February tax news: audit of accountancy practices
Audit of accountancy practices
We understand that Revenue have commenced a pilot project auditing accountancy practices in the Cork area, whether the project will be extended to other regions is likely to be determined by the tax take from the sample practices. In our experience the following are areas that attract Revenue attention:
• Correct accounting for VAT particularly with regard to recovery;
• Correct accounting for PAYE with a particular focus on expense claims;
• Verification of turnover;
• Incorporation of practices together with goodwill valuations and legal documentation of transfers (or not as the case may be);
• Retirement relief claims with regard to incorporation.
Transferring your business to a company
Revenue’s long standing concession concerning capital gains tax (CGT) relief and the transfer of bona fide trade creditors as part of the transfer of a business to a company is clarified with respect to debts such as business loans. The concession applies to genuine trade creditors who supply goods or services to a business and not business debts such as bank loans or tax liabilities taken over by the company.
Generally relief is provided under section 600 TCA 1997 where a business, together with the whole of its assets, or the whole of its assets other than cash, is transferred to a company as a going concern wholly or partly in exchange for shares.
PAYE for non-resident employees
An Irish resident employer will not be obliged to apply for a PAYE Exclusion Order in respect of remuneration paid to a non-resident employee in certain circumstances per Revenue eBrief No. 03/15. The eBrief states that where the employee:
• is not resident in the State for tax purposes,
• has been recruited abroad,
• carries out all the duties of employment abroad,
• is not a director of the employer, and
• is outside the charge to tax in the State,
the employer is not required to apply for an Exclusion Order under section 984 TCA 1997 and accordingly does not need to operate Irish PAYE.
New Penalties for principal contractors
Principal contractors who fail to operate relevant contracts tax (RCT) on payments to subcontractors within RCT will be liable for a penalty proportionate to the amount of the tax that should have been deducted.
The penalty for each instance of non-operation of RCT after 1 January 2015 will be based on the status of the subcontractor:
• Where the subcontractor is liable to the zero rate of RCT, the principal will be liable to a civil penalty of 3% of the relevant payment.
• Where the 20% RCT rate applies, the principal will be liable to a civil penalty of 10% of the relevant payment.
• If a RCT deduction rate of 35% applies, the principal will be liable to a civil penalty of 20% of the relevant payment.
• Where the subcontractor to whom the payment was made is not known to Revenue the principal will be liable to a civil penalty of 35% of the relevant payment.
Tax treatment of payments for support, maintenance or education
Revenue have issued an eBrief setting out their position on the Finance Act 2014 amendments to the capital acquisitions tax (CAT) treatment of payments to children for the provision of support, maintenance or education from their parents.
The CAT legislation is amended to confine the CAT exemption to payments received by a:
• a minor child of the disponer or of the civil partner of the disponer or,
• a child of the disponer, or of the civil partner of the disponer, who is more than 18 years of age but not more than 25 years of age who is receiving full-time education or instruction at any university, college, school or other educational establishment, or
• a child of the disponer or of the civil partner of the disponer who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity from maintaining himself or herself.
Information on agricultural relief
Revenue published an updated version of their guidance on agricultural relief for capital acquisitions tax which includes the changes introduced by Finance Act 2014. The main changes concern the “farmer test” , the treatment of farm leases and the clawback provisions.
Guidance also published from Revenue on the income tax exemption for certain income arising from leasing of farm land is updated to include the changes introduced by Finance Act 2014. With effect from 1 January 2015 the age restriction or the requirement to be permanently incapacitated are removed.
The conditions for the relief, how the relief operates and the changes effective from 1 January 2015 are detailed in the guidance note. It is also noted that a company may be an eligible lessee provided it is not connected with or controlled by the qualifying lessor(s).
Tax treatment of animal leasing
Revenue eBrief No. 17/15 clarifies how animal leasing should be treated for income tax and VAT purposes. A dairy farmer with surplus cattle may lease them to another dairy farmer who wishes to increase production without the need to invest in ownership of extra animals. Where the lessor continues to carry on the business of farming, Revenue will accept that the income from leasing of cattle will be considered to be income from farming and will be taxed accordingly. The income tax treatment is detailed in the eBrief.
Animal leasing is liable to VAT at the standard rate, currently 23%.Two scenarios may arise in relation to VAT and leased animals and details of these are set out in the eBrief.
Updated guidelines on research and development tax regime
Updated guidelines published by Revenue take into account changes to the Research and Development Tax regime made by recent Finance Acts. Also included are examples illustrating calculation of the relief and new content which is intended to clarify aspects of the regime.
Disclosure window for tax avoidance transactions
Details on the “qualifying avoidance disclosure” provided for in Finance Act 2014 are available in Revenue Brief No. 16/15. The legislation allows a taxpayer, who entered into a tax avoidance transaction on or before 23 October 2014, to settle with Revenue by paying the tax due and a reduced amount of interest. To avail of this opportunity, a taxpayer must make a “qualifying avoidance disclosure” on or before 30 June 2015.
Guidelines on mandatory disclosure regime
Amended Guidance Notes on the new mandatory disclosure regime are available on the Revenue website. The amended guidance notes reflect the changes introduced by Finance Act 2014 which are effective for any transaction which is commenced after 23 October 2014.
Personal Tax Forms for 2014
The paper version of the Form 11 for 2014 is now available on the Revenue website. The 2014 Form 11 is also available on Revenue Online Service.
The Form Med 1 for 2014 can be used to claim tax relief for certain health expenses incurred during 2014.
The above Revenue documents are available on the Revenue website.