ACCA TX

Taxation
Tutor: Teresa Hegarty

Tutor Manual

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Whilst every effort has been made to ensure the tutor manual
as supplied covers the related course syllabus, the tutor
manual is not intended to be used as a replacement for an
approved study text. Students are strongly advised to
purchase an approved study text to supplement the tutor
manual.
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 ACCA TX Table of Contents
Introduction 5

Income Tax 10

Schedule E - Employment Income 12

Pay As You Earn- PAYE 19

Termination Payments 23

Employee Share Schemes 26

Self- Employed Income – Case 1/11 Income 28

Self-Employed Income – commencement / Cessation 32

Capital Allowances 37

Capital Allowances - Industrial Buildings 43

Farming Income 47

Taxation of Partnerships 51

Professional Services Withholding Tax – PSWT 55

Relevant Contracts Tax- RCT 56

Income Tax Losses 59

Investment Income 66

Tax Credits 71

Allowances and Other Reliefs 76

Taxation of Married Couples/ Civil Partnerships 81

Self Assessment system 87

Residency Rules – The scope to Income Tax 91

PRSI and USC 96

Capital Gains Tax 99

Corporation Tax 126

Local Property Tax 156

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Value Added Tax – VAT 161

Whilst every effort has been made to ensure the tutor manual as supplied covers the
related course syllabus, the tutor manual is not intended to be used as a replacement
for an approved study text. Students are strongly advised to purchase an approved
study text to supplement the tutor manual.

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 Introduction

Taxation Course
 The Irish Tax System and its administration
 Calculation of income tax liabilities
 Corporation tax liabilities
 Capital Gains Tax
 Local Property Tax
 Social Insurance Contributions and USC
 Value added Tax
 Introduction

Taxation Exam
 3 and ¼ hour paper – online live exam
 Predominantly computational questions
 All questions are compulsory
 Part A – 15 multiple choice questions, 2 marks each
 Part B – 6 questions - 2 questions, 15 marks each (income tax and
corporation tax) and 4 questions worth 10 marks each
 Given tax reference manual at beginning of paper

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 Introduction - The Irish Tax System

The purpose of taxation

 Raising finance – to pay for essential state services like health care,
education etc
 Economic tool – allowing the government to direct investment into
certain areas of the economy or to encourage investment in certain
type of industries
 Social change – discourage / encourage certain social activities
 Redistribute wealth – in order to support the economically
disadvantaged in society

Types of Tax
 Income Tax – levied on individual earnings
 Corporation Tax – levied on company earnings
 Capital Gains Tax – levied on capital profits on the disposal of assets
 Value Added Tax – levied on the sale of goods and services
 Capital Acquisitions Tax – levied on gifts or inheritances received
 Stamp duty - levied on transferring assets
 Customs and Excise Duties – levied on the importation of goods /
certain goods such as alcohol, tobacco

Classification of Taxes
 Direct Taxes
 Tax levied directly on an individual or a business and it is
proportionate to their earnings or gains – main taxes being ITax /
CT/ CGT
 Indirect Taxes

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  Tax levied on transactions, primarily the sale of goods and
services – main taxes being VAT, stamp duty, customs and excise
duty

Tax Collection System

 Office of the Revenue Commissioners – divided into 16 divisions
 Collector General – responsible for the assessment / collection of
taxes. Tax paid deducted at source / direct payment
 Tax Appeals Commissioners – independent body whose task is hearing
and determining of appeals
 High Court – a ruling by the TAC can be referred to the high court by
either party on the basis that the TAC determination was incorrect on a
point of law

Sources of Tax Law

 Taxes Consolidation Act (TCA) 1997 – legislation combines all sources
of tax law in relation to Itax, CT and CGT.
 VAT Consolidation Act 2010 – VAT introduced as a condition of Ireland
entry to the EU
 Case Law – decisions from the Irish courts and the European court of
justice involving tax issues can directly impact on tax legislation
 The Irish Tax System – Finance Act 2020 applicable to 2022 exams

Definitions – Tax Avoidance

 Tax avoidance can be described as using tax reliefs and allowances in
a way in which they were not intended or re-characterisation of a
transaction.
 Tax avoidance often involves contrived, artificial transactions that serve
little or no purpose other than to gain a tax advantage.

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Definitions – Tax Evasion
 Tax Evasion is where businesses (including professions) and
individuals engage in inappropriate practices to avoid their legal
obligations relating to matters such as taxes & duties.
 Examples include not declaring, or under-declaring, a source of
taxable income, employers paying employees in cash under an 'off the
books' arrangement so as to evade tax and PRSI liabilities, working or
running a business whilst at the same time falsely claiming job-seekers
benefit, non-operation of the Value-Added Tax (VAT) system

Classification of Income for Tax Purposes

 Schedule D Case I – Income from a Trade
 Schedule D Case II – Income from a Profession
 Schedule D Case III – Investment Income not subject to tax at
source, foreign income (which includes foreign rental income),
credit union ordinary accounts

Classification of Income for Tax Purposes

 (continued):
 Schedule D Case IV – Irish deposit interest subject to DIRT,
Credit union special share accounts, covenant income,
miscellaneous income
 Schedule D Case V – Irish Rental Income
 Schedule E – Employment Income
 Schedule F – Irish Dividend Income

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Exempt Sources of Income
 Artists – exempt up to a ceiling of €50,000
 Forests/Woodlands – occupation on a commercial basis for profit
purposes are exempt.
 Payment in respect of personal injuries to permanently incapacitated
individuals
 Trusts for permanently incapacitated individuals
 Social Welfare child benefit
 Statutory redundancy payments
 Compensation payments under employment law
 Life Assurance proceeds
 Income from provision of accommodation to students in the Gaeltacth
areas under the Irish language scheme
 Income from childcare services up to €15K p.a.
 Lottery and Betting winnings
 Interest paid by Revenue on tax overpaid
 Rent a room relief up to €14K p.a.
 An Post Savings schemes

Restriction of Certain Reliefs for High Income Earners

 Effective from 1st January 2017
 Objective is that high earners could not reduce their tax liability to nil or
a negligible amount by the use of tax shelters

Restricted Reliefs are:

 Capital allowances on specified P&M claimed by passive partners in a
manufacturing trade

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 Capital allowances and losses from property incentive schemes
 Patent royalty income and distributions
 Exempt artists income
 Interest on monies to buy shares in certain companies and
partnerships
 Exempt distributions and exempt income from certain mining profits
 Donations to sports bodies

The max amount of reliefs an individual can use in a year is limited to the
greater of €80,000 (was €250K) and 20% (was 50%) of adjusted income

 Income Tax

Income Tax Pro Forma Computation

(Taxpayer Name)
Income Tax Computation for the year ended 31st December 2021
€
Income xxx
Less Reliefs/Allowances (xxx)
Taxable Income xxx
Taxed as follows:
€xxx@20% xxx
€xxx@40% xxx
xxx
Less Non-Refundable Credits (xxx)
xxx
Less Refundable Credits (xxx)
Income Tax Liability/(Overpayment) xx(xx)

Main sections of the Pro Forma Computation

• Income
• Reliefs and Allowances
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• Calculation of Tax
• Non-Refundable Credits
• Refundable Credits

Calculation of Tax
 Dependent personal circumstances
 Single person with no children

– First €35,300 at 20%

– Remainder at 40%
 Single person with a child/(children)

– First €39,300 at 20%

– Remainder at 40%
 Married couple with one income

– First €44,300 at 20%

– Remainder at 40%
 Married couple with two incomes

– First €44,300 (with an increase of €26,300 max) at 20%

– Remainder at 40%

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 Schedule E – Employment Income

Employment Income
 All income earned under an office or employment is taxed under
Schedule E
 An office is a permanent position that exists independent of the
individual who holds it

Employee or Self-Employed?
 It can be difficult to distinguish if someone is an employee or self
employed.
 The main difference established through case law is:
 An employee is engaged under a contract of service
 A self employed person is engaged under a contract for
services

 Some of the following factors would indicate the existence of an

employment
 Where the individual works under the direction of another
 Where they supply labour only
 Where they do not supply materials or equipment
 Where they cannot subcontract the work
 Where they are paid a fixed hourly/weekly/monthly rate and are
entitled to holidays
 Where they do not have the opportunity to profit from sound
management (does not include bonuses)
 Where they are obliged to work set hours
 Where the individual is not exposed to a financial risk
 Where they are subject to dismissal and redundancy
Where the above factors do not exist, it would indicate an
individual is self employed.
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Consequences of employment of self-employment
 PAYE system or self-assessment system
 Employer PRSI
 PAYE (Employee) Tax credit or Earned Income Tax Credit
 Social Welfare entitlements (as a result of PRSI class)
 Right and duties under employment protection acts
 Liability to the public for work done

Scope of Schedule E

 ‘Salaries, fees, wages, perquisites or profits whatever’ arising from the

office or employment
 Collectively referred to as emoluments
 Includes:
 Salaries and fees - all cash payments
 Payments from Occupational Pensions and Social Welfare
pensions
 Benefits-in-kind and perks
 Certain Social Welfare payments
Basis of Assessment
 From 1 January 2018, tax is charged under Schedule E on the actual
amount of all emoluments paid from the employment during the tax
year. Prior to this, tax was charged on the earned basis
 Example
 Salary €50,000 for 2020
 Bonus of €5,000 for 2020 paid in Feb 2021 with €1,500 PAYE
deducted
 Income for 2020 is €50,000 (salary) when completing income tax
computation for 2020 as this is what he was paid in 2020

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  The bonus is paid in 2021 and is therefore included in his income
for 2021 along with the PAYE deducted from the bonus in Feb
2021.
 Note that the receipts basis (i.e. taxing income in the year it is paid to
an individual) does not apply in certain circumstances. Payments from
the Department of Employment Affairs & Social Protection and
employment income earned by Proprietary directors will continue to be
assessed on payments earned during the tax year.

Deductible expenses under Schedule E

 In the performance of the duties of the office and employment
 Necessarily obliged to incur and defray (travelling expenses)
 Wholly, exclusively and necessarily (other expenses)

Treatment of expenses (keep records for 6 years)

 Reimbursed expenses
 On the basis of vouched receipts
 Flat Rate expenses
 Paid in line with Civil service rates / Revenue approved mileage
and subsistence rates
 Round sum expenses
 Set amount paid to an employee which are not based on receipts
– treated as additional salary and taxed

Benefits in kind
 Non-cash benefits
 Free use of assets
 Payment of personal expense

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Exempt benefits
 A subsidised canteen
 Monthly bus or train passes
 Provision of a bicycle under the bike to work scheme
 Small non-cash benefits up to a max of €500
 Car parking facilities/charging facilities for electric vehicles
 Travel & subsistence exp – Civil Service Rates
 Staff Entertainment
 Course / exam fees relevant to the business
 Termination payments – tax free element
 Removal and relocation expenses – may have to move house in order
to carry out employment duties. Expenses to move are can be tax free
if there are actual expenses / reasonable/ payment is controlled /
moving house is necessary. Only expenses as a direct result of a
change of residence can be repaid tax free which includes
 Auctioneer fees / solicitor fees / stamp duty / furniture move /
storage costs / insurance of items in storage or transit / cleaning /
travel expenses
 10 nights subsistence / 3 months temporary accommodation
allowed when looking for new accommodation in a new location
 Provision of living accommodation where it is necessary to perform the
duties of the employment. It is considered necessary where:
 The employee is on call outside normal working hours
 The employee is frequently called out
 Accommodation is provided for quick access to place of work

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Taxable Benefits in kind
 Provision of Motor Car / Van
 Provision of Accommodation
 Provision of Preferential Loans
 Provision of a service or payment of an expense by an employer
 Schedule E – Employment Income

Provision of a Motor Car

 Original Market Value (OMV)
 Basic calculation – 30% of OMV
 BIK reduced by number of months of the year that the employee has
use of the car
 No reduction in BIK when employee pays for the running costs of the
car
 BIK is reduced when employee reimburses employer for running costs
 BIK rate is reduced based on business mileage (Annual Chart)

 0 – 24,000KM 30%
 24,001 – 32,000KM 24%
 32,001 – 40,000KM 18%
 40,001 – 48,000KM 12%
 48,001+KM 6%

 Alternative BIK Calculation

 BIK can be reduced by 20% where certain conditions are met. All
must apply
 The employee must spend 70% of time working away from
their work base
 Annual business mileage must exceed 8,047 km
 Must work at least 20 hours per week
 Must maintain a log of daily business travel
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Provision of a Company Van
 The BIK charge is lower – 5% of OMV
 No charge where employee is required to keep van at home and not
allowed to use for private purposes, other than travel to work and is
away from base at least 80% of the time
 Electronic vans provided to an employee between 1 January 2018 to
31 December 2021 are exempt from BIK – cap of €50K

Provision of an Electric Vehicle

 Full exemption applies where vehicle made available between
1January 2019 and 31st December 2021 where OMV does not exceed
€50K
 BIK on original MV of a vehicle in excess of €50K

Employer provided accommodation

 Employer is paying rent on behalf of employee then the BIK charge is
the rent
 Employer owns the house then the BIK is charged on the annual open
market value rent for the house plus any other costs incurred by the
employer
 If property is furnished – additional 5% BIK on value of furnishings
 A contribution from the employee reduces the BIK

Preferential loans
 The BIK charge is calculated on the difference between the specified
rate and the rate charged by the employer.
 Specified Rates
 Principal Private Residence – 4%
 Other – 13.5%

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 No BIK arises when an employer whose business includes making of
loans gives a loan to an employee at a rate less than the specified
rates

Payment of expense
 The BIK charge is the cost of the expense
 Examples
 Golf membership
 Medical Insurance
 Personal telephone

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 Pay As You Earn (PAYE)
Introduction
 Applies to Schedule E income
 Employers are obliged to deduct income tax, PRSI and USC from
payments to employees
 Deducted from each payment whether paid weekly, bi-weekly or
monthly
 Employer must be registered with Revenue
 Individuals are registered as employees of the employer

PAYE Modernisation
 From 1 January 2019, employers are required to report their
employees pay and deductions to Revenue as they are being paid.
 This change makes it easier to deduct and pay at the right time the
correct amounts of Itax, PRSI, USC and LPT.
 The new real time reporting regime is operational for all employee
payments made from 1 January 2019.

Employer’s obligations
 Register as an employer with Revenue
 Maintain a register of employees, including temporary employees.
 Calculate the correct amount of tax from employees pay and benefits,
based in the most up to date Revenue Payroll Notification (RPN) for
each employee.
 Submit the payroll information for each employee to Revenue on or
before the date of salary payment
 Revenue will issue a statement to the employer by the 5th of the
month after submission of the payroll information.
 Payment of the tax will be due by the 23rd day (on ROS) of the
following month.

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  Notify revenue the date on which any employee leaves the
employment etc.

Revenue Payroll Notification (RPN)

 Revenue will provide a Tax Credit Certificate for all individuals who
have previously made a claim for tax credits
 The details regarding an individual’s entitlement to Standard Rate Cut-
off Point and Tax Credits will be made available to their employer
through ROS on an RPN.
 If an employee does not have a Tax Credit,then the employer will have
to calculate tax on the employee’s salary using the emergency basis.

Employee’s obligations
 An employee can obtain a Tax Credit Certificate by registering for “My
Account” and use the Jobs and Pensions service to make a claim
 Once completed the employee should advise the employer who can
request the RPN from Revenue

Certificate of Tax Credits

 Employee is responsible for ensuring certificate is correct
 Employee receives a detailed copy
 Employer will be notified of the total amount of Standard Rate Cut off
Point and tax credits
 Employer must use the most up to date RPN provided by Revenue to
calculate the employees tax.

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Calculation of Tax under PAYE
 Calculation made using CTC and tax rates applicable at the time of the
payment
 Taxable Income, includes:
 Monetary payments – wages, bonus, holiday pay, expenses
 Notional pay – i.e. BIK and perks
 Less pension contributions
 Less PHI contributions

Methods of Calculation
 Cumulative Basis – tax is calculated on salary from 1 January to the
pay period in which payment is being made with the equivalent number
of weeks / months SRCOP and TC used.

 Week 1/ Month 1 Basis – tax is calculated separately for each week /

month salary. Any unused SRCOP or TC in a pay period cannot be
used in the next. Each pay period is considered in isolation

 Emergency Basis – applies when an employee

 Cannot provide new employer with a PPS number or
 An RPN cannot be provided by Revenue. This may happen if it is
the employee first employment in Ireland
 How to calculate depends on whether employee has a valid PPS
number or not
Emergency Basis –
A valid PPS number is provided
Week 1 to 4 – SRCOP €679 / TC €0
Week 5 onwards – SRCOP €0 / TC €0
No PPS number is provided
There is no SRCOP or Tax Credits applied – all of income taxed
at 40%
Also note that USC of 8% applies to emergency basis

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PAYE administration
 Submit payroll information for each employee to Revenue on or before
the date of each salary payment
 Revenue will issue a Statement to the employer by the 5th day of the
month after payroll submission. Employer must accept the statement
within 9 days, no later than the 14th of the month
 Payment will be due by the 14th of the month (23rd for ROS).
 P.35 / P.60 / P.45 forms are redundant with PAYE Modernisation.

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 Termination Payments

Taxation of Termination Payments

 A termination payment is a payment made to an employee after the
termination of their employment.
 Termination payments that an employee is entitled to under their
contract of service is taxable under Schedule E.
 Termination payments not received as part of the employee’s
contractual rights benefit from some exemptions.
 Under S123, a termination payment is treated as taxable in the year in
which the employment was terminated.

Exempt payments
 Payments on termination of employment due to death and payments
made on account of injury or disability
 Statutory redundancy payments. Amounts in excess of statutory
payment is treated as a termination payment, which may be taxable.
 Lump sums on retirement under Revenue approved pension schemes-
up to 1.5 times salary in final year / does not exceed lifetime cap of
€200,000
 Up to €5,000 in re-training costs exempt

Elements of Termination Payments

 Cash payment (ex-gratia) – amounts employer is not obliged to pay.
 Payments in lieu of notice – where employer does not want employee
to work the required period of notice

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 Retraining costs – over €5K taxable and spouses / dependents of
employer not eligible for exemption
 Loans written off or assets transferred – where they form part of the
severance package, they must be taken into account

Relief on Termination Payments

 Three calculations:
1. Standard Deduction / Exemption
2. Increased Standard Deduction / Exemption
3. Standard Capital Superannuation Benefit (SCSB)

Standard Deduction
 The basic exemption is €10,160 plus €765 for each complete year of
service
 No restrictions on application of this deduction

Increased Standard Deduction

 €10,160 plus €765 for each complete year of service (Standard
Deduction)
 The above basic exemption can be increased by €10,000 less any
lump sump received or receivable from a superannuation scheme if:
 No claim for relief (other than basic) has been made in respect of
a previous lump sum payment in the last ten years
 No tax fee lump sum has been received or is receivable under an
approved superannuation scheme relating to the office or
employment.
 Formal Revenue approval is required before the increased standard
deduction can be applied

 Increased basic exemption = basic exemption & (€10,000 – pension

lump sum entitlement)

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Standard Capital Superannuation Benefit (SCSB)
 The SCSB may be substituted for the basic or increased exemption /
deduction if it produces a higher figure.
 The SCSB is calculated by the following formula
 A * B –C
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 (A = Last 3 years remuneration/3)x(B = Number of complete years of
service/15))Less (C = current value of tax-free lump sum)
 Last three years is from date of termination to 36 months previously
 Remuneration includes all Schedule E income including BIK

 Overall there is a lifetime tax free cap of €200,000 for termination

payments

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 Employee share schemes
Introduction
 Employees can be provided with shares in their employer company as
part of their remuneration
 The arrangements in place can differ between companies
 Different schemes can be in place in one employer

Share options
 A share option is a scheme whereby employees are granted (grant) an
option to purchase shares at future date at a fixed price
 When the option is exercised the employee must pay the relevant tax
(income tax PRSI and USC) on the difference between the exercise
(purchase) price and the market value on the date of exercise, within
30 days of exercise
 Option must be exercised in order for the individual to take beneficial
ownership of the shares.
 Receipt of a share option will make the employee a chargeable person
with an obligation to file a tax return. There is no PRSI ER chargeable
 The employee must file Form RTSO1 within 30 days of the date of
exercise along with relevant payment
 In their income tax computation, the gross amount of the income from
the share option is included and a refundable credit is claimed for the
tax paid
 Employer must deliver details of the share option to Revenue
on/before 31 March the following year.

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Share options – Long Option
 There is no charge to tax on the grant of a share option unless it is
capable of being exercised later than 7 years after the date on which it
was granted.
 An option capable of being exercised 7 years after being granted is
usually referred to as a Long Option
 Employee is subject to tax in the year of the grant on the market value
of the underlying shares at the date of the grant less the exercise price
payable to acquire them

Share options – Short Option

An option that must be exercised within the 7year period is usually
referred to as a short option
No tax to be paid on the grant of a short option.

The Exercise of share options

 As mentioned, there is a charge to income tax under Schedule E on
the amount of the gain arising on the exercise of a share option on the
difference between the exercise (purchase) price and the market value
on the date of exercise
 This share option gain can be reduced by any payment made by the
employee for the grant of the option – payment for the right to acquire
the shares
 Where tax was charged on the grant of an option (Long Option, LO) a
credit for this tax may be taken against the tax due on the exercise of
the option.
 Forfeiture – if forfeits their share option there is not Itax or CGT
implications. However also no loss relief
 Abandonment – no income tax consequences unless tax was paid at
date of grant (LO) – tax paid lost
 Sale – CGT may arise on the disposal of the shares acquired on the
exercise of a share option

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 Schedule D Case I/II – Self-Employed
Income
Calculation of Case I/II Taxable Profits
 Taxation of Business Profits of a sole Trader who carries out a Trade or
Profession
 Accounts prepared under accepted accountancy standards
 The rules for calculating profit for tax purposes differ to accepted
accountancy standards in some instances

Adjustments
 Start with Net Profit figure from Accounts
 Expense not allowed for tax purposes – Add-back
 Expense allowed and included in accounts – No adjustment
required
 Expense allowed and not included – Deduct
 Income included that shouldn’t be taxed under Case I/II - Deduct

Three Main Categories of Adjustments

• Capital items
• Expenses not wholly and exclusively for the purpose of the trade
(business)
• Certain expenses are disallowed by statute

Capital
 Capital expenditure is not allowed as an expense when calculating
profit for tax purposes as relief is given through capital allowances
 Includes the capital expenses itself and related expenses
 Capital income is not taxed under Case I/II

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What is Capital?
 Three factors to consider
• How is it treated in the accounts? – included in non current
assets or expenses
• Does it have an enduring benefit for the trade?
• Does it have a recurring quality? – such as the purchase of
stationary

Common Capital Adjustments

 Improvements v Repairs
 Depreciation – always add-back
 Capital Grants - deduct
 Profit or loss on capital disposals – loss is an add-back and profit - a
deduction
 Expenses related to disposals of capital assets such as professional
fees – add-back
 Repaying capital on a loan – if full amount of loan repayments are
included in expenses, the capital element must be added back

Not Wholly and Exclusively for the Trade

 Expenses not related to trade
 Related to other sources of income – i.e. rental expense
 Personal Expenses
 Drawings
 Salary payments to spouse/child where he/she does not work in
the business
 Income Tax payments
 Personal expenses such as phone bills

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  Expenses can be apportioned between a personal and business
element

Disallowed by Statute
 Business entertainment – add-back. Staff entertainment is allowed.
 Political and charitable donations – add-back
 Interest on late payment of tax – add-back
 Movements in General Provisions
 Specific provisions – no adjustment required for movements in
specific provisions
 Add-back an increase in a general provision
 Deduct a decrease in a general provision
 Motor Expenses
 Fines such as parking tickets, speeding tickets, clamping etc are
not allowable expenses – add-back
 Motor expenses can be apportioned based on business/private
use – Value for private use is added back
 Motor Lease Restriction (a working is needed – see Excel file in
Resources tab – changes occurred after 1st January 2021)
 Relates to cars that are leased by the sole trader
 Limits the amount of lease payment that can be claimed as a
deduction
 Prevents sole traders from claiming a deduction for lease
payments on expensive cars
Lease Payments (other than motor vehicles)
Operating Lease – full amount of lease payments will appear in the
Income Statement as lease charges – no further adjustment required
Finance Lease – Payments consist of both capital and interest
element – interest element will appear on the Income Statement while
capital will reduce the finance lease payable in the SOFP. Business is
entitled to a deduction for capital repayments (as they will get no
capital allowances on assets). Need to add back interest element and
deduct the full amount of the lease payment)
Hire Purchase – treated as owned assets – can claim capital
allowances. Interest included in the Income Statement – allowed.

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 Pension Fund Contributions
 Pension contributions for the sole trader are disallowed and
added back - private
 Pension contributions for staff – Amount paid in the tax year are
allowed. Any accrued amount must be added back
 Employee expenses
 All costs related to having an employee are allowed.
 The sole trader’s own salary / drawings are not allowed as an
expense.
 Salary paid to a spouse or children is only allowed when the
spouse / child works in the business.

Pre-Trading Expenses
 Pre-trading expenses are allowed when:
 They were incurred for the purposes of a trade or profession, and
 They were incurred within 3 years of the trade commencing, and
 Were not otherwise allowable.
 Pre-trading expenses are treated as having been incurred on the date
the trade commenced.
 A loss created by pre-trading expenses cannot be used against other
income.

Income Not Taxed Under Case I/II

 Non- Case I/II income must be deducted when they appear in the
Income Statement
 Rental Income, Deposit Interest, Dividend income, etc. are not taxed
under Case I/II and should not be part of the taxable profit from a
business.

31
 Self-Employed Income
Badges of Trade
 In deciding if an activity constitutes a trade we are guided by Case Law
and the Badges of Trade.
 The following factors that were recommended by the Royal
Commission (UK) to be taken into account in deciding whether a trade
is being carried on are:
 The subject matter
 The length of period of ownership
 The frequency or number of transactions by same person
 Supplementary work / in connection with the property realised
 Circumstances of sale
 Motive

Case I/II Basis of Assessment

 Year of Assessment – Tax year – (1 January to 31 December)
 Basis Period – Accounting period prepared for the business that is
included in the Income Tax Computation for the year of assessment
 Actual Profits – Profits deemed to arise from 1 January to 31
December of the tax year (if accounting period does not coincide with
the tax year)

The Basis Period

 The basis period is important as it determines the business profits that
will be included in the Income Tax Computation
 There are a number of rules used to determine the basis period, which
depend on whether:
 Is it a continuing business
 Has the business commenced
 Has the business ceased

32
Continuing Business
 General Rule
 The basis period for the year of assessment is the accounting
period of 12 months ending in the year of assessment.
 Basically, you need a 12 months set of accounts ending sometime
within the tax year.

Commencement
 There are special rules that determines the basis period for the
following:
 Year 1
 Year 2
 Year 3

Commencement – Year 1
 The assessable profits for the first year of commencement are the
profits from the date the trade commences to the end of the first year
of assessment – i.e 31st December
 It may be necessary to apportion the profits accordingly

Commencement – Year 2
 Rule 1 – The profits from the 12 month accounting period ending in the
second year of trading will be the assessable profits
 Rule 2 – Where more than one set of accounts / accounting period less
than 12 months end in the second year the assessable profits are the
profits for the 12 months ending on the latest accounting end date in
the second year
 Rule 3 – Where there is no accounting period ending in the second
year of assessment the actual profits (1st January-31st December) for
the second year are assessed to tax

33
Commencement – Year 3
 The profits for 12 month accounting period ending in the year 3 are the
assessable profits for the third year
 However the 3rd year has a provision to allow the profits to be reduced
in certain circumstances
 A review is carried out on the profits assessed in tax year 2.
Where the amount included for tax year 2 is greater than actual
profits for year 2 the excess amount can be deducted from the
profits in year 3.
 Where the assessed profits are lower than actual no adjustment is
made.

Commencement – Year 3 – Second Year Excess

 Calculate the Actual Profits for Year 2
 Compare to the Assessed Profits of Year 2
 Where the Actual Profits are less than the Assessed Profits the excess
amount is deducted in Year 3
 Where the Actual Profits are more than the Assessed Profits no
adjustment is made

Cessation – Final Year of Assessment

 The assessable profits are the profits from 1st January to the date of
cessation

Cessation – Penultimate Year

 When the business ceases a review of the second last year must be
undertaken
 The actual profits for the penultimate year are calculated
 Where the actual profits are more than the assessed profits the
assessment for the penultimate year is revised to the actual profits

34
 Where the actual profits are less than the assessed profits no revision
occurs

Commencement / Cessation
 The 2nd year review in year 3 of commencement rules benefit the
taxpayer
 The penultimate year review of cessation rules benefits Revenue

Short lived business

 Assessment on actual profits, where a business commences and
ceases within 3 years
 Applies where trade or profession:
 Commenced and is permanently discontinued within third year of
assessment
 Total profits charged to income tax exceed aggregate profits form
commencement to cessation

Operate as a Sole Trader V’s Incorporate

Tax implications of a sole trader

 Advantages
 Current year losses may be offset against other income
 Business assets and profits remain in the ownership of the trader
 Only 1 annual return for filing purposes
 Trader has flexibility to take drawings as and when needed
without attracting a further tax liability

35
 Disadvantages
 Profits are liable to marginal rate of tax
 A trader cannot raise capital through EIIS
 A trader cannot avail of Seed Capital Investment Relief

Tax implications of Incorporation

 Advantages
 Corporation tax of 12.5% on trading profits
 Ability to raise finance through EIIS
 Ability to avail of Seed Capital Investment Relief

 Disadvantages
 All business assets are in the ownership of the company
 Close company implications
 More onerous filing obligations for a company
 Cash extraction by the director / shareholder has tax implications

Start up Relief for Long Term Unemployed

 Relief provides an exemption from income tax (not PRSI and USC) on
profits up to a max of €40,000 p.a. for a period of two years to long
term unemployed individuals who set up qualifying business (new)
between 25/10/13 and 31/12/18. Can be claimed within 4 years after
the end of the tax year to which the claim relates.
 Individual must have been immediately prior to commencement of
business
 Unemployed for 12 months or more and in receipt of either
jobseekers allowance / jobseekers benefit / one parent family
payment / partial capacity payment

36
 Self-Employed Income – Capital
Allowances

Introduction
Depreciation specifically disallowed
Capital allowances available on Plant and Machinery instead
Capital allowances allows a deduction over a number of year for the net
cost of an asset to a business. It is essentially the tax version of
Depreciation
Available for sole traders, partnerships and companies
Main elements of capital allowances are:
 Wear and Tear allowance
 Balancing Allowance/Charge
For a sole trader, capital allowances are deducted from tax adjusted
Case I or II profits
Calculated and claimed by reference to tax years – i.e Jan to December
Rate is 12.5% per year straight line (with some exceptions)

Plant and Machinery

Not defined in tax law
Case law – subject of discussion – generally considered to include
movable items that are kept permanently and used for the purpose of
carrying on a business
Includes fixtures and fittings, motor vehicles, office equipment,
machinery

37
Requirements to claim capital allowances
The qualifying asset must be owned
Expenditure must be incurred for the purpose of the trade
The qualifying asset must be in use on the last day of the basis period

Computational rules – Annual Wear & Tear Allowance

12.5% straight line basis (Written off over 8 years)
Annual allowance – full years allowance given in year of purchase even
if the asset is only in use for a short period at the end of the year and none
in year of disposal
The only time a full years allowance is not given is when there is a short
basis period (less than 12 months)

Calculating TWDV
Tax Written Down Value is the purchase price less total capital
allowances claimed to date.
Required:
 Original cost of the asset
 Date of purchase and first use
 Accounting end date

Assets used for Business and Private purposes

Only the business portion of the wear and tear allowances is allowable
as a deduction against Case I/II Income
However, full annual allowances is used in calculating TWDV and when
full year Wear & Tear is calculated the private % is ignored for use against
tax adjusted profits
Examples; cars, laptops, phones
38
Motor Vehicles
Restrictions apply to the amount that will qualify for capital allowances
The purpose of this is to prevent a sole trader taking a very large tax
deduction for the cost of a very expensive car
The restricted cost for capital allowances are based on the C02
emissions of the car
For Motor vehicles, it is better to treat each vehicle separately
From 1 July 2008 the limits placed on the amount that will qualify for
capital allowances:
 Category A, B and C (up to 155 g/km) have a qualifying cost of
€24,000 regardless of the cost of the car
 Category D and E cars (from 156 g/km to 190 g/km) have a
qualifying cost of 50% of the cost of the car up to a maximum of
€12,000
 Category F and G cars (over 190 g/km) do not qualify for capital
allowances
From 1 January 2021 the limits placed on the amount that will qualify for
capital allowances:
 Category A & B (up to 140 g/km) have a qualifying cost of €24,000
regardless of the cost of the car
 Category C cars (from 140 g/km to 155 g/km) have a qualifying
cost of 50% of the cost of the car up to a maximum of €12,000
 Category D, E & cars (over 155 g/km) do not qualify for capital
allowances

Motor Vehicles – Taxis and short-term hire

Wear and Tear allowance is calculated at 40% of full cost with no limit
Reducing balance applies

39
Qualifying cost and VAT
Recoverable VAT is excluded from the qualifying cost for capital
allowances
VAT is recoverable if the trader is VAT registered and the purchase
qualifies for a VAT input credit – Accounting issue in the accounts and not a
tax return issue
Non-recoverable VAT is included in the qualifying cost

Government capital grants

The qualifying cost for capital allowances excludes the amount of capital
grants receivable in respect of the asset

Balancing allowances/charges
Calculated when an asset is sold – compare the proceeds against the
tax written down value of the asset at the beginning of the year
 A balancing allowance arises when the sales proceeds are less
than the remaining unclaimed capital allowances (TWDV)
 A balancing charge arises when the proceeds are more the
remaining unclaimed capital allowances (TWDV)

Events triggering balancing allowances/charges

Sale or transfer of ownership of the asset
Asset permanently ceases to be used for purposes of the trade
A permanent cessation of trade
Assets transferred to a company on incorporation of a previously
unincorporated business
The assets is destroyed
40
Implications of Balancing Allowance / Charge
 Balancing Allowance is added to the annual wear and tear thus
increasing capital allowances to be offset against the tax adjusted
profits of the business (good)
 Balancing Charge is deducted from the annual wear and tear thus
reducing capital allowances to be offset against the tax adjusted profits
of the business (bad)

Exemption from balancing charge

Where sales proceeds received are less than €2,000 a balancing charge
will not arise
Does not apply when disposal is between connected parties
A balancing allowance can still arise however

Limitation of a balancing charge

A balancing charge is a clawback of excess capital allowances claimed
A balancing charge cannot exceed total capital allowances claimed in
respect of the asset

Replacement Option
Where plant and machinery is disposed of and replaced with similar
equipment any balancing charge on the disposed equipment can be
deferred
Cost of new equipment is reduced by the balancing charge
Replacement equipment must be purchased in the same basis period as
the old equipment was disposed

41
Balancing Allowance/Charge on Motor Vehicles
Restrictions are placed on the qualifying cost of motor vehicles based on
the emissions of the car
When a car is disposed it is necessary to adjust the sales proceeds in
the balancing calculation to reflect the restriction on the capital allowances
available
Sales proceeds * specified amount / actual cost of the car

Capital Allowances in a commencement

Where the basis period is less than 12 months the annual wear & tear is
proportionately reduced
Where two periods overlap, the common period shall be deemed to fall
in the first basis period only
Where there is an interval between the end of the basis period for one
year of assessment and the next year of assessment, the interval shall be
deemed to be part of the second basis period

Capital Allowances in a cessation

However, where there is an interval between the basis period for the
penultimate and final years of assessment, the interval shall be deemed to
be part of the penultimate basis period.
This will not apply where the penultimate year is revised to actual profits.

42
 Capital Allowances – Industrial Buildings
Introduction
Certain types of buildings qualify for capital allowances
Referred to as industrial buildings
Two types:
 Industrial buildings initial allowances
 Industrial buildings writing down (annual) allowance (IBAA)

Industrial Buildings
Defined in legislation under s.268 TCA 1997
Building or structure in use:
 For purposes of a trade carried on in a mill, factory or similar
premises
 For purposes of a dock undertaking
 For purposes of market gardening
Building or structure in use:
 For the intensive production of cattle, sheep, pigs, poultry or eggs
 For purposes of a hotel trade
 For purposes of a trade in caravan and camping sites
 For purposes of recreation of employees by employer carrying on
the above trades
Building or structure in use:
 A lab used in relation to extraction of oil, gas or minerals
 A business located in certain tax designated areas
 Airport management and operation
 Aircraft maintenance
43
Building or structure in use:
 Nursing homes
 Childcare facilities
 Private hospitals and sports injury clinics
 Specialist palliative care
The cost of the site is specifically disallowed
Cost of site development is allowed;
 Preparing, cutting, tunnelling, levelling land and installation of
services on the site
Grant aided expenditure is specifically disallowed (excluding hotels)
For hotels, receipt of grant assistance results in the building not being
treated as a qualifying industrial building and no allowances are available

Excluded from definition of industrial building

Buildings or structures used as a dwelling house
Buildings or structures used as a retail shop
Buildings or structures used as a showroom or office (administrative
office not drawing office)
Buildings or structures used for a purpose ancillary to any of the
foregoing
Where part of a building is and part is not an industrial building and the
capital expenditure on the non industrial section does not exceed 10% of
the total capital expenditure incurred on the whole building then the whole
building will be treated as an industrial building.
Where the cost of the office or shop etc exceeds 10% of the total
expenditure, the full cost of the office / shop is disallowed and not just the
excess over the 10%

44
Industrial buildings annual allowance
To qualify for an IBAA the following conditions must be met:
 The industrial building or structure must be in use on the last day
of the basis period for the purpose of a qualifying trade, and
 The person claiming the allowance must own the relevant interest
 Qualifying expenditure includes expenditure on
 Preparing, tunnelling and levelling of land for foundations
 Strengthening the structure of an existing building
 Erection of additional interior walls in an industrial building
 Additions to / improvements of entrances, stairways, ramps,
access roads and main supplies of water/gas
 The following expenditure is specifically disallowed
 Acquisition cost of land
 Expenditure on the provision of plant and machinery
 Expenditure which qualifies for capital expenditure on scientific
research or mining development allowance

Industrial buildings annual allowance rates

Factories, mills and docks – 4%
Hotels, caravan and camp sites – 4%
Nursing homes, hospitals – 15% for first 6 years and 10% in year 7.
Buildings first used tax life has been increased from 7 to 15 years
Childcare facilities – 15% for first 6 years and 10% in year 7. Buildings
first used tax life has been increased from 7 to 15 years.
IBAA is calculated on a straight-line basis

45
Industrial buildings tax life
The length of the tax life is period over which capital allowances can be
claimed.
So, for a factory the IBAA is 4%, giving a tax life of 25 years
If a building is sold after its tax life has expired the vendor does not
suffer a balancing charge
If a building is sold before its tax life has expired a balancing
allowance/charge calculation must be completed – Proceeds V’s TWDV of
the building
 The purchaser of a second hand building will not be entitled to capital
allowances if the tax life of the building has expired
 The purchaser of a second hand building will be entitled to capital
allowances if the tax life of the building has not expired, and they
continue to use the building as a qualifying industrial building
 Where the second hand building qualifies for capital allowances, the
qualifying cost will be the lower of the price paid and the original cost
 The annual allowance available is spread equally over the balance of
the remaining tax life of the building
 In our example that would be: lower is original cost of €500K with 15
years tax life left so annual allowance is €33,333.

46
 Farming Income
Introduction
 Farming means farming farm land, that is land in the State wholly or
mainly occupied for the purposes of husbandry, other than market
garden land
 Profits from farming fall within Schedule D Case I
 Normal rules of Schedule D Case I apply with the exception of stock
relief and income averaging

Stock Relief – Young Qualifying Farmer

 Qualifying conditions:
 Be under age 35 at commencement of tax year in which he/she
commences farming
 Holds recognised certificates or qualifications in farming
 Qualify for grant aid under Scheme of Installation Aid for Young
Farmers
 First became chargeable under Case I from farming in 2008 or
subsequent year. Applies to periods ending on / before 31.12.21
 100% stock relief for 4 years
 Reduces to 25% after 4 years
 No claw-back of relief
 Applies where closing trading stock is greater than opening trading
stock

Stock Relief – Young Qualifying Farmer

 Opening stock at 1/1/18 €20,000
 Closing stock at 31/12/18 €25,000
 Increase in value of trading stock €5,000

47
 Farming profits for y/e 31/12/18 €7,000
 Less stock relief (100%) (€5,000)
 Revised farming profits for 2018 €2,000

Stock Relief – Other farmers

 Other farmers can claim stock relief of 25% of the increase in value of
trading stock or 50% if a partner in a registered farm partnership.

Stock Relief – Other farmers

 Opening stock at 1/1/18 €20,000
 Closing stock at 31/12/18 €25,000
 Increase in value of trading stock €5,000

 Farming profits for y/e 31/12/18 €7,000

 Less stock relief (25% of €5k) (€1,250)
 Revised farming profits for 2018 €5,750

Stock Relief – Restrictions

 Stock relief cannot create or augment a loss
 Capital allowances cannot create or augment a loss when stock relief
has been claimed
 Farming losses forward from previous tax years must be utilised in the
tax year in which the stock relief is claimed
 Unutilised wear and tear allowances from that tax year or carried
forward from previous years cannot be carried forward to subsequent
years

48
Basis of assessment
 General Rule
 The basis period for the year of assessment is the accounting
period of 12 months ending in the year of assessment.

Income Averaging
 Option to elect for income averaging
 Full-time farmers may elect to be charged on the basis of the average
of the aggregate farming profits and losses (before deduction of cap
allow) of the 5 years ending in the year of assessment
 A farmer must stay on income averaging for a minimum of 5 years
 Prior to 01 Jan 15, the period was 3 years
 A farmer must elect for income averaging by written notice within 30
days of receiving an assessment to tax
 Cannot opt for averaging if a loss/ no tax was made in any of the four
prior tax years
 Election will remain in force until the farmer either opts out of averaging
or ceases to be a qualifying farmer
 Where farmer opts out of averaging, the immediately preceding 4 tax
years’ assessments are reviewed to ensure the amount charged in
those years is not less than that charged for the final year of averaging.

Stallion fees and profits

 Exempt up to 31 July 2008
 Taxable from 1 Aug 2008
 Stallions are to be treated as stock in trade where income from stud
fees and profits from sale of stallions are fully taxable
 Corporate owners – taxed at 12.5%
 Individual owners – taxed at marginal rate
49
 A full write off over 4 years of the initial market value is allowed for tax
purposes (25%)
 Includes stallions purchased for stud and transferred from racing
 Upon disposal or death, write off of the cost of a stallion is allowed as a
deduction / write off.
 This write off arrangement applies for stallion owners and members of
a syndicate
 However, losses for syndicates are ring fenced and can only be used
against future stallion stud income

50
 Taxation of Partnerships
Partnership
 Partnership Act 1890 is fundamental to the understanding partnerships
and taxation
 Where two or more individuals come together to carry on a business
with view to a profit
 The taxation of partnerships is covered in S1007 to 1012 of the Taxes
Consolidation Act 1997

Relevant period
 A continuing period during which a trade is carried on by two or more
persons in a partnership and during which a complete change of
proprietorship did not occur at any time.
 For example if John and Bernard are in partnership and Shay is
admitted as a partner on 01 July 2018, the partnership continues

Relevant period - begins

 When the trade is commenced by two or more persons in partnership
 Where a trade previously carried on by a sole trader becomes a
partnership
 Where the previously carried on by a partnership becomes carried on
by another partnership

Relevant period - ends

 When the trade ceases
 When the partnership is succeeded by a sole trader
 Where the previously carried on by a partnership becomes carried on
by another partnership

51
Taxation
 A partnership is not a separate legal entity
 Two or more sole traders
 For taxation purposes, all partners in a partnership are assessed on
their share of the profits in the partnership which is determined based
on the partnership agreement in force for the accounting period
 Partners are individually liable for their respective tax liabilities
 The tax adjusted profits of the partnership are calculated in the normal
way (under Case I/II rules)
 However there are some additional features which are unique to
partnerships which we will address
 Where the profit sharing ratio is constant in basis period
 Where the profit sharing ratio changes in basis period
 Undistributed profits are allocated for tax purposes to each
partner and taxed at the marginal rate

Joining and leaving an existing partnership

 Commencement rules will apply to a new partner when they join the
firm, but not to the existing partners
 Cessation rules will apply to partner leaving the firm, but not to the
existing partners
 In both cases, the profit sharing ratio may also change and this would
impact the existing, remaining partners

52
Capital Allowances
 Calculated in normal way
 Total capital allowance claim is split between partners on the basis of
the profit sharing ratio that applies in the actual income tax year (as
apposed to spilt of profits which are done per the ratio that applies
during the basis period)
 Where profit sharing ratio changes during the income tax year, it is
necessary to time apportion the total claim
 It should also be noted that while capital allowances can augment a
loss for S381 purposes, unutilised capital allowances may not be
carried forward by a partner who has insufficient income to absorb his
share of the capital allowances.
 In these circumstances the unutilised capital allowances revert to the
partnership and are added to the capital allowances claim of the
subsequent period in accordance with the profit sharing ratio.

Losses
 Losses are apportioned in the same way as profits
 A loss can be created or augmented by capital allowances
 Each partner has discretion as to how to use their loss in a particular
period. Option to
 Offset against other income under S381
 Carry forward to use against partnership profits in the future under
S382

53
Adjustments unique to Partnerships
 Interest on capital – partnership agreements can have a clause which
states partners are entitled to interest on capital invested, which is
simply an apportionment of profits
 It is not an allowable deduction for Case I/II
 Partners Salaries – the agreement will usually contain a clause that
partners will receive a salary prior to the apportionment of
profits/losses.
 Partner salaries are not an allowable deduction for Income tax
purposes

Administration
 Precedent partner is responsible for admin
 Form 1 partnership return for the partnership
 Form 11 income tax returns for the individual partners

54
 Professional Services Withholding Tax
PSWT
 20% withholding tax
 Deducted at source from payments by accountable persons to provider
of professional services
 Accountable persons are government departments, local authorities,
HSE, RTE, state bodies etc
 Examples of professional services include medical, dental,
pharmaceutical, optical, accounting, architectural and legal services.
 Where an accountable person makes a payment to an individual or
company in respect of professional services they must withhold 20% of
the payment and pay it over to Revenue.
 The recipient receives 80% of the payment due to them and a form
F45 which provides details / evidence of the gross payment and tax
deducted.
 A refundable credit given on the individual / company income tax /
corporation tax return

 Example – John, a solicitor, provided legal services to RTE in June

2020 for €10,000.
 RTE will withhold 20% (€2,000) on the payment
 John will receive net of €8,000 and a form F45
 John prepares accounts up to 30 September 2020 which forms
th

the basis for the tax year 2020.

 John income tax return will include the gross €10,000 he received
as a Case II figure, be taxed and will get a refundable tax credit of
€2,000

55
 Relevant Contracts Tax
Introduction
 Relevant Contracts Tax (RCT) applies to subcontractors working in the
construction industry, forestry operations and meat processing
industries
 It is a system of withholding tax introduced in an effort to ensure that
the subcontractors were paying the correct amount of Income Tax and
VAT on the amounts being invoiced.
 In order for the system of RCT to be applied there must be a principal
contractor, a subcontractor and a relevant contract between them
 The principal contractor must withhold tax at 0%, 20% or 35% on
payments made to a subcontractor under a relevant contract

Principal Contractor
 A builder or other contractor in construction who subcontracts all or
part of this contract
 A person carrying on the business which includes the erection of
buildings, development of land, meat processing, forestry operations
 A local authority
 A Minister of state
 A person who carries on any gas, water, electricity, dock, canal or
railway undertaking.
 Any board established by statute
 A person carrying on repair, installation or alteration of a
telecommunication system

56
Relevant Contract
 A contract where one person is liable to another to:
 Carries out the relevant operations, or
 Is answerable for the carrying out of such operations by others, or
 Acts as an employment agency in arranging the labour of others,
or
 Furnishes his/her labour or the labour of others in carrying out the
operations

Relevant Operations
 This includes any of the following
 Construction, alteration, repair, extension, demolition of buildings
& land
 Installation in a building a system of heating, lighting, air
conditioning, sound proofing, ventilation, power supply, drainage,
 The development of land
 Forestry and meat processing operations

Operation of scheme
 Obligation on Principal provides Revenue with details of contract and
subcontractor
 Electronically
 Subcontractor name and tax ref number
 Value of contract
 Declaration that its not a contract of employment
 Immediately prior to a payment, the Principal must notify Revenue of
the amount of payment
 Revenue informs Principal of the deduction to be made
 Called a deduction authorisation
 Specifies rate to be applied (decided by Revenue)

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 There are 3 rates of RCT that Revenue can apply
 Zero rate for fully tax compliant subcontractors
 20% for substantially compliant subcontractors
 35% for all others
 Revenue will maintain a record of the tax deducted and issue a
quarterly statement to the subcontractor
 Principal must pay tax to Revenue by 23rd of following month, along
with filing a return (pre-populated by Revenue on ROS following
notifications of payments)
 Principal can be liable for penalty of €5,000 plus RCT at 35% for failing
to deduct tax correctly
 Late filing of return is liable to interest at 0.0219% per day from 14th of
month
 A subcontractor subject to 35% rate can apply for repayment from
Revenue and once all tax liabilities are satisfied, Revenue will repay
excess
 Otherwise, RCT is applied as a deduction against income tax for the
subcontractor, much like preliminary tax

58
 Income Tax - Losses
Introduction
 Losses calculated in same way as profits, adjusted for tax purposes
 Sole trader is entitled to obtain tax relief for the losses incurred, as he
is taxed on the all of the profits made.

Impact of Capital Allowances on Losses

 Where capital allowances are available for the year of assessment in
which the loss arises the following can apply
 Increase the amount of the loss available
 Turn a profit into a loss where the capital allowances exceed the
profit
 Capital Allowances brought forward cannot be used to create or
augment a S381 loss

Loss Relief
 Where a loss arises, nil is entered in the Income Tax computation and
return for Case 1/11 profit
 Two options for claiming loss relief:
 Current year loss relief (s.381) against all other sources of
income in the year of assessment
 Carry losses forward (s.382) against future profits of the same
trade

59
Current Year Loss Relief
 Relief given against all other sources of income
 Loss must be offset against gross income before charges, reliefs,
allowances and credits
 For a jointly assessed married couple the loss can also be offset
against the spouses income
 Claim for current year loss relief must be made within two years of the
end of the year of assessment in which the loss arises
 The full amount of the loss must be claimed under S381 to the extent
that it can be absorbed by the gross income
 To claim relief for business losses against other income, the individual
must be actively involved in the loss making business, spending an
average of 10 hours per week during the tax year working on
commercial activities in the trade.
 If the individual spends less than 10 hours per week working in the
trade, the loss relief claimed by an individual is capped at €31,750 for
the tax year. This limit is reduced proportionately if the individual has
not carried on the trade for the full year.

Losses Carried Forward

 Relief given against future trading profits only
 The losses are used to offset taxable profit after the deduction of
capital allowances
 Relief is granted against the first available trading profits from the
same trade
 Losses can be carried forward indefinitely

It is worth nothing that:

 Sometimes where other income is low in the year the loss arises it may
be better to carry the loss forward rather than claiming loss relief in the
year that it arises

60
Terminal losses
 Where the trade has been permanently discontinued and in the 12
months to the date of cessation a loss has been sustained
 The loss may be offset against the trading profits for the three years of
assessment prior to the year of cessation provided relief has not been
claimed for the loss under any other section
 Terminal loss made up of:
 Loss in year of cessation
 Capital allowances in year of cessation
 Loss in part of penultimate year starting 12 months before date of
cessation
 Capital allowances for penultimate year apportioned to number of
months starting 12 months before date of cessation

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 Investment Income
Overview
 Income can be divided into two categories
 Earned Income – Schedule E and Case I/II
 Unearned Income:
 Schedule D Case III
 Schedule D Case IV
 Schedule D Case V
 Schedule F

 Schedule D Case III

Sources of Income
 Interest Income not subject to Irish tax at source (i.e. DIRT)
including interest on untaxed securities issued by the Minister for
Finance
 Income from foreign securities and possessions
 Shares in lieu of dividends receivable from non –resident
companies.

Basis of Assessment
 Income taxed in the year of assessment in which it arises.
 For Case III income arises when it is received.
 However, foreign trading income and foreign rental income
calculated in the same way as domestic trading and rental income
– i.e. when earned.

62
Allowable Deductions
 No deductions against most sources of Case III income
 Deduction for foreign tax allowed when not allowed as a credit
under a double taxation agreement
 Foreign rental income is calculated in the same way as Irish rental
income
 Foreign trading income calculated in the same way as Irish
trading income

UK Dividends
 Taxed on the amount received. UK tax deducted is ignored.

UK Interest
 Taxed on the gross interest where recipient is a resident of
Ireland. UK tax can be reclaimed from the UK tax authority.

 Schedule D Case IV
Sources of Income
 Income subject to Irish tax at source (DIRT)
 Dividends received from a credit union
 Shares received in lieu of dividends
 Income received following the cessation of a trade
 Profits from unlawful activities
 Certain maintenance payments
 Profits / gains not otherwise chargeable under any other schedule
 Partnership profits not allocated to partners
 Sale of patent rights for a capital sum

63
Basis of Assessment
 Income taxed in the year of assessment in which it is received.

Deposit Interest Retention Tax (DIRT)

 Financial Institutions obliged to deduct DIRT from Deposit Interest
earned on Irish bank accounts.
 Current rate of DIRT is 33%.
 DIRT is a full discharge of income tax on deposit interest, even if
individual is liable to tax at the higher rate. However, the gross interest
is liable for PRSI where appropriate
 DIRT is not subject to USC

Exemptions from DIRT

 Non-resident individuals
 Over 65s when their income does not exceed relevant thresholds
 Permanently incapacitated individuals
 Charities
 Companies that pay Corporation Tax
 Revenue approved pension schemes
 First time buyers who use their savings to purchase a property before
31st December 2021.

Taxation of Deposit Interest

 Deposit Interest must be included in the Income Tax Computation
 The Gross amount is included, not the net amount
 May be necessary to re-gross the net amount ( / 0.67)
 An extra line is included in the tax calculation for the 33% rate
64
 A credit is given for DIRT paid

DIRT Tax Credit

 The DIRT credit is a non-refundable credit for under 65 year olds
 The DIRT credit is a refundable credit for over 65s under the
exemption thresholds

 Schedule F
Sources of Income
 Dividends or distributions from Irish resident companies are taxed
under Schedule F.

Basis of Assessment
 Dividends are taxed in the tax year in which they are received.
 The companies financial year for which the dividend is paid is
irrelevant.

Dividend Withholding Tax (DWT)

 The company paying the dividend is obliged to deduct tax at the
standard rate (25%) before they pay the dividend to shareholder and
pay to Revenue by 14th day of the following month
 The individual receives the net dividend.
 The gross dividend is included in the income tax computation.
 A Refundable Tax Credit is given in the computation for the tax
withheld.

65
Exempt from DWT
 Other Irish resident companies
 Charities
 Pension funds
 Permanently incapacitated individuals
 Individuals not tax resident / ordinarily resident in Ireland
 Companies not resident in the state that are directly / indirectly
controlled by residents of an EU country

 Schedule D Case V
Rental Income
 Irish rental income is taxed under Case V.
 Individual is taxed on the rental income less the allowable expenses –
rental profit.
 A rental account should be prepared for each individual property
 Basis of Assessment
 Taxed in the year of assessment on the income earned (when it
becomes receivable), not when it is actually received - so if some
of rental income for 2021 is not received until 2022 it would still be
included as part of income in 2021.

 Income from letting a property

 Easements – granting a right of way, the right to erect an advertising
display or grazing rights
 A portion of premiums on short leases
 Short term lettings such as B&B, Air B&B etc is not treated as Case V.
It is taxable as either Case IV (if occasional) or Case I if an ongoing
business.

66
Premiums on short leases
 A short lease is one for less than 50 years.
 A premium is a lump sum payment to the landlord at the start of the
lease – mainly applies to commercial leases
 Where a premium is received on a short lease, a portion of the
premium is treated as rental income in the year it is received and is
liable to ITax
 Premium x (51-No of years of lease)/50

Rental Expenses
 Expenses that are wholly and exclusively for the purpose of earning
rent.
 Not capital in nature.
 Include the following:
 Ground rent
 Rates
 Maintenance (excluding landlord own labour/time)
 Insurance
 Repairs
 Services provided/ paid for by landlord
 Accountancy fees
 Mortgage Protection policy premia
 Mortgage Interest

67
Rental Expenses – Mortgage Interest
 Interest on monies borrowed for the purchase, repair and improvement
of the rental property.
 100% of interest allowable as a deduction for commercial property.
 100% of interest allowable as a deduction for residential property only
when the PRTB registration requirements are complied with.
 A mixed property would be apportioned.

Pre-letting expenses
 In general pre-letting expenses are not allowable.
 Allowable pre-letting expenses are
 Advertising expenses
 Letting fees
 Legal fees for drawing up the lease
 An exception included in Finance Act 2017. The deductible expenses
are those incurred on residential premises which have been vacant for
at least 12 months and which are then let as residential premises
between 25.12.17 and 31.12.21
 The expenditure must be incurred in the 12 months prior to the
premises being let as residential
 The deduction allowed is capped at €5,000 per vacant premises and if
ceased to let within 4 years of the first letting there is a clawback

Expenses between leases

 Expenses are allowed provided that:
 The landlord does not occupy the property between the
tenancies.
 The property is subsequently the subject of another lease.
 The expenses would otherwise be deductible.

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Capital Allowances
 Capital expenses are not allowed as a deduction against rental income
 May qualify for capital allowances at 12.5% on a straight line basis
 Capital allowances may be claimed on expenditure incurred on fixtures
and fittings, e.g furniture, fitted kitchens, carpets, curtains etc

Rental Losses
 Calculated the same as a profit
 A loss is set against other Irish rental profits in the current year, or
 Carried forward against future Irish rental profits
 Cannot be set against other income including foreign rental income
 Note that capital allowances must be deducted in priority to losses
c/fwd
 Losses can be c/fwd indefinitely

Favoured / Uneconomic Lettings

 Where rent receivable under a lease is insufficient to meet the landlord
outgoings
 Outgoings include maintenance costs, repairs, insurance and premises
management costs
 Losses arising from favoured lettings cannot be used against other
rental profit either in the current year or future years

69
Rent a room relief
 Individual resides in the property as their principal private residence
during the tax year.
 Residential property in the State.
 Receive rent for one or more rooms in the residence from someone
other than their child (ren).
 Gross Rental Income (before expenses are deducted) must be below
€14,000.
 Income is exempt from Income Tax, PRSI and USC.
 If Gross Rental Income exceeds €14,000 then the full rental income is
taxable.

Taxation of Reverse Premiums

 Where an inducement to enter a lease is made to a prospective tenant
(popular for commercial premises), such inducement is treated as
taxable under Case V or Case I/II where the prospective tenant carries
on a trade or profession.

Exemption of Income from Leasing of Farmland

 Exemption from Income Tax is granted where
 The income must arise from leasing of farmland
 The lease must be in writing and for 5 years or more
 The land may be leased to an individual or company
 The land may not be leased from a connected person
 The leasing of a husband and wife / civil partners is treated separately
for the purpose of the relief
 The limits for a qualifying lease are
 €18,000 for a lease of 5 years
 €22,500 for a lease of 7years
 €30,000 for a lease of 10 years
 €40,000 for a lease of 15 years or more
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 Tax Credits

Non-Refundable Tax Credits

 Deducted from total tax before refundable credits are deducted
 Cannot produce a refund when deducted from total tax
 Arise due to personal circumstances or certain expenses incurred

Personal Tax Credits

 Single €1,650
 Married/Civil Partnership €3,300
 Widowed (no dependent
children) €2,190
 Single Person Child Carer €1,650

Single Person Child Carer Tax Credit

 Single, Separate or Widowed individual
 Maintains qualifying child
 Claimed by the primary carer
 Cannot claim if:
 Parent is cohabiting
 Parent is entitled to married credit or widowed person’s credit in
year of bereavement
 Qualifying child:
 Under 18 years of age
 Over 18 and in full time education or training for a trade or
profession for period of not less than 2 years
 Permanently incapacitated
And

71
  Is child of claimant or in custody of claimant, and maintained by
claimant

Additional Widowed Parent Tax Credit

 Qualifying child must reside with claimant
 Claimant must not be remarried
 Claimant not cohabiting
 Available in addition to one parent family credit
 Credit is claimed for the 5 years after the year of bereavement
 Year 1 €3,600
 Year 2 €3,150
 Year 3 €2,700
 Year 4 €2,250
 Year 5 €1,800

Home Carer Tax Credit

 Available for jointly assessed married (civil partnership) couple only
 One spouse must care for a dependent
 Normally dependent resides with couple
 Home carer with income of less than €7,200 qualifies for full credit of
€1,600
 Credit not available when income exceeds €10,400
 Where home carer’s income is between €7,200 and €10,400 the credit
is restricted as follows:
 €1,600 less ((€Income - €7,200)/2)
 Further restrictions on this credit covered with taxation on married
couples / civil partners

72
Age Tax Credit
 €245 for single person, €490 for married couple
 Full €490 credit for married couple given when one spouse reaches 65
in the tax year, no further credit when second spouse turns 65

Blind Persons Tax Credit

 Credit of €1,650 when either spouse is blind for all or part of the year
 Where both spouses are blind the credit is €3,300

Employee (PAYE) Tax Credit

 Employees who receive income under Schedule E entitled to this credit
 Full Credit is €1,650 but must have Schedule E income of at least
€8,250
 Schedule E income under €8,250 is multiplied by 20% to get the
amount of the credit
 Proprietary directors are not entitled to this credit
 Spouse of proprietary director not entitled to credit if he/she works for
same company
 A spouse of a self-employed individual, employed by the self-employed
individual is not entitled to the credit
 A child of proprietary director will qualify for the credit if they work full
time for the company and earn at least €4,572 from the employment

Incapacitated Child Credit

 €3,300 (can be spilt proportionally and claimed for each relevant child)
 Child under 18 and permanently incapacitated
 Child over 18 but became permanently incapacitated before 21 or
before completing full time education

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Dependent Relative Credit
 €70
 Available where a person maintains at their own expense:
 A relative or spouses relative incapacitated by old age or infirmity
 A widowed parent of the taxpayer or their spouse
 A son or daughter who resides with the taxpayer and the taxpayer
is dependent on
 Dependent relative cannot have income of more than €15,740 in 2021

Third Level Education Tax Credit

 Approved College and Approved Course
 Relief for Tuition Fees only
 First €3,000 of fees for full time course and first €1,500 of fees for part
time course do not qualify for relief
 Maximum amount of fees on which relief is available is €7,000
 Credit calculated as the lower of:
 Amount of qualifying fees paid x 20%
 €7,000 x 20%
Medical Expenses Tax Credit
 Credit is calculated as 20% of qualifying expenses
 A number of medical expenses qualify
 Qualifying expenses reduced by any reimbursed amounts

Earned Income Tax Credit

Can be claimed by an individual who has earned income from a trade,
profession or employment income) and is not entitled to claim the
Employee Tax Credit in respect of that income.
The credit available for 2021 is €1,650

74
If an individual qualifies for both the Employee Tax Credit and the Earned
income tax credit, the maximum amount that can be claimed by the
individual in respect of both credits is €1,650.
In order to claim the max credit of €1,650, the individual must have
income of at least €8,250. If it is less then the tax credit is restricted to
 Earned Income * 20%

Refundable Tax Credits

 Tax already paid on income
 Deducted in the tax computation after Non-Refundable Tax Credits
 The deduction of Refundable Tax Credits may result in a tax refund
 PAYE Paid
 Dividend Withholding Tax (DWT)
 Professional Services Withholding Tax (PSWT)
 Relevant Contracts Tax (RCT)
 Tax on Annual Payment such as DOC
 Deposit Interest Retention Tax (DIRT)

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 Allowances and Other Reliefs

Allowances/ Reliefs
 In Computation Allowances/Reliefs are deducted before tax is
calculated
 Has the effect of reducing the amount of taxable income
 Allowances/ Reliefs are more favourable to taxpayers paying tax at the
higher rate
 Employed Person looking after an Incapacitated Individual
 Permanent Health Insurance
 Pension Contributions
 Film Relief
 Employment and Investment Incentive
 Seed Capital Relief

Employed Person looking after an Incapacitated

Individual
 Permanently Incapacitated person being the taxpayer, taxpayer’s
spouse or a relative of the taxpayer or spouse.
 Maximum relief is €75,000
 Relief can be apportioned
 If claimed, the Dependent Relative Credit and Incapacitated Child
Credit cannot be claimed

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Permanent Health Insurance
 Income Protection
 Relief available on premiums paid for PHI
 Relief only available to a maximum of 10% of total income
 Income from PHI policy is taxable income

Pension Contributions
 Occupational Pension Schemes
 Personal Pension Plans and Retirement Annuity Contracts
 Personal Retirement Savings Accounts (PRSA)

Maximum Tax Relievable Pension Contributions

 Maximum calculated as an age related percentage of Net Relevant
Earnings
 Investment Income not considered
 Earned Income (Schedule E, Case I/II) only
 Net Relevant Earnings for Self-Employed:
 Income from Trade/Profession
 Less Capital Allowances, Losses and Excess Charges
 Net Relevant Earnings for Employed:
 Non-Pensionable Employment Income
 Less Charges
 Maximum Net Relevant Earnings: €115,000
 NRE calculated separately for husband and wife
 Compare max can pay into pension against actual payments
 Paid within tax year and
 Anytime up to tax return filing date for the year of assessment
 Any amount paid that cannot be deducted can be carried forward
as paid in the following year

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 Age Related Percentages:
 Age up to 29 15% of NRE
 Age 30 to 39 20% of NRE
 Age 40 to 49 25% of NRE
 Age 50 to 54 30% of NRE
 Age 55 to 59 35% of NRE
 Age 60+ 40% of NRE

Film Relief
 Tax relief for investment in a qualifying film
 Minimum investment €250
 Maximum relief €50,000
 Example:
 Income €60,000
 Film investment €40,000

Employment and Investment Incentive

Available to qualifying individuals who subscribe for qualifying shares in
a qualifying company
Extensive conditions apply in order to be deemed ‘Qualifying individuals’
who subscribe for ‘Qualifying shares’ in ‘Qualifying companies’
Relief available at 30/40 in year of investment with 10/40 in the 4 th
year
after the initial investment. For shares issued after 08.10.19 – full relief
available in the year of investment.
Maximum relief in any one year is €150,000 up to 31.12.19 / €500,000 in
respect of years after 2019, subject to being held for 7 years / €250,000 in
respect of years after 2019, subject to being held for 4 years.
Amounts above this can be carried forward

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Seed Capital Scheme
Aimed at individuals setting up their own business.
Relief is deducted from total income.
Can be claimed for six years prior to tax year in which investment takes
place
Maximum relief is €600,000.
Maximum relief in one year is €100,000.
Conditions:
 Individual must be a full-time director/employee of the company
 Individual must derive at least 75% of income from Schedule E
sources
 Must acquire at least 15% of ordinary share capital of the seed
capital company

Relief for Charges on Income – Deed of Covenant

 A deed of covenant is a legal document binding a person to make
periodic payments to another person
 Any amounts can be paid under a Deed of Covenant but there are
limited circumstances in which the payments will qualify for tax relief.
 The convenant must be capable of lasting for more than 6 years to
qualify for tax relief.
 Covenant to Minor Children
 Relief available when
 Covenant in favour of permanently incapacitated child, and
 Covenant to a child other than covenanters own child
 Covenant to Adults
 Relief available when
 Covenant in favour of permanently incapacitated adult, or
 Covenant in favour of adult over 65

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  Maximum amount allowable for relief on covenant to an over 65 is
5% of covenanter’s income
 Amount paid subject to deduction of 20%
 Gross amount deducted as a charge in covenanter’s computation
 Tax deducted paid over to Revenue
 Covenante is taxable on gross amount received and gets refundable
credit for tax deducted

Exempted Individuals
 Over 65s whose income does not exceed relevant limits
 Relevant limits:
 Single €18,000
 Married €36,000
 Additional €575 for first two dependents, €830 for all other dependents
 Marginal relief applies where income marginally exceeds relevant limits
 Has effect that maximum tax payable is 40% of excess above relevant
limits

Start your own business exemption

 After 12 months continuous unemployment
 Relief on first €40,000 per annum taxable profits
 For first 24 months of trading
 Available from 25 October 2013 to 31 December 2018

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 Taxation of Married Couples / Civil
Partnerships

Three Options
 Single Assessment
 Joint Assessment
 Separate Assessment

 Taxation of Married Couples / Civil Partnerships

Single Assessment
 Each partner treated as single person
 Single rate band and credits
 Must opt for single assessment before end of the tax year

 Taxation of Married Couples / Civil Partnerships

Joint Assessment
 Must be married and living together
 Revenue automatically puts a couple on joint assessment when
notified of marriage
 One spouse is assessed on joint income of the couple
 To elect to be jointly assessed, have to let Revenue know by 1 April of
the tax year

Benefits of Joint Assessment

 Married Tax Credit

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 Home Carers Credit
 Increased standard rate tax band
 Double mortgage interest relief

Tax Bands for Married Couple

 €35,300 for each spouse
 €9,000 transferrable between spouses (max)
 €70,600 is maximum standard rate band for a couple
 Option of bands to maximise standard rate
 €35,300 + €35,300 = €70,600 or
 €44,300 (€35,300 + €9,000) + €26,300 (being €35,300 - €9,000) =
€70,600

Separate Assessment
 Each spouse taxed separately
 Unused credits and rate band transferred to other spouse
 Liability cannot exceed liability if the couple was jointly assessed
 Must elect for separate assessment by 1st April of tax year

 Both spouses assessed separately, filing two separate returns

 Personal credit, age credit, blind person’s credit and incapacitated child
credit divided equally
 Other credits claimed by individual incurring expense or divided
between spouses where shared

Home Carer Tax Credit

 Available for jointly assessed married (civil partnership) couple only
 One spouse must care for a dependent
 Normally dependent resides with couple

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 Home carer with income of less than €7,200 qualifies for full credit of
€1,600
 Credit not available when income exceeds €10,400

 Where home carer’s income is between €7,200 and €10,400 the credit
is restricted as follows:
 €1,600 less ((€Income - €7,200)/2)
 The couple can choose to claim either the home carer credit or the
additional standard rate band on the home carers income. Cannot
choose both.

Year of Marriage
 Treated as single persons for the year
 Calculate the liability as if married for the year
 When tax as married couple is less than tax as two single people then
they can apply for a refund based on following formula
 A x B /12
 A = The additional tax due as two single people
 B = Number of months married in the year

Year of Death
 Treatment depends on the assessment basis prior to death
 Where single assessment applied before death, there is no change to
the taxation of the surviving spouse, except for his/her entitlement to
the widowed person’s tax credit

Year of Death – Joint Assessment

 Treatment depends on whether the assessable spouse or non-
assessable spouse dies

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Year of Death – Joint Assessment – Assessable spouse dies
 Computation for deceased spouse will be from 1 January to date of
death
 Entitled to full married credit and full rate band
 Entitled to PAYE credit for both spouses if in PAYE employment
 Incapacitated child credit apportioned on time basis
 Computation for surviving spouse will be from date of death to 31
December
 Entitled to widowed persons’ tax credit in year of bereavement and
single person’s rate band
 Entitled to PAYE credit if in PAYE employment
 Incapacitated child credit apportioned on time basis

 Taxation of Married Couples / Civil Partnerships

Year of Death – Joint Assessment – Non-assessable spouse dies
 One tax computation required for assessable spouse
 Full income of surviving spouse for the year is taxed plus income of
deceased spouse to date of death
 Entitled to married credit and standard rate band
 Entitled to two PAYE credits if both spouses in PAYE employment

Separation and Divorce

 If a married couple/civil partnership are not living together and it is
likely to be permanent they are separated
 Separation can be an informal arrangement or under a legally
enforceable maintenance agreement

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Separation – legally enforceable maintenance agreement
 Two options – single assessment or joint assessment

Separation – legally enforceable maintenance agreement

 Single assessment
 Taxed as single persons and account for own tax liability
 Maintenance payments are deductible for person paying them
 Recipient is taxable on maintenance payments under Case IV
 Only maintenance payments to former spouse are taxable.
Maintenance payments for children are ignored for tax purposes.
 Joint assessment
 Taxed jointly on a separate basis
 Maintenance payments are ignored
 To qualify for this option:
 Both individuals must be Irish resident
 Cannot be remarried

Separation – no legally enforceable maintenance agreement

 Taxed as separate individuals
 No deduction available for maintenance payments
 Where one spouse can show they are maintaining the other, the
married credit can be claimed but not the married rate band

Year of separation
 Assessable spouse
 Taxed on their own full income for the year plus spouse’s income
to date of separation
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  Entitled to married credit and married rate band
 Non-assessable spouse
 Taxed on own income from date of separation to 31 December
 Entitled to single credit and single rate band
Divorce
 Couple must be separated for 4 years before they can divorce
 Tax arrangements are put in place after separation rather than divorce,
usually
 Can continue to be taxed in the same way after divorce as during
separation:
 Single assessment
 Joint assessment

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 Self-Assessment System

Income Tax Collection

 Pay As You Earn (PAYE) system applies to Schedule E income
 Employees fall under the PAYE system
 Employers responsible for the deduction of Income Tax, PRSI and
USC from payments to employees

Self-assessment
 Chargeable persons
 Generally a person whose income tax liability is not collected
through the PAYE system
 All proprietary directors (own more than 15% of the ordinary share
capital of a company)
 Key employees who file claims for R&D tax credits are chargeable
persons

The Pay and File System

 The obligations for chargeable persons under the above system is to
submit by 31 October:
 Pay Preliminary tax for the current tax year
 File an income tax return (Form 11) for the prior year
 Filing calculation of tax liability
 Pay the balance of income tax due for the prior year

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Preliminary Tax
 Preliminary tax is due for payment by 31 October in the tax year in
question.
 Taxpayer can chose the lowest of these options
 100% of previous year’s liability
 90% of current year’s liability
 105% of pre-preceding year’s liability (only if paying the tax by
direct debit and if pre-preceding year was not Nil)

Surcharge for late filing

 Tax returns if not submitted on time are subject to an automatic
surcharge
 5% of tax liability (after credit for PAYE already paid but before
taking account of preliminary tax paid) if return is made within two
months of due date
 10% of tax liability if return is more than two months late
 Note that surcharge for propriety directors is based on liability before
credit for PAYE already paid
 Where a surcharge is imposed for late filing not only does it increase
the tax liability owed but it can often result in the preliminary income
tax payment being insufficient giving rise to interest charges
 An Income Tax surcharge may also be applied when a chargeable
person has not filed a Local Property Tax Return or the appropriate
payment at the time the Income Tax return is being filed.

Late payment of tax

 Failure to pay the correct preliminary tax by 31 October in the tax year
in question and failure to pay the balance of income tax owed by the
31 October in the following year will result in interest being charged
from 31 October in the year that the tax fell due to the date of payment
 The rate of interest is 0.0219% per day

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Expression of Doubt
 If in doubt as regards an item to be included in a return of income, the
taxpayer is regarded as having made a full disclosure if they draw
attention to Revenue of the doubtful item
 However this provision will not apply where Revenue or the Appeal
Commissioner is of the opinion that the doubt was not genuine and the
taxpayer is acting to avoid or evade tax

Maintenance of Records
 Every taxpayer is required to retain records which will enable true
returns to be made.
 Records including accounts, books of accounts, documents or any
other data maintained relating to all sums of money received and
expended in the course of trade or other activity
 Must be maintained for a period of 6 years after the completion of the
transactions to which they relate.
 A person who fails with this is liable to a penalty of €1,520

Revenue Audit
 Following receipt of the tax return, Revenue may examine it – the
purpose of which is to establish whether or not the entries are
accurate.
 If not satisfied the return can be selected for a Revenue Audit
 Inspector of Taxes is entitled to take whatever actions within his
powers are deemed necessary to meet his/her objective
 4 year time limit unless deemed to act fraudulently
 Types of Revenue Audit
 Desk Audit – verification of specific claims for expenses,
allowances or reliefs is required
 Filed Audit – conducted at the business premises of the taxpayer.
Advance notice is given

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Revenue Audit – Powers of Revenue
 Section 905 TCA97 is the most widely used power by the Inspector of
Taxes to test the accuracy of the tax returns – allows:
 Examine all records
 Require any person present
 Search for any records or property
 Examine and take copies from any records
 Remove any records and retain for inspection
 Request information from a third party

Revenue Audit – Additional Tax Due

 Revenue will advise following examination
 Taxpayer can see a review if not happy
 Done by another Revenue official
 Undertaken by Director of Customer Services
 Can appeal with the Appeal Commissioner following receipt of an
assessment

Revenue Audit – Settlement

 Along with additional tax being potentially owed interest and penalties
are added
 Statutory interest at daily rate of 0.0219%
 Revenue and taxpayer may reach agreement on a cash settlement
 Rate of penalty depends on category of tax default – range from 10%
to 100% of tax payable

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 The scope of income tax
The scope of income tax
 The extent of an individual’s liability to income tax in Ireland depends
on whether the individual is:
 Resident in Ireland
 Ordinarily resident in Ireland and / or
 Domiciled in Ireland
 All these concepts have a very precise meaning and they are the rules
that apply to Ireland

Residence
 Individual is resident in the State if he/she is present in the State for
either
 183 days in the tax year or
 280 days over two tax years, the current and preceding tax year
(280 day rule)
 A day is counted as a day present in the state where the individual is
present here at any time during the day.
 An individual must spend at least 30 days in Ireland in a tax year. If
spends less than 30 days they will not be resident in that tax year even
if they otherwise meet the 280 day rule
 A person can elect to resident if don’t meet the 183 / 280 day rule as
long as the intend to be resident the following year. Elect so as to claim
tax credits, reliefs etc

Residence - Examples
 Example 1- Eric in Ireland 40 days in 2020 and 365 days in 2019
 In 2019 he is resident, in 2020 he is resident
 Example 2 – John in Ireland 31 days in 2020 and 229 days in 2019
 In 2019 he is resident, in 2020 he is not resident
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 Example 3 – Matt in Ireland 10 days in 2020 and 365 days in 2019
 In 2019 he is resident, in 2020 he is not resident

Ordinary Residence
 An individual is ordinarily resident in Ireland for a tax year if he/she has
been resident for each of the three tax years preceding that year
 An individual will not cease to be ordinarily resident until the individual
has been non-resident for three consecutive tax years

Ordinary Residence - Examples

 Example 1 – Mary who became resident in Ireland in 2017 and is
resident for 2018 and 2019 will become ordinarily resident on 1st
January 2020
 Example 2 – Connor who is ordinarily resident in 2016 and is non –
resident in 2017, 2018 and 2019 will cease to be ordinarily resident on
1st January 2020.

Domicile
 Not defined in the Income Tax Acts
 Complex legal concept, with a large volume of case law
 Generally, a person is domiciled in the country of which he/she is a
national and in which he/she spends his/her life
 However, it is possible for a person to be domiciled in a country which
has not been his/her home

Three principles of domicile

 No person can be without a domicile
 No person can have more than one domicile at the same time
 An existing domicile is presumed to continue until it has been proved
that a new domicile has been acquired

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Three Types of Domicile
 Domicile of Origin
 Domicile of Dependence
 Domicile of Choice

Domicile of Origin
 Individual is born with a domicile of origin
 Usually the domicile of his/her father
 A domicile of origin cannot be abandoned, it can only be lost by the
acquisition of a new domicile of choice

Domicile of Dependence
 Where the parents are not married, or the father dies before the birth
the child’s domicile will be that of the mother
 Before reaching majority, if the relevant parents domicile changes so
does the child’s

Domicile of choice
 On reaching the age of majority, he/she can reject his/her domicile of
origin and acquire a domicile of choice
 Must prove conclusively that all links with the country of domicile of
origin have been severed
 By positive acquisition not abandonment
 Acquired by residence and intention
 A domicile of choice can also be rejected

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Implications of Residence, Ordinary Residence and
Domicile
Consequences
 Once an individuals status in relation to each of the above is
established it is then possible to determine what sources of income are
liable to income tax in Ireland.
 They are broken down into a number of categories as follows:

Resident and Domiciled

 An individual who is resident and domiciled in Ireland is liable to tax on
all Irish and worldwide income

Resident, but not domiciled / not ordinarily resident

 An example is a US citizen working in Ireland for a temporary period of
2 years
 Liable to tax on:
 Income arising in Ireland and
 Foreign income only to the extent it is remitted into Ireland
(remittance basis)

Not resident, ordinarily resident and Irish domiciled

 An example is an Irish person who moves abroad to work
 Liable to tax in Ireland on worldwide income except:
 Income from a trade, profession, office or employment all the
duties of which are exercised outside Ireland,
 And other foreign income, provided that it does not exceed €3,810
Not resident, but ordinarily resident in Ireland and not Irish domiciled
 An example is a foreign person who lived in Ireland for more than 3
years
 Taxable on Irish source income in full and other foreign income only to
the extent that it is remitted to Ireland with the exception of:
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  Income from a trade, profession, office or employment all the
duties of which are exercised outside Ireland,
 And other foreign income, provided that it does not exceed €3,810
Resident and ordinarily resident in Ireland but not Irish domiciled
 Taxable on Irish source income in full and other foreign income only to
the extent that it is remitted to Ireland with the exception of certain
employment income
 Employment income – where the duties are carried out in Ireland the
salary relating to such duties is taxable in Ireland even when paid
outside of Ireland and not remitted

Not resident, not ordinarily resident, irrespective of domicile

 Taxable on Irish source income in full and taxable on income from a
trade, profession or employment exercised in Ireland

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 Pay Related Social Insurance

Employee PRSI
 Class A
 Deducted from wage/salary payments
 4% of gross income when earnings exceed €424 per week and none
when earnings €352 or less
 No deductions for pension contributions
 PRSI credit on weekly income between €352.01 and €424. Max credit
€12. Reduced by 1/6 of earnings above €352.01

Employer PRSI
 Paid by employer for employee in addition to salary/wage. Not
deducted from employees salary/wage
 11.05% of gross income when employees earn in excess of €398 per
week
 8.8% of gross income when earnings are less than €398 per week

Self-employed PRSI
 Class S
 4% on all income
 No upper ceiling
 Minimum contribution of €500 per year

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Self-employed PRSI
 Individuals excluded from self-employed PRSI:
 Certain relatives employed by self-employed persons
 Anyone in receipt of jobseekers benefit
 Anyone whose gross income is less than €5,000 per year before
deduction of capital allowances and pension contributions
 PRSI is not payable by a separated spouse in respect of
payments made under a legally enforceable maintenance
arrangement

 Universal Social Charge

USC for employees
 Exempt:
 An individual whose total income does not exceed €13,000 in a
year
 Benefits that are exempt from BIK
 Department of Social Protection payments
 Payments made in lieu of Department of Social Protection
payments
 Income subject to DIRT

USC Rate for employees

 First €12,012 annually charged at 0.5%
 Next €8,675 annually charged at 2%
 Next €49,357 annually charged at 4.5%
 Remainder charged at 8%
 Individuals over 70 with income under €60,000 pay USC at the
reduced rate – 0.5% on the first €12,012 and 2% on the balance
 Individuals under 70, holding a full medical card, with income under
€60,000 also pay USC at the reduced rate.
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USC for self-employed
 Exempt
 An individual whose income does not exceed €13,000 in a year
 Benefits that are exempt from BIK
 Department of Social Protection payments
 Payments made in lieu of Dep of Social Protection payments
 Rent a room relief
 Childcare services relief
 Deposit interest subject to DIRT
 Paid on all income with no upper ceiling
 No relief for pension contributions
 Normal capital allowances are deducted before calculating USC (not
investor cap allowances)

 Relief is allowed for payments made under a deed of covenant - gross

payment should be deducted from the payer’s gross income when
calculating USC

USC rates for self-employed

 First €12,012 annually charged at 0.5%
 Next €8,675 annually charged at 2%
 Next €49,357 annually charged at 4.5%
 Next €29,956 annually charged at 8%
 Balance (self assessed only) charged at 11% - i.e. a 3% surcharge for
self assessed individuals on the non PAYE income that exceeds
€100,000 in a year
 Individuals over 70 with income under €60,000 pay USC at the
reduced rate – 0.5% on the first €12,012 and 2% on the balance
 Individuals under 70, holding a full medical card, with income under
€60,000 also pay USC at the reduced rate.
 In both cases, 3% surcharge can apply

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 Capital Gains Tax – Introduction
Capital Gains Tax
 Introduced in 1975
 Charged on the profit arising on disposal of chargeable assets made
on or after 6th April 1974.
 Rate of CGT is 33%
 CGT only applies to realised gains

The charge to CGT

 In order for a charge to CGT to arise there must be:
 A disposal
 Of an asset
 By a chargeable person
 Triggering a chargeable gain

A disposal
 Generally, a disposal occurs when a person gives up the rights which
he/she has in relation to certain assets.
 Usually involves transfer of ownership but not always and can take
many forms
 A sale (of the asset) is the most common
 A part-sale
 Gifting an asset
 Exchanging one asset for another
 Granting an option or long lease over a property
 Receiving a capital sum for the surrender of rights to an asset
 An asset is also disposed if it is scrapped or destroyed

99
 A compulsory purchase order
 The purchase by a company of its own shares
 The transfer of an asset to a trust or corporate body
 The forgiveness of a debt

Timing of a Disposal
 This is important as it determines the tax year in which the disposal
takes place
 It can also determine the payment of tax date due with Revenue.
 In most cases the date of disposal is clear
 Tax legislation has specific rules to determine date of disposal in the
following situations
 Unconditional contract – date of contract
 Conditional contract – when condition is satisfied
 Capital sum derived from an asset – date is when capital sum is
received
 Gift – date asset passes to recipient
 Compensation payment – date of receipt of payment
 Compulsory purchase order
 The date on which compensation is received
 At a time immediately prior to death if the compensation has not
been received at the date of death
 Applies to CPO made on or after 4 Feb 2010

An asset
 Assets include land, buildings, motor vehicles, paintings, furniture,
motor vehicles.
 Distinction between chargeable and non-chargeable assets
 Chargeable assets include all forms of property except those that are
specifically excluded by legislation – i.e. non chargeable

100
Chargeable assets
 Specifically included by legislation:
 Options and debts
 Any currency other than euro
 Intangible property; goodwill, patents, copyrights
 Note that where there is a disposal of a chargeable asset, legislation
does provide for exemptions and reliefs where conditions are satisfied.

Non-chargeable assets
 Specifically excluded from CGT by legislation:
 Government and other public securities
 Life assurance policies and contracts for deferred annuities
 Gains on disposal of assets by a charity
 Any gain arising on approved superannuation funds
 Any gain on the disposal of growing timber
 Any gain arising on the disposal of a debt by an original creator
 Prize bond winnings, lottery winnings
 Compensation or damages for a wrong or injury suffered
 Wasting chattels – life less than 50 years unless assets used for
business purposes
 Non-wasting chattel sold for €2,540 or less each

Assets transferred on a death

 Not treated as a disposal for CGT purposes
 Transferred to the beneficiary at market value (MV) on the date of
death
 No CGT will arise on difference between original cost and the value at
the date of death
 If the beneficiary subsequently disposes of the asset the base cost is
the MV on the date of death

101
Chargeable Person
 Disposal must be by a chargeable person in order for it to be
chargeable to CGT
 Based on residence and domicile status of individual
 Resident and/or Ordinarily Resident and Irish Domiciled
 Taxable on worldwide gains
 Resident and/or Ordinarily Resident but not Domiciled
 Remittance basis
 Gains arising on assets situated in Ireland
 Other gains to the extent that the gains are remitted to Ireland.
However no relief is given for losses on assets situated outside of
Ireland
 Neither Resident no Ordinarily Resident and not Domiciled
 Taxable on specified assets only
 Land and buildings in Ireland
 Minerals and mineral rights in relation to resources situated
in Ireland, including exploration or exploitation rights in
designated areas within the Irish continental shelf
 Neither Resident no Ordinarily Resident and not Domiciled – specified
assets
 Any assets situated in Ireland and used for a trade carried on in
Ireland
 Shares deriving more than 50% of their value from (a) land and
buildings, or (b) minerals and mineral rights
 The following are deemed exempt
 Trade Unions
 Local Authorities
 County Councils
 Friendly societies
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  HSE
 Regional tourism authorities
 Misc government agencies

Connected Individuals
 It is important to know if the disposal is between connected people as it
will result in certain restrictions for CGT purposes
 Where there is a sale between connected people the proceeds
received is deemed to be the open market value of the asset at the
date of disposal
 Where a loss occurs on the disposal between connected people the
loss can only be used against chargeable gains to that same
connected person
 Relationships deemed to be connected
 Spouses / civil partners and blood relatives
 Trustees
 Partners
 Company
Married Persons / Civil Partnership
 If jointly assessed the CGT will be in the assessable spouse name
 Can change to other spouse if jointly elect in by 1 April in the tax year
 Gains / losses realised by each spouse is calculated separately and
then assessed on a joint basis
 Each spouse residence status is examined
 Broadly speaking, transactions between spouses are CGT exempt
 If shares are given by Tom to his wife Mary there is no CGT. If Mary
then sells the shares to a third party the cost for CGT purposes is the
price / cost of the shares to Tom
 When jointly assess, the capital losses of one spouse may be used
against the capital gains of the other

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 CGT Computational Rules
Computation
 Basic rule
 Proceeds less cost
 See example pro-forma

Proceeds
 Money received for the sale of the asset
 Market Value in certain circumstances
 Other than by way of bargain at arms length - Gift
 Assets disposed for non-cash consideration
 Assets disposed to a connected person
 By way of a distribution from a company in respect of shares of
the company
 Asset acquired in connection to loss of employment
 Incidental costs of disposal
 Deducted from proceeds
 Included legal fees, auctioneers fees, accountants fees

Cost
 Generally, it is the original purchase price of the asset
 Market value rules applied in all the same circumstances as outlined
for the proceeds regardless of the amount paid for it
 When an asset is inherited it is deemed to have been acquired at
market value at the date of inheritance
 Incidental costs of acquisition
 Incidental costs are added to the base cost of the asset
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  Same expenses allowed as for a disposal – solicitor fees,
auctioneers fees, stamp duty etc
 However, note that any incidental costs prior to 6 April 1974 are
deemed to be included in the market value of the asset on 6 April 1974
 Assets purchased before 6 April 1974
 CGT introduced on this date
 All assets deemed to be disposed and re-acquired at the market
value of the asset on 6 April 1974 for the purposes of CGT
 This means essentially that if a house is purchased on 30th May 1970
and is sold in 2018 then the base cost for CGT calculation is the
market value at 6 April 1974.
 Enhancement expenditure
 Allows the inclusion of any capital expenditure incurred to improve
or enhance the value of the asset (if not already included for IT or
CT purposes)
 Eg. A house extension, a garage etc.
 Repair costs are not allowed
 The expenditure must be reflected in the asset at the time of
disposal.
 Capital grants
 If a capital grant is received to assist with the purchase or
improvement of an asset the cost of the acquisition must be
reduced by the amount of the grant
 If purchased before 6 April 1974 the market value of the asset at 6
April 1974 is reduced by the grant to give the base cost for CGT
purposes
 Expenditure using borrowed funds
 There is a restriction on the amounts that can be included as
acquisition or enhancement expenditure costs where those costs
are funded via borrowed monies
 Restriction applies where the cost is defrayed out of borrowed
money and the debt in respect of such expenditure is released in

105
 whole or in part - in this instance the allowable base cost used in
calculating the gain on disposal is reduced by the amount of the
debt which is released
 Applies to debt releases on or after 1 January 2014

 Indexation relief
 Applied to the cost of acquiring the asset
 To increase the cost of an asset in line with inflation over the
period of ownership
 Doesn’t apply to assets purchased after 1 January 2003
 Assets purchases before 1 January 2003 indexed up to end of
2002
 Indexation relief
 Applies to enhancement expenditure on the date of that
expenditure
 Revenue Commissioners Indexation Table
 Short tax year 2001
 Prior to 2001, tax year ran from 6 April to 5 April

Annual exemption
 Annual exemption is €1,270 for each individual
 Does not apply to companies
 Non-transferrable between spouses
 If not used in the year it is lost – i.e. cannot be carried forward

106
 CGT Computation – Losses and Cost
Restriction

Losses
 Calculated the same way as gains
 A loss on the disposal of an asset can be offset against gains arising in
the same year
 Losses not used in current year can be carried forward
 When a loss is carried forward it is used before the annual exemption
is applied
 Losses cannot be carried back
 Losses arising on the disposal of assets to a connected person can
only be offset against gains arising on subsequent disposals to the
same person.
 Losses arising on the disposal of a wasting chattel (e.g. car, computer
etc) that qualified for capital allowances (CA) – the capital loss is not
allowable for CGT purposes as relief given through the CA system
 No loss relief available for losses on the disposal of assets which are
not chargeable assets for CGT purposes – i.e. government stock. No
tax on gain, then loss is not available for offset.
 Losses applicable to ITax or CT cannot be offset against capital gains
and vice versa

Terminal Loss Relief

 Exception to the rule that losses cannot be carried back
 Losses arising in the year of death of a taxpayer can be carried back
and offset against any gains arising in the previous 3 years of
assessment preceding the year of death - e.g. taxpayer dies in June
2020, then any capital loss are available to be carried back and offset
against gains in 2019, 2018 and 2017.
 Only current year losses can be carried back

107
Restrictions relating to Indexation Relief and 6/4/74
market value rules
 There are detailed rules to prevent both indexation relief and the 6/4/74
market value rules creating or increasing a loss or a profit.
 These rules deal with the following four possible situations

Restrictions in relation to indexation relief and the 6th

April 1974 rule
 Cannot increase a loss
 Revert to actual loss to be used in computation
 Cannot increase a gain
 Revert to actual gain to be used in computation
 Cannot turn an actual gain into a notional loss
 No gain/no loss applies – no CGT
 Cannot turn an actual loss into a notional gain
 No gain/no loss applies – no CGT

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 CGT - Transfers between spouses
Transfers between spouses
 No gain no loss on transfer
 Spouse is deemed to have acquired the asset at the date that the
asset was purchased originally, for the original cost price
 Original cost price will be used in subsequent disposal

Losses and spouses

 Capital losses of one spouse can be used against the gains of the
other spouse, when couple is jointly assessed
 Applies to current year losses and losses carried forward
 Not applicable to couple separately assessed – not possible to transfer
any surplus losses between spouses.

Annual exemption and spouses

 Annual exemption is not transferrable
 Each spouse must make a gain in their own right to use the annual
exemption
 Gains for each spouse must be calculated separately to ensure that
the annual exemptions are used correctly

 CGT - Part Disposals

Part disposals
 Special rules apply when only part of an asset is disposed of
 Example – sale of 5 acres of land out of a property of 20 acres
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 If a portion of the asset is sold - the sales proceeds are known but it is
the cost that needs to be determined as only a portion of the cost can
be deducted in calculating the gain
 To allow for different parts of the asset having different values, a
special formula is used to calculate the appropriate portion of the cost
to be allowed in calculating the gain / (loss) on the part disposed of

 Formula used to calculate allowable cost of the part disposed

Original cost x A/(A+B)

 A is the sale proceeds for the part disposed

 B is the market value of the remaining un-disposed part of the
asset

 This allows for different part of the asset having different values
 Incidental costs must be apportioned in the same way
 Enhancement expenditure is also apportioned in the same way
 In a future disposal of the remaining part, the allowable cost is the
original cost less the allowable cost used against the part disposal

 CGT - Chattels
Chattels
 Tangible moveable property
 Cars, furniture, jewellery, paintings, antiques, boats
 Land and buildings are not chattel as they are not moveable
 Shares, goodwill, trademarks are not chattel as they are not tangible
 There are 2 types – Wasting and Non Wasting

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Wasting chattels
 Tangible moveable property with a predictable life of less than 50 years
 Television, car, computer
 Wasting chattel is exempt from CGT
 Exemption does not apply to assets used for the purpose of a trade.
 No allowance for losses on wasting chattel – many tend to be
depreciating assets

Non-wasting chattels
 Tangible moveable property with a predictable life of more than 50
years
 Jewellery, paintings, antiques, other works of art
 Chargeable to CGT
 However, where proceeds are less than €2,540 the disposal is exempt
from CGT
 €2,540 exemption applies to each non-wasting chattel disposed
 Proceeds above €2,540 are liable to CGT but may qualify for marginal
relief

 Marginal relief restricts the tax payable to 50% of the excess of the
consideration over the €2,540 limit.

(Proceeds - €2,540) / 2
This is the max tax that can be paid on the asset

Marginal relief on non-wasting chattels

 Calculate the gain as normal
 Calculate using marginal relief calculation:
 (Proceeds - €2,540)/2
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 If the CGT calculated using normal rules is higher than the marginal
relief calculation, the tax is reduced to the amount using marginal relief
 It is necessary to check the MR each time a disposal of a non- wasting
chattel takes place.

Losses on non-wasting chattels

 If non wasting chattel is disposed of for less than €2,540 and a loss
arises, then the proceeds are deemed to be €2,540 in order to
calculate the loss arising on the disposal for CGT purposes.
 Painting bought for €2,800 in 2020 and sold in the same year for
€2,400. Monetary loss of €400. However, asset is sold for less than
€2,540 so consideration is deemed to be €2,540 creating an allowable
loss for CGT of €260.
 Also note any incidental costs incurred on the disposal are added to
the allowable loss
 A monetary loss will not be converted to a notional gain using these
rules – i.e. a painting sold for €1,200 which was acquired for €1,800 –
results in a monetary loss of €600. Due to sale being below €2,540,
use €2,540 as deemed sales proceeds which then results in a notional
gain of €740 (€2,540 less €1,800). Treated as no gain / no loss
situation

Set of non-wasting chattels

 If non-wasting chattels form part of a set, the sale of the set is treated
as one disposal if the assets are disposed of to the same person, a
connected person or persons acting together.
 Anti-avoidance measure to ensure a set is not disposed of separately
to avail of €2,540 exemption.
 Impacts part-disposals – example – a bracelet is sold for €2,200. The
matching earnings and necklace have a remaining value of €900 and
€3,100 respectively. The proceeds plus remaining value is greater
than €2,540, therefore exemption does not apply

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 CGT - Development Land

Development Land
 Where there is a disposal of land and the consideration received for
the disposal of the land exceeds the current use in value (CUV) of the
land, it is development Land
 The CUV is normally the agricultural value
 The meaning of development land is not defined to its use but only in
terms of its value on disposal.
 Where land falls in this category certain restrictions apply to the normal
rules regarding the application of indexation relief and the use of
losses
 CUV in relation to land is defined at any particular time means the
amount which would be the market value of the land at that time if the
market value was calculated on the assumption that it was at that time
and would remain unlawful to carry out any development in relation to
the land other than development of a minor nature

Restriction on Indexation
 The affect of the restriction is that indexation is only allowed in respect
of the part of the cost (or market value at 06.04.74) attributable to the
current use value at the date of acquisition or 06.04.74.
 No indexation is allowed on enhancement expenditure in the
computation of a gain arising on the disposal of development land

Example
Land acquired in 1972 at a cost of €25,395
Planning permission obtained in 1973
Market value at 6 April 1974 was €253,947
Enhancement expenditure incurred in 1976 of €76,184
CUV at 6 April 1974 was €38,092
Land sold in March 2020 for €900K when CUV was €350K

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Solution
Sales Proceeds (March 2020) €900,000
MV 6/4/74 €253,947
CUV at 6/4/74 € 38,092
Indexed at *7.528 €286,757
Development value €253,947 - €38,092 €215,855
Enhancement Exp € 76,184
Gain €321,204

Restriction on use of Losses

 The only losses which can be offset against gains arising on the
disposal of development land are losses accruing on the disposal of
development land.
 Other losses cannot be offset against such gains
 Losses on development land, however, can be offset against any other
gains

Scope of Restrictions
 The restrictions relating to development land do not apply to an
individual in a year of assessment if the total consideration from the
disposal of development land does not exceed €19,050 - the special
rules for development land are not applied and the gain is calculated
as normal
 In applying this rule, husband and wife are treated separately

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 CGT - Principal Private Residence (PPR)
Relief

PPR Relief
 An individual’s PPR is a house that his/her sole or main residence plus
land around the house of up to one acre.
 A person or married couple cannot have more than one PPR at any
given time
 If he/she/they have two residences they must nominate one as their
PPR.
 Except where a house is provided rent-free for use by a dependent
relative (widowed parent of tax payer or spouse or incapacitated by old
age or infirmity)

Calculation of PPR Relief

 The extent of the relief will depend on how much time the person
occupied the house as their main residence during the period of
ownership.
 If the person lived in the house for the entire time of ownership then
the full gain is exempt.
 If there were periods of absence the PPR will be reduced.
 First step is to calculate the gain as normal.
 Exempt part of the gain is calculated as follows:
 Gain x Period of occupation/period of ownership
 Period of ownership is total amount of time from date of purchase to
date of disposal. Any period before 06/04/74 is ignored.
 Period of occupation is made up of periods of actual occupation plus
periods of deemed occupation

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 Periods of deemed occupation
 Any period during which the individual worked abroad
 Any period not exceeding four years during which the person was
obliged to live elsewhere in Ireland as a condition of their
employment.
 The last 12 months of ownership as long as the house was a PPR
at some point during ownership.
 Periods of deemed occupation where the individual is working
elsewhere in Ireland and abroad will only apply where:
 The house is actually occupied by him/her as a main
residence both before and after the period of absence.
 He/she has no other residence qualifying as a PPR during
the period of absence.

Calculation of PPR Relief

 Periods of ownership and occupation prior to 6 April 1974 are ignored
as the calculation of the gain will only be from 6 April 1974 (market
value on this date is base cost)
 If the home is used for trade or professional purposes, the relief will be
reduced.
 For instance, if 20% of the property was used for business purposes,
PPR can only apply to 80% of the gain.

Restriction in the case of development land

 PPR does not apply to the part of the gain reflecting ‘development
value’
 Gain is calculated in the normal way
 Gain is reduced by restricted PPR
 However, PPR relief is calculated only reference to the gain which
would have arisen if the property was bought and sold for its value
solely as a residence (ignoring its development value)

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 CGT - Share Transactions

Share Transactions
 As each share in a company is identical to all other shares there is no
way of showing which shares are being sold and which shares are
being retained.
 In order to deal with this there are special rules for calculating the
capital gain / loss arising on the disposal of shares
 Special rules due to the nature of the asset
 Every purchase of shares on a separate date is treated as a
separate asset for CGT purposes
 The principle of first in/ first out (FIFO) applies to the disposal of
shares of the same class
 If a part-disposal of an asset of shares occurs, the part-disposal
formula is not required as the price of each share unit will be the
same at any particular point in time

Bonus Issues
 A bonus issues occurs when a company allocates shares to existing
shareholders and no consideration is paid by the shareholders for the
bonus shares.
 Shares are issued in direct proportion to the existing shareholdings.
For example, a bonus issue of one for two means that a shareholder
will receive one new share for every two shares already held.
 For FIFO rule, shares acquired through a bonus issue are deemed to
have been acquired on the same date as the original holding in respect
of which they are issued.
 The cost per share is diluted as a result.
 The reason for this is that the total number of shares has increased
while the cost of the shares remains the same.

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Rights Issues
 A rights issue occurs when a company offers its shareholders the
opportunity to purchase additional shares at a discount on the market
value of the shares.
 Offered in proportion to shareholdings existing holding
 Requires additional outlay from shareholders and raises funds for the
company (unlike a bonus issue which is given without outlay needed)
 For FIFO rule, the shares are deemed to be part of the original holding
in respect of which they are allocated. For disposal purposes, the
shares acquired under a rights issue merge with the shares of the
original holding
 The price paid for the rights issue is treated as enhancement
expenditure in relation to the original asset.
 For Indexation purposes, the expenditure on the rights issue shares is
treated as enhancement expenditure, with the appropriate indexation
to apply is the indexation that relates to the date on which the
expenditure on the rights issue actually occurred.

Script Dividends
 Shareholders are offered to take additional shares in the company in
lieu of a cash dividend.
 CGT treatment for disposal of shares acquired in lieu of dividends is
the same as for disposals of shares acquired under a rights issue.

Disposal of Rights
 Shareholders entitled to subscribe for rights issues may elect to sell
their rights.
 Cash received is treated as a capital distribution and the original
holding is deemed to be disposed of in part
 Application of formula A /(A & B) to the original cost of the shareholding
 A = proceeds of the sale of rights
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  B = Market value of remainder of holding
Disposal of Rights – Example
 Tom acquires 5,000 shares in ABC Ltd on 1 May 2000 for €10K. In July
2018, the Co makes a rights issue of 2 for 5 which may be exercised at
a cost of €3 per share. Tom sells all of his rights for €1 per share. The
ex-rights price per share is €4
 CGT Computation
 July 18 sale – 5,000 * 2/5 * €1= 2,000
 Cost 00/01 €10K * €2K/(€2K + (€5K * 4))
= 909 and indexed = (1,040)
Gain 960

Bed and breakfast transactions

 Loss relief is only available for realised capital losses – no relief
available unless the asset which has fallen in value is actually sold.
 Without anti-avoidance legislation, individuals could realise losses by a
succession of paper transactions – known as bed and breakfast .
 Acquisition of shares within 4 weeks of disposal
 Disposal of shares within 4 weeks of acquisition

Acquisition of shares within four weeks of disposal

 Legislations stipulates that where a disposal and reacquisition of the
same class of shares takes place within four weeks, the loss arising on
the disposal of the shares can only be set against a subsequent gain
arising on the disposal of the shares that have been reacquired.

Disposal of shares within four weeks of acquisition

 Legislations stipulates that the FIFO rule does not apply where shares
of the same class are bought and sold within a period of four weeks.
 Last in/ first out rules apply to the previous four weeks.

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 Miscellaneous CGT issues
Negligible value claim
 In general, only realised losses are allowed for CGT purposes.
 However, a taxpayer can make a negligible value claim to Revenue.
 If accepted by Revenue, they will allow the loss relief as if the asset
had been sold and reacquired at market value, with the loss realised.
 This loss can be used against other gains.
 The loss arises on the date on which the claim is made, not on the
date the asset lost its value.

Transfer of a site to a child

 A CGT exemption applies on the transfer by a parent to a child of land,
provided certain conditions are met.
 The exemption applies in respect of disposal on or after 6 December
2000
 The conditions that must be met
 The open market value of the land being transferred must not exceed
€500,000 at the date of transfer.
 The area of the site must not exceed 1 acre.
 The transfer must be for the purpose of enabling the child to construct
a dwelling house on the land to be occupied by the child as his/her
main residence.
 The €500,000 limit applies where both parents make a simultaneous
disposal of a site to their child.
 Claw-back, if the land is disposed before a dwelling is built.
 Claw-back, if the dwelling is built but not occupied as a main residence
by the child for a period of 3 years
 The gain arising due to claw-back accrues to the child not the parent.

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 This claw-back could result in the child suffering a double hit to CGT

CGT withholding tax provisions

 In certain circumstances there is an obligation on the purchaser of an
asset to deduct withholding tax of 15% from the proceeds before
paying the vendor.
 This withholding tax is paid over to Revenue.
 Withholding tax applies:
 When the proceeds exceed €500,000.
 The disposal is of one of the following assets:
 Land and buildings in the State
 Minerals in the State or any rights, interests or other assets
in relation to mining or minerals or the search for minerals
 Exploration or exploitation rights in a designated area of the
Irish Continental Shelf.
 Unquoted shares deriving their value or the greater part of
their value directly from the above assets.
 Unquoted shares received in exchange for the above
shares.
 Goodwill of a trade carried on in the State.
 Withholding tax is treated as a payment on account by the vendor in
respect of the CGT payable on the disposal.
 Vendor still obliged to pay CGT and file a CGT return
 Possible to avoid the withholding tax by obtaining a CGT clearance
certificate from Revenue.
 CGT clearance cert will be granted if:
 The vendor is resident in the state, or
 The vendor is no liable to CGT on the transaction, or
 The vendor has paid all the CGT due.

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Filing of CGT Returns
 Self-assessed tax.
 Tax year is January to December
 CGT return due by 31 October in following year.
 Where individual is filing a Form 11, the CGT return is incorporated into
the Income Tax Return.
 If not required to complete a Form 11, he/she must file a specific CGT
return, a Form CG1 Return of Capital Gains by the filing deadline

Payment of CGT Returns

 The payment date of the CGT Liability will depend on the date the
disposal takes place
 If disposal takes place in the period 1 Jan to 31 Nov 2019 the tax is
due by 15th Dec 2019
 If disposal takes place in the month of December 2019 the tax is due
by 31 Jan 2020.

Late Filing of Returns

 Late filing of returns subject to surcharge:
 5% to maximum of €12,695 if filed within 2 months of filing date
 10% to maximum of €63,485 if filed after 2 months of filing date

Companies
 An Irish resident company is liable to CGT only on gains arising on the
disposal of development land
 The gains on disposals of other assets by a company are subject to
Corporation Tax not CGT.
 Capital losses offset against gains in current period and carried forward
indefinitely.

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 Development land and non-development land losses treated differently
 Capital losses on non-development land may be used against
chargeable gains (other than gains on development land) in the current
accounting period and any balance used carried forward indefinitely.
 Capital losses on development land can be set off against capital gains
on any other kind of asset.
 Capital losses on non-development land cannot be used again gains
on development land disposals.

Entrepreneur Relief
 Provides a reduction in CGT payable on the disposal of certain
business assets in an effort to encourage investment in new business.
 Gains on disposal of chargeable business assets after 1st January
2017 are liable to a reduced rate of 10% up to an overall lifetime limit
of €1m
 The standard rate of 33% is applies to gains made in excess of the
lifetime limit of €1m
 Applies to gains arising on the disposal of assets used for the purpose
of an individual’s qualifying business (generally a trading business)

 The individual must have owned the assets for at least 3 years at
any time prior to the disposal of the assets

 (prior to 31st December 2020, the individual must have owned the
assets for at least 3 years in the 5 years prior to the disposal)

 Gains arising on the disposal of shares in a trading company will also

qualify for the relief

 Individual must own not less than 5% of the OSC

 Individual must have spent at least 50% of his/her working time

providing managerial / technical services to the company

 Must be a director/employee

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  Must have served in above capacity for a continuous period of 3
years in the 5 years prior to the disposal of the shares

 The following assets do not qualify for the relief

 Shares, securities held as investments

 Development land

 Assets on the disposal of which no chargeable gain would arise

 Assets owned personally outside of a company

 Shares or securities in the company where an individual remains

connected with the company following the disposal

 It is important to note that this relief does not apply where there is a
dormant company in a group or where one of the subsidiaries is not a
trading company

 It would be an important planning point to ensure that the structure is

reviewed carefully before contracts are signed to ensure companies
are removed prior

Farm Restructuring Relief

 This allows for the restructure of farm lands without triggering CGT
where restructuring has been certified by Teagasc

 Need cert from Teagasc certifying sale and purchase of agricultural

land made for farm restructuring purposes

 The 1st sale, purchase or exchange of farm lands must take place
between 1st Jan 2013 to 31st Dec 2022 and subsequent sale of
purchase within 24 months of that transaction

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 Examples
 Disposal of land takes place on 31st December 2020, relief can be
claimed if replacement land is acquired before 31st December
2022
 If land is acquired on 31st December 2020 (before a sale) the relief
can be claimed if a sale of land occurs before 31st December 2022
 Full Relief available provided the entire consideration for the purchase
or exchange is at least equal to or exceeds the consideration for the
sale of the other land that is exchanged

 Where the consideration for the purchase or exchange is less than the
consideration for the land that is sold or otherwise exchanged – relief is
in the same proportion that the consideration for the land that is
purchased / exchanged bears to the consideration for that land that is
sold

 There is a 5 year holding period to avoid any clawback of the relief

 Only applies to Farm Land

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 Corporation Tax – An Introduction

Corporation Tax
• A company pays corporation tax on total profits.
• Total profits include all taxable income earned by the company and
capital gains arising on the disposal of capital assets.

The Charge to Corporation Tax

• A company resident in Ireland is subject to corporation tax on its
worldwide profits
• A non-resident company operating in Ireland through a permanent
establishment is subject to corporation tax on income earned by the PE
and gains arising from assets situated in Ireland or used for the
purposes of carrying on a trade through an Irish PE.
• A non-resident company that does not have a PE in Ireland will be
subject to income tax (not CT) on Irish source income, and subject to
CGT (not CT) on gains arising on specified assets.
• A non-resident company with an Irish PE, disposing of assets unrelated
to the trade of the PE, will be subject to CGT on the disposal

A permanent establishment
• Ireland – UK Double Tax Treaty
• ‘a fixed place of business in which the business of the enterprise is
wholly or partly carried on
• A permanent establishment includes:
• ‘a place of management;
• a branch;
• an office;

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 • a factory;
• a workshop;
• a mine, oil well, quarry or other place of extraction of natural
resources;
• an installation or structure used for the exploration of natural
resources;
• a building site or construction or installation project which lasts for
more than six months.’
• A permanent establishment does not include:
• the use of facilities solely for the purpose of storage, display or
delivery of goods or merchandise belonging to the enterprise;
• the maintenance of a stock of goods or merchandise belonging to
the enterprise solely for the purpose of storage, display or delivery;
• the maintenance of a stock of goods or merchandise belonging to
the enterprise solely for the purpose of processing by another
enterprise;
• the maintenance of a fixed place of business solely for the
purpose of purchasing goods or merchandise, or for collecting
information, for the enterprise
• the maintenance of a fixed place of business solely for the
purpose of advertising, for the supply of information, for scientific
research or for similar activities which have a preparatory or
auxiliary character, for the enterprise.
• A person who has the power to conclude contracts (other than the
purchase of goods and merchandised) on behalf of the non-resident
company is a PE
• Offshore exploration or exploitation is deemed to be a PE
• Carrying on business through an independent broker or agent does not
constitute a PE
• A company controlled by a non-resident company does not constitute a
PE of the non-resident company

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Company Residence
• Two tests are applied to determine the residence status of a company:
• The statutory test, and
• The central management and control test

Company Residence – the statutory test

• A company is resident in Ireland if it is incorporated in Ireland.
• There are two exceptions to this rule:
• The Trading Exemption
• The Treaty Exemption
• The Trading Exemption applies to a company carrying on a trade in
Ireland, and
• Is ultimately controlled by person(s) resident in an EU member state or
in a country that Ireland has a Double Tax Treaty with, or
• The company or a related company is a quoted company
• Generally, a company is controlled by person(s) owning more than 50%
of the share capital/voting rights or entitled to more than 50% of the
distribution of income/assets on winding up.
• The Treaty exemption applies to a company that is not regarded as
resident in the State under the provisions of a Double Tax Treaty.
• Double Tax Treaties set out the rules to determine the main country in
which a company will be liable to pay tax and aims to reduce the effect
of double taxation.

Company Residence

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• If a company is not resident in Ireland by virtue of the statutory test, it
can still be resident under the central management and control test

Company Residence – the central management and control test

• Not in legislation but developed through case law.
• Relates to the strategic control of the company
• Factors to be considered:
• Where are directors’ meetings held?
• Where do the majority of directors reside?
• Factors to be considered:
• Where are the shareholders’ meetings held?
• Where is the negotiation of major contracts undertaken?
• Where are the questions of important policy determined?
• Where is the head office of the company?
• Where are the books of account kept?
• Where are the accounts prepared and examined?
• Where are the accounts audited?
• Where are the minute books kept?
• Where is the company seal kept?
• Where is the share register kept?
• From where are dividends declared?
• Where are the profits realised?
• Where are the company’s bank accounts?

129
Company Residence – For Companies Incorporated
on or after 1 January 2015
• Two tests are applied to determine the residence status of a company:
• The statutory test, and
• The central management and control test

Company Residence – the statutory test

• A company is resident in Ireland if it is incorporated in Ireland.
• There is one exception to this rule:
• The Treaty Exemption
• The trading exemption does not apply for companies incorporated after
31 December 2014

Company Residence – For all Irish Incorporated

Companies from 1 January 2021
• All Irish incorporated companies will be tax resident in Ireland

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 Corporation Tax – Basis of Assessment

Rates of Corporation Tax

• Standard Rate – 12.5%
• Most trading income (Case I/II)
• Chargeable gains
• Higher Rate – 25%
• Investment Income – Case III, IV, V
• Companies cannot earn employment income, therefore cannot be taxed
under Schedule E

Dividend Income
• Dividends from other Irish resident companies are not charged to CT.
• Referred to as Franked Investment Income (FII).
• No charge under Schedule F.
• This dividend income is not included in the CT computation.

Foreign Dividends
• Foreign dividends taxed under Case III.
• Case III is taxed at the higher rate.
• But, foreign dividends arising from trading activities by a company
resident in either another EU state or a country that Ireland has a double
tax treaty with can be taxed at 12.5% rather than 25%, if the company
so elects.

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Basis of Assessment and Accounting Periods
• Income Tax year irrelevant for CT.
• A company’s accounting period forms the basis of assessment for CT.
• Company is chargeable on the profits earned in their accounting period,
regardless of when it falls in the year.
• Usually, an accounting period for CT purposes corresponds to the
company’s period of account, which is the period for which the company
prepares annual accounts.
• However, for CT purposes an accounting period cannot exceed 12
months.
• If a company’s period of account extends beyond this maximum, it will
be necessary to split the period of account into two (or more) account
periods.
• The first period will relate to the first 12 months of the period and the
second will relate to the remainder.
• Example: a company prepares accounts for 18 months to 30 June 2020.
The accounting periods used to calculate the CT liability are:
• 12 months to 30 December 2019
• 6 months to 30 June 2020

Commencement of an accounting period

• The end of the preceding accounting period
• A company commences to carry on a trade
• A company becomes resident in the State
• A company acquires its first source of income
• A company commences to be wound up

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Cessation of an accounting period
• Expiration of 12 months from beginning of accounting period
• Accounting date of the company
• A company beginning or ceasing to trade
• A company beginning or ceasing to be within the charge to CT in respect
of its trade
• A company beginning or ceasing to be resident in the State
• Commencement or completion of a winding up

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 Corporation Tax – Case I/II Income

Case I/II Income

 Rules are similar to the rules for income tax
 Profits must be adjusted for tax purposes
 Start with the accounting net profit in the Income Statement
 Profit before tax and before dividends paid
 This figure is then adjust for other income and disallowed expenses
 Expenses included in financial statements but not allowed for tax
purposes are added back
 Any income that isn’t trading income is deducted and taxed under its
own classification

Addback of Expenses
 Three main principles to consider in deciding which expense items to
adjust:
 Capital items
 Expenses not incurred wholly and exclusively for the purpose of
the trade
 Certain statutory requirements

Case I/II Income – Capital Expenditure

 No capital expenditure can be deducted to calculate profit for tax
purposes
 Depreciation of capital assets added back
 Appreciation or depreciation of goodwill removed
 Profits or losses on disposal of non-current assets removed

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 Capital items included in the repair and renewal expense account
added back
 Capital assets purchased not allowed
 Professional fees on the purchase and sale of capital assets not
allowed

Case I/II Income – Wholly and exclusively for the

purposes of the trade
 Expenses relating to other sources of income added back
 Director’s salaries
 No add-back
 Subject to PAYE
 Includes expenses paid on behalf of director, which is a BIK
subject to PAYE

Case I/II Income – Statutory adjustments

 Motor related fines are added back
 Motor lease restriction applies – same rules as for a sole trader but no
addback for private element - BIK.
 No amounts related to General Provisions are allowed
 Political donations are not allowed.
 Charitable donations above €250 are allowed.
 Subscriptions for staff are allowed and may be subject to PAYE as
BIKs
 Patent royalties are added back and included in the CT comp as a
charge against income on a paid basis
 Pension contributions allowed to the extent that they are paid. Closing
accruals are added back.
 Interest and penalties on late payment of tax are not allowed.

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Dividends
 Dividends are a distribution of after tax profit.
 Dividends are not a deductible expense in arriving at taxable profit.
 If profit after dividends is taken as starting point dividends must be
added back
 If profit before dividends is taken as starting point, no adjustment is
required.

Capital Allowances
 Capital allowances calculated by reference to the accounting period
 Opening TWDV will be first day of accounting period
 Closing TWDV will be the last day of the accounting period
 Capital allowances will be given in relation to assets in use on last day
of accounting period
 Capital allowances treated as a deductible trading expense for CT
purposes in arriving at Case I/II income
 Otherwise, rules are similar to income tax
 Rate of 12.5%
 Amount of capital allowances will depend on length of accounting
period – if less than 12 months then W&T is reduced
proportionately
 Calculated on cost less grants
 Full capital allowances given in year of purchase
 No capital allowances in year of disposal
 The cost for calculating capital allowances for a motor vehicle are
restricted – same rules as that used for Income Tax
 In order to encourage energy efficiency equipment, 100% capital
allowances are available to companies who incur expenditure on
“green” capital items – available until 31 Dec 2023

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 Corporation Tax – Other Company Income
Other income
 Case III, IV, V, and chargeable gains
 The amounts taxable are based on the accounting period of the
company, tax year does not apply
 While trading income is apportioned on a time basis, other sources of
income are computed on an actual basis
 So, when there is an accounting period longer than 12 months, which
is split for tax purposes into a 12 month period and the remainder, tax
on other sources of income will be calculated by what is actually
received/earned in each period

Case III Income

 Any source of foreign income taxed under Case III
 Interest received gross of DIRT taxed under Case III
 Irish company entitled to receive interest gross upon application to the
financial institution
 All Case III income is fully taxable at 25% including deposit interest
received gross

Case IV Income
 If a company does not make an application for interest to be paid
gross, the interest will be subject to DIRT and then taxed under Case
IV.
 In this scenario:
 The gross amount is included in the CT computation
 Tax is calculated at 25%
 The DIRT paid is deducted in the CT computation
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  DIRT can be refunded if it exceeds the CT liability
Case V Income
 Rental income from Irish properties is taxed under Case V – full
amount of income receivable in the year
 The calculations of income and expenses are the same as for income
tax.
 Rental income includes:
 Rents from premises or land in the State
 Receipts in respect of an easement in the State
 Certain premiums received for the granting of a lease
 Foreign rents are taxable under Case III, with the same deductions
allowed
 Rental expenses include the following:
 Ground rent
 Rates
 Maintenance
 Insurance
 Rental expenses include the following:
 Repairs
 Services provided/ paid for by landlord
 Accountancy fees
 Mortgage Interest
 Each property should be dealt with separately and a computation
prepared for each
 Pre-letting expense are generally not allowed with the exception of
legal and advertising fees for setting up a lease.

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 However for 2019 onwards, pre-letting expenses incurred in the 12
months prior to the first letting of a residential property will be allowed
up to a max of €5,000
 No deduction allowed for LPT
 Capital allowances are available on expenditure incurred on fixtures
and fittings
 12.5% per 12 month accounting period on a straight line basis
 Offset against Case V income before any losses are applied

Company Chargeable Gains

 Individual’s will pay CGT on any gains arising on the disposal of assets
which is assessed separately to Income Tax. However, a company
pays corporation tax on their chargeable gains
 The accounting profit or loss should be added back or deducted when
calculating the tax adjusted profit
 The capital gain or loss is calculated on the disposal using the normal
CGT rules.
 A company, however, is not entitled to the annual exemption (€1,270)
 The chargeable gain is adjusted as follows:

 Capital gain x rate of CGT/12.5% = chargeable gain

 Amount of chargeable gain is included in the CT computation and
taxed at 12.5%
 Results in the company paying the same amount as it would under the
CGT rules.
 There are two exceptions to the rule that a company’s gains are taken
into the CT computation
 Development land gains and
 Certain gains accruing to foreign companies
 Gains on such disposals are calculated separately and is paid as CGT.

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 Losses on such disposals are not available against gains which are
liable to CT

 Corporation Tax Loss Relief

Case I/II Losses

 A loss is calculated the same as a profit, with tax adjustments applied
 Specific rules set out how a trading loss may be used to reduce the
corporation tax liability of the company
 A distinction is made between using the loss against trading income
and non-trading income

Case I/II Loss Relief

 First claim for loss relief (S396A)– used in the current year against
other trading income
 A company must have at least two trades to apply this rule

 Second claim for loss relief (S396A) – prior year against trading
income
 A trading loss may be carried back and used against trading income in
the previous accounting period
 Where the accounting periods in current year and previous year are of
different lengths, the amount of the loss or profit must be adjusted to
take account of this
 The trading income that the losses are being used against must be
apportioned to the same length as the period in which the loss arises.

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 Third claim for loss relief (S396B) – current year against non trading
income on a value basis
 After the first two claims have been made the remaining loss can be
used against non-trading income in the current year
 Trading income is taxed at 12.5% while non trading income is taxed at
25%
 Therefore the value of trading losses can only be allowed at 12.5%
 The loss is effectively converted to a credit
 Follow these steps
 Calculate the corporation tax on non trading income
 The loss to be offset is taken as follows:
 Tax arising on non trading income/12.5% = loss required
 Compare with loss available
 Apply maximum loss @ 12.5% to shelter tax on non trade
income.

 Fourth claim for loss relief (S396B) – prior year against non trading
income on a value basis
 If the loss has not been fully utilised under first three rules, the excess
is applied on a value basis in previous accounting period (as done in
step 3)

 Fifth claim for loss relief (S396(1))– losses carried forward

 Any unused losses after first four rules are carried forward indefinitely
for use against the first available trading income of the same trade

 Loss relief claimed against trading income in current and prior period
and against tax on non trading income must be claimed within 2 years
from the end of CT period in which the loss arises

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Case I/II Loss Relief - Summary
• First claim for loss relief – used in the current year against other
trading income
• Second claim for loss relief – prior year against trading income
• Third claim for loss relief – current year against non trading income on
a value basis
• Fourth claim for loss relief – prior year against non trading income on a
value basis
• Fifth claim for loss relief – losses carried forward

Case I/II Terminal Loss Relief

 A company may claim terminal loss relief in respect of trading losses
incurred in the whole or part of the twelve month period up to the date
of cessation of the trade provided such losses have not or cannot
otherwise be utilised
 Relief for losses incurred in its last period of trading would otherwise
be lost if the current and preceding periods income was insufficient to
absorb the loss, as the loss could not be carried forward.
 The company can claim to set that part of the loss, which falls in the
final 12 months of trading against the income from the same trade in
the preceding 36 months.

Restriction of loss relief due to late filing of CT returns

 CT returns are required to be submitted by 23rd day of the ninth month
after the end of the accounting period
 Where the return is filed less than two months after the filing date, a
25% restriction applies to loss reliefs subject to a maximum restriction
of €31,740

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 Where the return is filed more than two months after the filing date, a
50% restriction applies to loss reliefs subject to a maximum restriction
of €158,720
 Losses forward are not restricted – only the use of current year losses

Charges
 Payments such as certain annual interest payments, patent royalties
and other annual payments are Charges and are not deductible when
computing tax adjusted Case I profits.
 Charges are included in the CT computation on a paid basis
 Distinction is made between Trade Charges and Non-Trade Charges

Trade Charges
 Trade charges are payments incurred wholly and exclusively for the
purposes of a company’s trade (eg patent royalties)
 Trade charges are deducted from trading income
 Excess trade charges can be used against investment income and
chargeable gains on a value basis
 Trade charges unused in the current year can be carried forward as
trading losses.
 Trade charges unused in the current year cannot be carried back.

Non Trade Charges

 Non-trade charges are payments incurred that are not wholly and
exclusively for the purposes of a company’s trade
 Non-trade charges are deducted from total profits.
 Non-trade charges cannot be carried forward and cannot be carried
back.
 Therefore, non-trade charges that are not used in the current
accounting period are lost.

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Case III Losses
 A trade is assessed under Case III is it is carried on abroad.
 Case III losses may not be offset against other profits in the same
accounting period (other than other types of Case III) or carried back to
the preceding period.
 They can only be used by way of a carry forward for offset against
future profits of the same trade.

Case IV Losses
 Case IV losses may only be set against other Case IV income of the
same period and then carried forward indefinitely against future Case
IV income

Case V Rental Losses

 A company may carry back Case V rental losses against rental income
in the immediately preceding accounting period of equal length.
 Rental losses can only be used against rental income.
 Any losses that cannot be used in the preceding accounting period can
be carried forward for use against future rental profits.

Excess Case V Capital Allowances

 Deducted from profits of the current accounting period (against other
non Case V income), and/or
 Deducted from profits of the immediately preceding accounting period
of equal length, and/or
 Carried forward indefinitely again Case V income in future accounting
periods
 A claim for carry back of excess Case V capital allowances must be
made within 2 years of the end of the accounting period in which they
arise.

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Capital Losses
 Losses made by the company on the disposal of assets may be offset
against capital gains (other than development land).
 Losses may be used in the current accounting period and any losses
not used can be carried forward.
 Capital losses on development land can be set off against capital gains
on any other kind of asset

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 Withholding Taxes for companies

Dividends and Dividend Withholding Tax

 Withholding tax equal to the standard rate of tax applies to dividends
(including scrip dividends and non-cash dividends) and other
distributions paid by an Irish resident company.
 DWT is 25%
 DWT deducted along with a DWT return is due by 14th day of the
month following the month in which the dividend was paid
 Dividends may be paid gross certain individuals and entities including
the following:
 Other Irish resident companies
 Charities
 Pension funds
 Non-resident individuals resident in the EU or a country that Ireland
has a double tax treaty with

Relevant Contracts Tax

 Applies to payments made by a principal contractor to a subcontractor
in the construction, forestry and meat-processing industries
 Subject to withholding tax at rates of 35%/20%/0%
 Zero rate – where the subcontractor has a clear 3 year history of tax
compliance (similar to the rule for 0% under the old rules).
 20% rate – for subcontractors registered for tax with a record of
substantial compliance and are known to Revenue.
 35% rate – for subcontractors not registered for tax and those who
have a poor history of compliance

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 Principal applies in advance online for a Deduction Authorisation in
relation to a new contract
 Deduction Authorisation instructs principal on the deduction rate
 Deductions paid to Revenue by 23rd day of month following month of
payment

Certain annual payments

 Patent royalties
 Tax deducted at standard rate from such payments

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 CT Exemption for Start-up companies

CT exemption for start-up companies

 An attempt to encourage business activity
 It is available for companies that start trading by 31 December 2021.
 It is available for the first 3 years of trading
 CT includes tax on trading and passive income, and gains
 Applies to a qualifying trade
 Where the total CT payable by a qualifying company is equal to or
lower than €40K, the amount of CT relating to trading income and
chargeable gains on trade assets will be reduced to Nil. If CT is due
between €40K and €60K you may be entitled to partial relief.
 The company will continue to pay CT arising on investment income –
i.e. rental, deposit interest etc.
 The amount of relief is also linked to the number of employees on
whose behalf the company is paying PRSI ER.
 Total tax relief is lower of €40K limit or employers PRSI paid by the
company for all employees, subject to a maximum PRSI payment of
€5,000 per employee
 To qualify for the exemption the company must have set up a new
trade (not trade carried on by an associated company)
 If the company has no profits against which to claim the relief, it can be
carried forward to accounting periods after the first 3 years.

Calculation of the relief:

 Total corporation tax
 Less tax on income charged at 25% CT rate
 Less tax on chargeable gains
 Less close company surcharges

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 The CT is reduced by an amount calculated by the following formula:
 3*(T-M) x (A+B)
T
 T = Total Corporation Tax
 M = €40,000
 A = CT on qualifying trade
 B = CT on disposal of qualifying assets of the qualifying trade
 Qualifying assets of the qualifying trade are assets used directly in the
trade

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 Effects of Group Structure for
Corporation Tax

Groups
 A company is a separate legal entity
 The relationship that exist between certain companies allow them to
avail of reliefs that are not available to companies that operate on a
stand-alone basis.
 A group relationship will facilitate tax reliefs in the following areas:
 The utilisation of losses between group companies
 Payments of interest and charges with any WT
 The transfer of assets between group companies without incurring
CT on gains arising
 Groups are defined differently for the purposes of relief in each of
these areas

Group relief for losses

 Definition of a group for loss relief:
 Two companies shall be deemed to be members of a group of
companies if one company is a 75% subsidiary of the other or
both are 75% subsidiaries of a third company.
 In addition to owning 75% of the ordinary share capital of a
subsidiary, the parent must also be beneficially entitled to no less
than:
 75% of any profits available for distribution to equity holders
of the subsidiary, and
 75% of any assets of the subsidiary company available for
distribution to its equity holders on a winding up

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 When companies are in a group and one company suffers a trading
loss, they can surrender that loss to another company in the group that
has profit in the same year
 The company suffering the trading loss can utilise that loss within their
company first.
 Any excess losses can then be surrendered to the other group
company
 Excess capital allowances and charges can also be transferred

 A company can only surrender current year trading losses and excess
charges only to another company in the group. They cannot surrender
losses carried forward or back.
 The company claiming the losses can only use those losses in the
current year against trading income and on a value basis against other
income.
 Capital losses cannot be surrendered

Intra-Group Payments
 A company is obliged to deduct income tax at the standard rate (20%)
on certain payments and the tax must be paid as part of the company’s
CT liability
 This withholding tax applies to payments of:
 Annual interest
 Royalties
 Annuities and other annual payments
 An exemption from the requirement to deduct the withholding tax exists
when a 51% group relationship exists.
 Definition of a group:
 Both companies must be resident in the EU or an EEA state that
Ireland has a double tax treaty with.

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  The company making the payment must be a 51% subsidiary of
the company receiving, or
 Both companies must be 51% subsidiaries of a company resident
in the EU or relevant EEA state, or
 A consortium relationship exists.
 A company is owned by a consortium if 75% or more of the ordinary
share capital is beneficially owned by between five or fewer companies
resident in the EU where the percentage holding of any of the
companies is as low as but not lower than 5%.
 Payments of annual interest, royalties and annuities can be made
gross between companies in a 51% group.

Intra-Group Transfer of Assets

 Relief from CT on chargeable gains arising on the intra-group transfer
of assets
 A capital gains group consists of a principal company and all its
effective 75% subsidiary.
 Defined the same way as a loss group structure with one additional
consideration:
 To be part of a capital gains group a company must be resident in
an EEA state.
 Difference in calculation of losses group and capital gains group in
relation to subsidiaries of subsidiaries
 Transfers of assets between group members are transferred at a price
which ensures no gain no loss arises to the company making the
disposal.
 All members of the group are effectively regarded as one person.
 Therefore the company acquiring the asset takes over the same base
cost and acquisition date.
 Note a withholding tax obligation may still exist in the absence of a
clearance certificate

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 Pay and File for Corporation Tax

Pay and file system

 Self assessment
 Calculate and pay preliminary tax
 File a return
 Pay any balance of tax by return filing date

Preliminary tax
 Different rules apply to small and large companies
 A small company is a company where the tax liability for the preceding
accounting period did not exceed €200,000
 A large company is a company where the tax liability for the preceding
accounting period did exceed €200,000
 There are interest penalties for a company which has failed to meet is
preliminary tax obligations

Preliminary tax for a small company

 Due on the 23rd day of the month prior to the final month of the
accounting period (11th month of accounting period).
 Minimum payment due is the lower of:
 90% of the current accounting period liability, or
 100% of the previous accounting period’s liability.

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Preliminary tax for a large company
 Two instalments
 First instalment due on the 23rd day of the 6th month of the accounting
period
 Minimum payment due is the lower of:
 45% of the current accounting period liability, or
 50% of the previous accounting period liability.
 Second instalment on the 23rd day of the month prior to the final month
of the accounting period (11th month of accounting period).
 The payment due must bring total preliminary tax to at least 90% of the
total estimated CT liability for the accounting period.

Preliminary Tax – Chargeable Gains Top up

 If a company makes a chargeable gain between the final instalment
date and the year end (in the final month), the company can make a
top up payment within 1 month of the end of the accounting period to
bring its total preliminary tax payment up to 90% of the final CT liability
due to avoid any interest charges

Corporation Tax Return, Form CT1

 Must be filed by 23rd day of the ninth month after the accounting period
end date.
 Balancing payment due along with tax return
 Late filing surcharge
 5% of CT liability (to maximum of €12,695) when filed within two
months of filing date

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  10% of CT liability (to maximum of €63,485) when filed after two
months of filing date

 Remember: Late filing also results in a restriction of loss relief:

 Where the return is filed less than two months after the filing date,
a 25% restriction applies to loss reliefs subject to a maximum
restriction of €31,740
 Where the return is filed more than two months after the filing
date, a 50% restriction applies to loss reliefs subject to a
maximum restriction of €158,720

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 Local Property Tax (LPT)
LPT
 Applies to residential property holders.
 From 2014, the liability date is always 1 November in the preceding
year.
 Market value determined on a self-assessment basis.
 For LPT purposes, residential property means any building or structure
(or part of a building) which is used as, or is suitable for use as, a
dwelling and includes any shed, outhouse, garage or other building or
structure and includes grounds of up to one acre.

Liable person for LPT

 Owners of Irish residential property, regardless of whether they live in
Ireland or not.
 Local authorities or social housing organisations that own and provide
social housing.
 Lessees who hold long-term leases of residential property (for 20 years
or more).
 Holders of a life-interest in a residential property.
 Persons with a long-term right of residence (for life or for 20 years or
more) that entitles them to exclude any other person from the property.
 Landlords where the property is rented under a short-term lease (for
less than 20 years).
 Personal representatives for a deceased owner (e.g.
executor/administrator of an estate).
 Trustees, where a property is held in a trust.
 Joint owners – if there is more than one owner they need to agree who
will make the LPT return and pay the tax.

 Local Property Tax (LPT)

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LPT exemptions
 Properties purchased in 2013 are exempt until the end of 2019 if used
as a sole or main residence. If the property is sold or ceases to be
used as a main residence during this time the exemption no longer
applies.
 New and previously unused properties purchased from a
builder/developer between 1 Jan 2013 and 31 Oct 2019 are exempt
until the end of 2019
 Registered nursing homes
 Properties affected by pyrite damage – exempt for approximately 6
years
 Residential properties owned by a charity and used to provide
accommodation and support for people in need / also recreational
activities
 Residential properties constructed and owned by a builder that remain
unsold.
 Certain properties situated in unfinished housing estates
 Properties vacated by their owners due to illness
 Mobile homes
 Properties fully subject to commercial rates
 Property used for a permanently incapacitated individuals

How a property is valued

 The tax is based on the chargeable value of a residential property on
the valuation date.
 The chargeable value is defined as the market value that the property
could reasonably be expected to get in sale on the valuation date.
 The valuation date is 1 May 2013 which applies until 1 November
2021. This means that the valuation of your property for LPT purposes
on 1 May 2013 will stay the same until 2021 (even if you make
improvements to your property)

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Valuation Bands
 Valuation bands are used
 The first band covers all properties worth up to €100,000.
 Bands then go up in multiples of €50,000
 If the property is valued at €1m or lower, the tax is based on the mid-
point of the relevant band.
 For properties valued over €1m the tax is charged on the balance over
€1m, no banding applied.

Calculation of LPT
 When a property falls within a valuation band, the tax is calculated on
the mid-point of that band
 Example – MV is €245,000 – how much LPT?
 Value band - €200K to €250K with mid point €225K
 €225K * 0.18% = €405
 Example – MV is €1,340,000 – how much LPT?
 Value band – First €1m * 0.18% = €1,800
 €340K % 0.25% = €850
 Total = €2,650

Deferring payment of LPT

 Four categories of deferral:
 Deferral based on income thresholds.
 Deferral based on personal representative of a deceased person
 Deferral based on personal insolvency
 Deferral based on hardship grounds
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 Interest will be charged at 4% per annum on amounts deferred.
 Deferral is not an exemption.
 Partial exemption – opt to defer 50% of LPT

Deferral based on income threshold

 If gross income for an individual does not exceed €15,000 (or €25,000
for a couple) 100% deferral is allowed.
 These thresholds can be increased by 80% of mortgage interest paid
 If gross income for an individual does not exceed €25,000 (or €35,000
for a couple) 50% deferral is allowed.
 These thresholds can be increased by 80% of mortgage interest paid

Deferral based on personal representative of a deceased person

 Where a liable person who was the sole owner of a property dies, that
person’s personal representative may apply for a full deferral of LPT for
a maximum period of three years commencing with the date of death.

Deferral based on personal insolvency

 A person who enters into a Debt Settlement Arrangement or a
Personal Insolvency Arrangement under the Personal Insolvency Act
2012 may apply for a deferral of LPT for the periods for which the
insolvency arrangement is in place.

Deferral based on hardship grounds

 The objective of this category of deferral is to provide for situations
where a liable person, who does not qualify for an income based
deferral, was in a position to meet his or her LPT liability until
something happened to cause a significant financial loss or cost. It is
not restricted to owner-occupiers.
 Where a person suffers an unexpected and unavoidable significant
financial loss or expense within the current year, as a result of which
he or she is unable to pay the LPT or maintain phased payment
159
 arrangements, without causing excessive financial hardship, then he or
she can apply for a full or partial deferral.

Payment of LPT
 Can be paid in full or in instalments by:
 Direct debit
 Deduction at source from salary
 Deduction at source from social welfare payments
 Deduction at source from certain scheme payments made to
farmers
 Cash or debit/credit card payments

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  Value Added Tax – An Introduction

Value Added Tax (VAT)

 Indirect Tax – levied on goods and services
 Charged on sales transactions with deduction allowed for purchases
in the trade
 Collected by VAT registered businesses and traders
 Ruled in Ireland by VAT Consolidation Act 2010 (VATCA)

Value Added Tax - Definitions

• VAT Registered Person – someone who independently carries out
any activity in Ireland for business purposes and is required to
register for VAT
• Input Credit – VAT on Purchases
• Output VAT – VAT on Sales
• VAT Exclusive – Net amount before VAT is added
• VAT Inclusive – Amount including VAT

VAT Rates
• Zero Rate – 0%
• Oral medicines, certain books, certain foodstuffs, children
clothing, medical equipment

• Reduced Rate – 13.5%

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 • Fuel, electricity, labour intensive items (repairs, cleaning),
restaurant and catering services, hotels, admission to cinemas,
theatres, hairdressing etc
• Second Reduced Rate – 9%
• Newspapers, ebooks and e-newspapers, the provision of a
person, other than a non-profit organisation, of facilities for
taking part in sport
• Standard Rate – 23%
• The default rate. Solicitor fees, furniture, batteries, motor
vehicles, consultancy services, accountancy services

Exempt Supplies
 Exempt from VAT
 Supplier of exempt supplies cannot register for VAT
 Supplier of exempt supplies cannot charge VAT
 Supplier of exempt supplies cannot claim input credits for VAT
incurred on purchases
 Financial Services
 Insurance Services
 Postal Services
 National Broadcasting
 Education
 Medical, Dental, Optical, Hospital services

Zero rated versus Exempt

• Supplier of zero-rated supplies is obliged to (or can elect to) register
for VAT. This in turn allows him/her to claim input credits for VAT
incurred

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• Supplier of exempt supplies cannot register for VAT, cannot charge
VAT and cannot claim input credits for VAT incurred

General Principles
 VAT is borne by the final consumer (non-VAT registered person)
 Collected at each stage of the supply chain
 Each supplier has obligation to charge VAT and entitlement to claim
input credits for VAT they have incurred
 The VAT registered supplier acts as collector of the tax
 Net amount = VAT exclusive amount
 Gross amount = VAT inclusive amount
 VAT is calculated as a percentage of the net amount
 It may also be necessary to be able convert the gross amount to the
net amount

VAT Charge – VAT charged on following transactions

 The supply for consideration of goods by a taxable person acting in

that capacity when the place of supply is the state
 The import into the state of goods
 On the supply for consideration of services by a taxable person
acting in that capacity when the place of supply is the state
 On intra-community acquisition for consideration by an accountable
person of goods (other than new means of transport) when the
acquisition is made within the state

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VAT Charge – VAT charged when all of the following
conditions are met:
 There is a supply of goods or services
 Within the State
 For consideration
 Made by a taxable person
 In the course or furtherance of business

VAT Charge
 There must be a direct link between the supply and the consideration

VAT Registration – The following must register for

VAT:
 Persons whose taxable supplies of services are likely to succeed
€37,500 in any 12 month period
 Persons whose taxable supplies of goods are likely to succeed
€75,000 in any 12 month period
• Business persons who are normally exempt and acquire goods in
excess of €41,000 annually from other EU countries
• Persons making mail order/distance sales into the State, the value of
which exceeds €35,000 in any 12 month period
• Persons who acquire certain services from abroad

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VAT Registration
• An application to register for VAT must be made to Revenue through
ROS.
• A person who fails to register when obliged to do so is liable to
penalty of €4,000
• Need to register when you think will go above limits
• A person can deregister from VAT when:
• Turnover falls below the thresholds
• Person ceases to trade

Electing to register for VAT

 The following can elect to register for VAT:
• Established traders who supplies do not exceed the relevant
thresholds
• Farmers
• A person who is carrying on a zero rated business who wants to
avail of claiming an input credit on their purchases.

Advantages of electing to register for VAT

 Recovery of VAT on start up costs
 A person who makes zero rate supplies would get VAT refunds

Disadvantages of electing to register for VAT

 Cost of administration of VAT
 Risk of VAT inspection
 If the VAT registration is cancelled, the person may have to repay
input VAT recovered

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  VAT Supply of Goods and Services

Supplies of Goods
 Sale of goods
 The sale of movable goods through an undisclosed agent
 The handing over of goods that are subject to a hire-purchase
agreement
 The compulsory purchase of legal seizure of goods
 The transfer of goods within a business from a taxable activity to an
exempt activity
• Self Supply - The appropriation of movable goods by a business person
for private use
• Gifts – are liable to VAT if the donor was entitled to a deduction on the
purchase of the item and the cost exceeded €20 excl VAT. No VAT
arises if the cost to the donor is €20 or less excl VAT or the donor was
not entitled to a VAT deduction.

Supplies of Goods – Deemed not to be supplies for

VAT purposes:
 Advertising and industrial samples
 Goods supplied free of charge as replacement for original goods
under warranty or guarantee
 Goods provided for security for a loan or debt
 Transfer of a business from one VAT registered person to another

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Supplies of Services
 The supply of services is defined as being any commercial activity
that is not defined as the supply of goods
 Very broad definition – includes hiring of goods, the operation of
hotels, the provision of professional services

Supplies of Services includes:

• The supply of food and drink fit for consumption with further
preparation:
• By a vending machine
• By a hotel, canteen, restaurant
 The operation of a canteen by a business
 The supply of a service through an undisclosed agent
 Leasing and hiring goods
 Professional services

Other supplies – Multiple and composite supplies

 When two or more supplies are made together it may be difficult to
determine if it was a supply of a good or a service or both
 Difficulty assigning VAT rate to the supply

Other supplies – Multiples supplies

• Two or more individual supplies made in conjunction with each other
for a total consideration covering all of the elements of the supply,
but each of the supplies are physically and economically dissociable
from each other
• Each supply is an individual supply and taxable in its own right

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• Examples
• A restaurant meal with food and a soft drink or wine
• A hamper
• A car service along with new tyres
• A school book and exercise book for a single consideration with
neither described as free

Other supplies – Composite supplies

• A composite supply is a supply comprising two or more supplies in
conjunction with each other where one supply is a principle supply
and one is an ancillary supply
• The principal supply constitutes the predominant part of the supply
• The ancillary supply is not physically and economically dissociable
from the principal supply
• The VAT rate applying to the principal supply will apply to the full
composite supply
• Examples:
• A mobile phone with instruction manual
• Computer equipment with training
• Supply of coal in a bag

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The Two Thirds rule
• Applies to a contract for the supply of a service which involves the
supply of a goods
• Contract must be for the supply of a service
• Example: contract from repair of washing machine that requires
replacement of parts
• Where the VAT exclusive cost of the goods in a contract from the
supply of a service is less than two thirds of the total contract price,
the rate of VAT applicable to the entire supply is the rate applicable
to the supply of the service – i.e 13.5%
• Where the VAT exclusive cost of the goods in a contract from the
supply of a service is two thirds or more of the total contract price,
the rate of VAT applicable to the entire supply is the rate applicable
to the supply of the goods – i.e 23%

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• Value Added Tax – VAT on Sales

Calculation of VAT Liability

• VAT charged on Sales less VAT incurred on Purchases
• If VAT on Sales exceeds VAT on Purchases then the VAT registered
trader has a VAT liability payable to Revenue
• If VAT on Purchases exceeds VAT on Sales then the VAT registered
trader is entitled to a refund of VAT

Calculation of VAT Liability – Taxable Amount

• Taxable amount is amount on which VAT must be charged by the
business
• Sales price
• May include customs and excise duties, commissions, costs and
charges but not VAT
• Open market value used as taxable amount when there is a non-
monetary consideration
• Open market value may be applied by Revenue when supply is
between connected persons
• Taxable amount is the cost of the good in a self-supply

Output (Sales) VAT will include

• VAT charged to customers on sales
• VAT on goods bought in from other EU countries
• VAT on certain services from abroad

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• VAT on self supplies – goods taken out of the business for personal use
• VAT on gifts which cost over €20 (excl VAT)
• VAT on goods moved to a VAT exempt activity

Calculation of VAT Liability – Method of Accounting

for Output VAT (VAT on Sales)
• Generally, there are six VAT periods in the year
• January/February, March/April, May/June, July/August,
September/October, November/December
• Two methods for accounting for Output VAT (VAT on Sales)
• Invoice Basis
• Most common basis
• Account for VAT when invoice is issued, based on VAT invoice
date
• Date payment received from customer is irrelevant under this
basis
• Cannot delay accounting for VAT by delaying issue of invoice
• Have to pay VAT to Revenue before payment received from
customer
• Cash Receipts Basis – Only allowed when
• Trader has turnover below €2 million in a 12 month period or
• Trader derives 90% or more of turnover from sales to
unregistered persons
• Can only account for VAT on cash receipts basis by application
to Revenue and with their approval
• VAT rate to be applied is the VAT rate in effect on date of
invoice, not when payment was received

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 • Cash flow advantage – pay VAT when business has received
payment from the customer
• Transactions between connected persons are excluded from
the cash receipts basis
• Transactions in respect of land and buildings are excluded from
the cash receipts basis

VAT on Cash Receipts Basis – Calculating Cash

Received
• Must ensure VAT is calculated on all cash received from customers
(both credit and cash) during the VAT period.
• This will include
• Cash received and lodged to the bank account
• Cash received and not lodged, but used to pay expenses
• Watch for non sales receipts – i.e. loans / personal funds
• Total cash received from customers will represent the Gross
amount –i.e. VAT inclusive

Bad debts
• Under the invoice basis, the VAT registered person may have to
claim an input credit for amounts of VAT charged but never
received
• Under the cash receipts basis, the VAT registered person will
never account for the bad debt

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• Value Added Tax – VAT on Purchases

Calculation of Input VAT

• Input VAT will include
• VAT on all purchases
• VAT on services from abroad and EU acquisitions that have
been included in output VAT
• VAT paid on imports at the point of entry
To claim an input credit, the VAT must be incurred on goods and services
purchased for the purpose of making taxable supplies.

However, there are circumstances where the VAT incurred on the expense
is not allowed as a deduction in calculating the VAT liability

Input VAT – Non deductible

• Non-deductible VAT:
• VAT on purchase, hire or leasing of passenger motor vehicles
• VAT on purchase of vans and trucks is deductible
• Partial VAT input credit allowed for purchase, hire or leasing of
passenger motor vehicles
• VAT on purchase, hire or leasing of passenger motor vehicles –
Partial VAT credit:
• 20% of VAT incurred deductible
• Car must be used for 60% business purposes
• Car must be a Category A,B, or C car
• VAT on purchase, hire or leasing of passenger motor vehicles

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 • Partial VAT credit clawed back if car is disposed of or
ceases to be used for business purposes within 2 years
• VAT on purchase, hire or leasing of passenger motor vehicles
• Clawback calculated as follows:
• TD x (4-N) / 4
• TD = Amount of tax deducted by VAT registered person
when motor vehicle was acquired
• N = the number of days from acquisition to date of
disposal divided by 182
• VAT incurred on provision of food, drink, accommodation,
entertainment or other personal expenses of the taxpayer, his
agents or employees.
• Qualifying accommodation at a Qualifying conference is
deductible – a conference in the course of furtherance of the
business that is organised for 50 or more delegates at a venue
designed to hold such an event
• VAT on petrol, other than for inventory. VAT on diesel is
deductible
• VAT in respect of goods and services used for an exempt
activity.
• Any purchases for which the trader does not have a valid
invoice
• A valid purchase invoice that has not been paid by the business
within 6 months of the invoice date – input credit will be clawed
back.

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• Value Added Tax – Cross Border Trade

Cross Border Trade

• VAT is an EU Tax

• VAT introduced in Ireland on 1 November 1972 in preparation for

entry to the EEC in 1973

• Harmonised across the EU

Place of supply
• The place of supply determines where a transaction is subject to VAT

• Goods and services are only liable to Irish VAT when the place of
supply is Ireland

• Where supplier and customer are located in Ireland the place of

supply is straightforward

Place of supply of goods

• The general rule is the place of supply is where the goods are
situated when the supply takes place.

• In transactions involving the transport of goods, the place of supply

is where the goods are when the transport begins
• Where the goods are assembled or installed by the supplier the
place of supply is where the assembly or installation takes place
• Goods supplied on board vessels, aircraft or trains in a member
state are supplied where the transport begins

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• The place of supply of distance sales between EU member states
depend on a number of factors – see notes below

Cross Border Trade of Goods

• Goods leaving Ireland to an EU Country

• Goods coming into Ireland from an EU Country

• Goods leaving Ireland to a non EU Country

• Good coming into Ireland from a non EU Country

Cross Border Trade – Intra-Community Dispatches – Goods from

Ireland to EU Country

• Depends on whether customer is registered for VAT in other EU

country

• Goods sold to a non-registered person are subject to Irish VAT

• Goods sold to registered persons are supplied at the zero rate, if

• The registered person (the customer) provides their VAT
number to the Irish supplier
• The Irish supplier quotes the customer’s VAT number on the
invoice issued

Cross Border Trade – Intra-Community Acquisitions – Goods from EU

Country to Ireland

• Goods sold by VAT registered person in an EU country to a VAT

registered person in Ireland
• Irish customer provides their VAT number to the EU supplier
• EU supplier quotes the Irish VAT number on the invoice

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• Goods sold by VAT registered person in an EU country to a VAT
registered person in Ireland
• EU supplier charges VAT at the zero rate
• Irish customer self-accounts for the VAT in Ireland
• Self Accounting for VAT on an intra-community acquisition:
• The invoice from the EU supplier will show the net amount and
zero VAT
• The Irish customer includes the net amount as a sale and
increases their Output VAT at the relevant rate – 23%
• On the same VAT return, an Input Credit is claimed for the
same amount
• Net effect is nil
• Exempt Suppliers
• Must register for VAT for intra-community acquisitions when
they acquire goods from another EU country in excess of
€41,000 in any 12 month period
• If the threshold isn’t reached the exempt customer will be
charged the VAT from the EU country of the supplier
• If the threshold is reached, the exempt customer must register
for VAT and self-account for VAT on these intra-community
acquisitions.
• However, the exempt supplier is not entitled to an Input Credit

Cross Border Trade – Exports from Ireland to a non EU Country

• VAT charged at the zero rate

• Example – a computer is made in Ireland & exported to the US

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Cross Border Trade – Imports into Ireland from a non EU Country
• Irish VAT charged at the point of entry on total cost including all taxes
and duties, at relevant rate
• Example – a machine is imported into Ireland from Japan

Brexit Consequences
 As a consequence of Brexit, the UK is no longer an EU member state
and transactions with customers and suppliers in the UK are treated
as exports and imports respectively.

 An exception applies for transactions (supply of goods) with Northern

Ireland which will continue to be treated as intra-community
transactions provided that onward supply to the UK does not form
part of the transaction

 Previously VAT was generally required to be paid to Custom officials

prior to the goods being released into the EU country of arrival.

 However, with affect from 1st January 2021, VAT may be accounted
for an a postponed (self-accounting) basis in respect of imports with
details to be included in a new section of the VAT Return on ROS
(box PA1).

Place of supply of services – general rules

• For business to business supplies of services the place of supply is
where the customer is located
• For business to private customer supplies of services the place of
supply is where the supplier is located

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Place of supply of services - exceptions
• Services connected with land and buildings are deemed to be
supplied where the land or buildings are located whether supplied to
a business or private customer
• Admission to cultural, artistic, entertainment, sporting, scientific and
educational services are taxed where they are performed
• Passenger transport is supplied where the transport services are
actually performed
• Restaurant and catering services are supplied where these services
are performed
• The place of supply for the provision of the following services to
private customers outside the EU will be where the customer is
located:
• Hiring out of movable goods
• Advertising services
• Services of consultants, engineers, lawyers, accountants
• Telecommunication services
• Radio and television broadcasting services
• The place of supply for the provision of the following services to
private customers outside the EU will be where the customer is
located:
• Services performed electronically
• Banking and insurance services
• Supply of staff
• Transfer of licences and similar rights
• Electronically supplied services

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Irish business receiving service from other EU member state and
place of supply is other Ireland
• Provide VAT number to supplier
• The supplier will charge zero VAT
• Irish customer self-accounts for VAT

Irish business supplying service to other EU member state and place

of supply is other EU member state
• Obtain VAT number of business customer
• Include it on invoice
• Charge zero Irish VAT
• Business customer will self account for VAT

Distance Selling Rules on Goods

• Examples include Mail Order sales, phone or tele-sales or physical
goods ordered over the internet
• IT does not include sales of new means of transport or excisable goods
• The limit for registration in Ireland is €35,000 (calendar year)
• If in excess of €35K – VAT is charged where transportation ends
• If less than €35K – VAT is charged where transportation begins
• Irish company making mail order sales to Belgium of €20K – taxed
where transport begins (Ireland)
• Irish company making mail order sales to Belgium of €40K – taxed
where transport ends (Belgium)
• Belgium company making mail order sales to Ireland of €20K – taxed
where transport begins (Belgium)
• Belgium company making mail order sales to Ireland of €40K – taxed
where transport ends (Ireland)

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• With effect from 1st July 2021, amendments are being made to the
selling rules across the EU member states
• An EU wide threshold of €10K will replace existing threshold
• The same rules will apply with regard to charging VAT on supplies
depending on whether the supplier has exceeded the threshold or not.

• Value Added Tax – VAT Administration

VAT Invoices
• A VAT registered person must issue a VAT invoice when supplying
goods or services to another VAT registered person

• Must be issued within 15 days of end of month in which supply

occurs or payment received (which ever is the earliest)

• If invoice does not issue it is deemed to issue

• Part-payments deemed to include VAT

VAT Invoices must include:

• Name and address of trader issuing invoice

• Trader’s VAT number

• Name and address of customer

• Date of issue of invoice

• Date of supply of goods or services

• A full description of goods or services

• Unit price excluding VAT and any discounts

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• Quantity of goods supplied

• Consideration excluding VAT

• VAT rate and amount of VAT

Simplified VAT Invoice

• Where invoice is not greater than €100

• Must include:
• Date of issue of invoice
• Unique sequential invoice number
• Supplier details including VAT number
• Description of goods or services supplied
• Tax due or enough information to calculate tax

VAT Returns – Form VAT3

• Bi-monthly Returns
• Six return periods – January/February, March/April, May/June,
July/August, September/October, November/December

• Reduced Number of Returns

• Trader with 12 month VAT liability under €3,000 – is eligible to
file two returns, each covering 6 months
• Trader with 12 month VAT liability between €3,001 and €14,000
– is eligible to file three returns, each covering four months.
• Only available when offered by Revenue

• Annual VAT Return

• By application to the Revenue Commissioners
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 • Granted when there is no loss to Revenue and trader satisfies
obligations of scheme
• VAT return made for accounting period of VAT registered
person – Jan to Dec 2019 due 23 January 2020
• Required to estimate liability and pay VAT monthly by direct
debit
• If balance due when filing VAT return exceeds 20% of total
liability Revenue may charge interest on balance outstanding
from 6 months prior to due date

• Form VAT3 contains

• Box T1 – VAT on Sales (Output VAT)
• Box T2 – VAT on Purchases (Input VAT)
• Box T3 – VAT Payable
• Box T4 – VAT Repayable
• Box E1 – Total Value of Intra-EU Supplies of Goods
• Box E2 – Total Value of Intra-EU Acquisitions of Goods and
services

• Due for filing by 23rd day of month following end of VAT period

• All VAT returns now subject to mandatory e-filing so all VAT returns
subject to extended deadline

• If VAT return is late, interest will be charged from 19th day of month

• Liable to penalty of €4,000 for failing to submit VAT returns

• Interest charged at 0.0274% per day

• Revenue can issue estimated VAT return when the trader has failed
to submit a VAT return
• Trader can appeal against estimate or submit a correct VAT
return

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Annual Return of Trading Details
• Contains more detailed information on purchases and sales of 12
months of accounting period

• Contains the following details

• Sales, net of VAT
• Purchases for resale, net of VAT
• Purchase not for resale, net of VAT
• Value of Purchases from other EU countries, net

• Each amount broken down by applicable VAT rate that arises in the
year.

Maintaining Records
• Records must be kept for 6 years, 20 years for property transactions

• Electronic storage of VAT invoices is permitted

• Trader required to maintain full and true records of all transactions

which affect or may affect his liability to tax and entitlement to
deductibility

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