and leisure facilities).  This follows a 2009 European Court of Justice (ECJ) ruling against Ireland. The changes will not affect education, health, water and passenger transport services.
• The abolition of  certain Tax Reliefs including tax relief on Service/Refuse charges (from 2012 onwards), relief for Gifts of property to the State and Capital Allowances for childcare facilities.
• Confirmation that the 80% Windfall Tax will now not apply to the sale of one-off sites below an acre and €250,000.

• Technical changes to procedures in relation to tax relief for medical expenses. According to the Dept of Finance “he relief is being refocused on expenses incurred by or on the advice of a medical practitioner”.
• The scrapping of the 1% Levy on pension products “in order not to discourage investment in pensions”.
• The introduction of transfer pricing legislation to regulate trading between associated companies.
• Measures to combat the misuse of tax avoidance schemes.