Corporation Tax

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Income Tax Receipts Higher than Forecasted

As reported in the Irish Times, 03.03.2020, the latest exchequer returns show the Government received income tax of €3.97 billion for the months of January & February, 3.3% lower than forecasted but up over 14% based on previous years.

VAT income was up by 4%, generating over €3 billion, with Corporation Tax at €583 million from the start of the year, 117% above forecast.

In total, €9.2 billion in tax was collected, €285 million more than expected.

Revenue have stated that the total received in the last 2 months generally account for less than 2% of a full year of overall receipts.

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Pre-Budget 2020

Ever wondered what taxes are financing government coffers?

Source: Irish Tax Institute Pre-Budget 2020 Briefing Papers 2019

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Revenue 2018 Annual Report

Revenue issued their 2018 Annual Report on 09th May confirming Revenue collected net Exchequer receipts of €54.6 billion last year.

Chairman, Niall Cody stated that;

‘when compared to 2017, net Exchequer receipts increased by €4 billion. There were increased receipts for almost all taxes and duties including Income Tax, up 6.6%, VAT up 7% and Corporation Tax up 26.7%.’

Mr Cody acknowledged taxpayers’ engagement, and that of tax practitioners and agents, in achieving the very strong compliance rates seen again for 2018. 9,000 businesses and individuals had phased payment arrangements in place by the end of 2018 covering €93 million in debt. For taxpayers that refuse to pay their tax or liase with Revenue, Niall Cody explained that;

‘we undertake a range of debt collection and enforcement actions to collect tax debt. In 2018, we collected €211.6 million as part of our debt collections and enforcement actions.’

Mr Cody also went on to say;

‘it is very important that we support compliant taxpayers by identifying risks and tackling non-compliance in all its forms. We continue to be alert to, and pro-actively respond to, the risks arising from the changes in economic and business environments both nationally and globally.’

The new arrangements for PAYE reporting with PAYE Modernisation came into force on 01st January 2019. Revenue received 1.4 million payroll submissions as of 31st March 2019 from almost 157,000 employers for more tan 2.6 million employees and pension recipients totalling almost €24 billion.

Mr Cody added;

‘with real-time reporting now in place for employers, we have turned our focus to the benefits of this new system for employees. From 15 May, all employees will be able to view their payroll details, as reported by their employer, through myAccount. Further improved services through myAccount will follow later in the year.’

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Legal and Tax Implications of Directors’ loan

Companies and their directors are seen as two separate legal entities.

Therefore, when a director wishes to borrow money from their company for personal use even for a short period of time there are a number of legal restrictions and tax implications to be considered.

Directors’ loans and the Companies Act 2014

The Companies Act 2014 prohibits directors or connected parties to them been given loans greater than 10% of the company’s net assets except in certain circumstances.

  1. The loan is to another group company
  2. The relevant Summary Approval Procedure is followed allowing a company to provide a loan of greater than 10% of the company’s net assets to a director or connected parties to them. This is a declaration which set out the details of the transaction this must be delivered to the CRO with 21 days of the loan being made. The use of the SAP to legalise a director’s loan arrangement will expose all directors to unlimited personal liability for the debts of the company. Prior to utilising the SAP to legalise an activity, the directors should carefully consider the fact that they could be exposing themselves to unlimited liability.

If a company does provide a loan greater than 10% of the company’s net assets to a director outside of these exceptions, they are in breach of company law.  If this breach is brought to the attention of the Director of Corporate Enforcements, it may result in in them issue proceedings against the directors of the company.  This is particularly relevant to companies without audit exemption as auditors are legally obliged to report a breach of the directors’ loan legislation to the Office of the Director of Corporate Enforcements.

Tax Implications of Directors’ loans

There are a number of tax implications in relation to directors’ loans:

 Income Tax

  1. The first is Benefit in Kind chargeable to the director if they are receiving the loan interest-free or paying below the interest rates agreed by Revenue which is 4% for loans to purchase a principal private residence and 13.5% for all other loans.

Corporation Tax

  1. If a director does not pay interest to the company on the directors’ loan this is treated as Interest Receivable for the company and taxed at the rate of 25%.
  2. Where a director does repay the loan within the twelve-month period the company is due to pay a surcharge when submitting their corporation tax return. The is surcharge is calculated on the basis that 20% income tax was deduced from the loan before the director received it and this must be paid to Revenue.  However, once the loan is repaid to the company the tax paid is refundable to the company.

ITAS Accounting are Registered Statutory Auditors experienced in dealing with the Financial Services industry in meeting their Revenue, CRO and Central Bank requirements.

If you or your client require any assistance, please do get in touch with us.