Taxation Implications on Bitcoin & Cryptocurrencies

Taxation Implications on Bitcoin & Cryptocurrencies

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Yesterday went from bad to worse for the crypto bears and believers as they saw their favorite cryptocurrency Bitcoin crash almost 50% from its all-time high hit earlier this year. This also dragged down the values of other cryptos (‘alt coins’) making it a day to forget for all teams involved. We can’t tell you whether Bitcoin and Cryptos are here to stay as stores of value and means of currency exchanges. But as a hub of tax advisory services, we can at least guide you regarding the tax treatment of the same.

Cryptocurrency is a digital currency in which transactions are verified and records are maintained by decentralized authority using cryptography rather than centralized authority (i.e. a bank). Bitcoin is the original and most popular cryptocurrency in the world. According to tax consultants, the feature that makes cryptocurrency a favorable investment among investors is its easy and cost-effective exchange across the globe.

Around this time last year, the Irish Revenue published guidance about the taxability of cryptocurrency transactions. According to Revenue’s guidance, tax transactions on cryptocurrencies are no different from other products/commodities (i.e. 33% CGT). However, you can reduce the amount of capital gains tax that you pay with the 1270 euro annual exemption. But it’s very important to note that this exemption goes across all of your gains which includes stocks, cryptocurrency and real estate etc.

Whether someone or an entity is deemed to be trading or not will depend on case law and many factors including but not limited to the motivation, the subject matter and the level of activity undertaken. An individual carrying on a trade will be taxed at income tax rates while a company carrying on a trade will generally be chargeable to tax at 12.5%.

Irish Revenue’s guidance explains that for businesses that accept payment for goods or services in cryptocurrencies there is no change to when income is recognised or how taxable profits are calculated. The guidance also states that where there is an underlying tax event on a transaction involving the use of a cryptocurrency, the tax law requires a record to be kept of it which will include any record about the cryptocurrency. Therefore, income or corporation tax will apply to the resulting trading profits.

Where a person or company is not considered to be trading in the currency/asset, they will be subject to regular Capital Gains Tax (CGT) rules – any gains or losses arising on such disposals will be chargeable allowable for CGT purposes. Given the high CGT rate, the highly encouraging Bitcoin philosophy and mantra to hold or ‘HODL’ the asset, together with Revenue’s currently limited visibility on such transactions, tax Revenue on such transactions may not yet prove to be a substantial yield for the exchequer.

Further to the above, where emoluments payable to an employee are paid in a cryptocurrency, the value of the emoluments to calculate payroll taxes is the Euro amount attaching to the cryptocurrency at the time the payment is made to the employee. Returns to Revenue must be shown in Euro amounts and remittances made appropriately.

Revenue’s final line in the guidance states that a reasonable effort should be made to use an appropriate valuation for the transaction in question. So, while they have tried to provide some guidance and to a degree some certainty about the tax treatment of same, they acknowledge that uncertainty exists given the evolving and ever-changing nature of the market.

For more information on Irish’s revenue guidelines, you can visit Revenue.ie. If you still have any queries on the above or any other tax-related matter, you can always take benefit of our tax advisory services. Our highly experienced accountants and business advisors will be glad to guide you in all your tax-related issues.
Full guidance can be found on Revenue.ie

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current world economic outlook

As we open up, what is the Economic Outlook?

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There are a great many ways in which the Covid-19 emergency has affected the world we now live in. Our day-to-day lives have been irrevocably changed and everything from our daily habits to how we view and manage our mental wellbeing will likely be different going forward. Something which has been a concern for both business owners and employees is the notion of what state the economy will be in following this emergency, on both an Irish and a global scale. Today we will be taking some time to focus on the current world economic outlook following the recent World Economic Outlook press briefing this month and to share some of the current findings with all of our clients and friends.

The IMF has said that: “We are now projecting a stronger recovery for the global economy compared with our January forecast, with growth projected to be 6% in 2021 and 4.4% in 2022 after an estimated historic contraction of -3.3% in 2020.”

Which, despite some obvious issues in the coming months, and the uncertainty of these projections, is a positive outlook to look forward to, from 2022 onward. It is projected that some jobs lost in the pandemic will not be retrieved and this is likely to change the landscape of the global workforce going forward.

Chief Economist and Research Director Gina Gopinath has given some additional hope for the global economic outlook following on from the Covid-19 pandemic, stating that “even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible. Thanks to the ingenuity of the scientific community, hundreds and millions of people are being vaccinated and this is expected to power recoveries in many countries later this year.”

The idea of ‘secular stagnation’ is one that is important to bear in mind at the moment as economies have found themselves stalling in the midst of global lockdowns. This is a period of little or no economic growth, which is something we have experienced in recent months. Harvard Professor Lawrence Summers suggested in 2013 that these periods assisted in inflation dropping below 2% in Europe, the UK and the US. It can be argued that previous periods of secular stagnation have paved the way for this current emergency to be financially navigated with a positive slant, and for modern economies to come out of this period in a positive light.

Naturally, once global lockdowns begin to lift, economic activity will begin to massively improve but it remains to be seen how impacted the global economy will be by the previous year of emergency. Now is a time to take a longer-term view of the economy and to look forward to a rapid recovery for both our local and the global economy, with all involved keen to avoid another massive financial crisis. The economic rebound from Covid-19 is expected to be strong, with different countries naturally at different stages of their recovery and the UK expected to largely lead this recovery. These projections are naturally reliant on the virus itself as the economy is likely to follow the lead of the virus in that continued vaccine success will propel economic growth, while a continued pandemic and increased variants would slow the economic recovery significantly.

 

We hope that this information has been useful for you and as always, please don’t hesitate to contact us here at EcovisDCA where we remain open and ready to help.

Pandemic Unemployment Payment

Pandemic Unemployment Payment (PUP) 

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2020 payments received: 

Payments received in 2020 under the Pandemic Unemployment Payment (PUP) are subject to income tax and universal social charge.

Individuals in receipt of PUP payments must complete an income tax return to receive their final statement of liability which will provide the final over or under payment for the year.

Revenue confirmed in September 2020 that PUP income tax and USC liabilities would become due at the end of 2020 and that the resulting liabilities could be discharged in one of two ways;

–    Pay any underpayment in full via My Account

or

–    Default option of discharging any underpayment arising due to the PUP payments over a four year period commencing in 2022 via a reduction in the annual tax credit entitlement.

As an example – Individual A has a €1,000 income tax underpayment for 2020.

This can be discharged as follows;

(1) Individual A can make payment of the €1,000 via My Account

or

(2) Revenue will reduce the individuals’ tax credits by €250 for the years 2022 to 2025 thereby recouping the underpayment via the PAYE system

2021 PUP payments:

In 2021 PUP payments will be taxes on a real time basis as follows;

The Department of Employment Affairs and Social Protection will notify Revenue on a weekly basis of the amount of PUP paid to each recipient.

Revenue will then collect any tax due by reducing the person’s tax credits and rate band.  To do this Revenue will “annualise” the weekly amount of PUP.

The adjusted tax credits and rate band are then applied on a Week 1 basis and the revisions will be reflected in the Revenue Payroll Notifications issued by Revenue to the person’s employer.

This process in 2021 should ensure there are no underpayments at the end of the year arising from PUP payments.

For more information on Pandemic Unemployment Payment visit revenue.ie

Or contact us

Pandemic Unemployment Payment

Covid Restrictions Support Scheme (CRSS)

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Payments received by employers :

Payments received under the Covid Restrictions Support Scheme (CRSS) are revenue in nature and will be treated as a reduction of otherwise tax-deductible trading expenses for tax purposes.

Similar to the accounting and tax treatment where the restart grant was used to defray revenue related expenditure, where the CRSS receipts are used to defray expenditure which is revenue in nature like utility bills or insurance costs then it will be taken into account when calculating the amounts chargeable to income tax or corporation tax.

In essence, the payments are taxable income and for accounting purposes, the CRSS receipts will be credited against the expenses incurred thereby leaving the net expense reflected in the accounts which are then allowable as a deduction for income tax or corporation tax purposes.

Therefore the payments received are effectively taxable payments subject to income tax or corporation tax depending on the structure of the entity receiving the payments.

Entities should keep a log of the expenditure which they have discharged from the CRSS receipts which can then be used by the agents to make the appropriate credit entries against the expenditure to arrive at the tax-deductible net figures.

Please do not hesitate to contact us if you have any questions.

Revenue Irish Tax Firm

Temporary Wage Subsidy Scheme (TWSS) 

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Subsidies received by employers:

The TWSS subsidies received by employers from Revenue are revenue receipts by their nature and accordingly will be treated as a reduction in the wages / salaries related expenditure line item for the accounting period concerned.  The subsidies received reduced the expenditure incurred by employers and therefore these subsidies will reduce the amount of wages and salaries allowable as an expense for tax deduction purposes.

Clawback of PAYE from employees :

The Temporary Wage Subsidy Scheme (TWSS) payments by Revenue to employers are treated as part of the employee’s emoluments – ie salary and wages for tax purposes.

The subsidies were not taxed in real-time via the PAYE system however and the amounts received in 2020 by the employees are chargeable to income tax and USC.

The amount of income tax and USC will be reflected on each employee’s preliminary end of year statement for 2020 which is accessible via the PAYE My Account facility for each employee since 15th January 2021.

The employee’s must then complete an income tax return to receive their final statement of liability which will provide the final over or underpayment for the year.

Employees have the option to pay any underpayment in full via My Account or they have the default option of discharging any underpayment arising due to the TWSS subsidies over a four year period commencing in 2022 via a reduction in the annual tax credit entitlement.

As an example – Employee A has a €2,500 income tax underpayment for 2020 This can be discharged as follows;

(1) Employee can make payment of the €2,500 via My Account

or

(2) Revenue will reduce the employees’ tax credits by €625 for the years 2022 to 2025 thereby recouping the underpayment via the PAYE system

Revenue has confirmed that employers may discharge the income tax liabilities of employees without a benefit in kind charge being levied by Revenue. Employers can pay the employee’s liability in one of two ways;

(a) Payment direct to the employee who then must pay the liability

(b) Amend the final payroll submission for 2020 to include additional income tax paid and USC paid that equals the liability shown on the employee’s end of year statement.

The employer will then need to pay the additional amounts that are notified by Revenue in a revised monthly PAYE statement.

For more information visit Revenue.ie or feel free to contact us

Pandemic Unemployment Payment

Restart Grant / Restart Grant Plus

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Payments received by entities:

The Minister for Finance confirmed that Revenue will treat the taxation of these grants differently depending on the purposes for which the grant was used.

Where the grant is used to defray expenditure which is revenue in nature like utility bills or insurance costs then it will be taken into account when calculating the amounts chargeable to income tax or corporation tax.

In essence such grants are taxable income and for accounting purposes the grant receipts will be credited against the expenses incurred thereby leaving the net expense reflected in the accounts which is then allowable as a deduction for income tax or corporation tax purposes.

For example – Insurance premium annual cost paid by company A in the sum of €5,000. Company A uses the proceeds of the grant of €2,500 to part finance the premium payment. A net cost of €2,500 will be reflected in the accounts and allowable as a deduction against profits for tax purposes which reflects the economic reality that the company had a net cash outflow in relation to the premium of €2,500.

Entities should keep a log of the expenditure which they have discharged from the grant receipts which can then be used by the agents to make the appropriate credit entries against the expenditure to arrive at the tax deductible net figures.

Where the grant is used to defray capital expenditure like acquiring plant and machinery for use in the business, then the entity will be entitled to claim capital allowances on the expenditure incurred net of the grant received.

For example – Machine A acquired for €5,000 and proceeds of the grant of €2,500 were used to part finance same.

Capital allowances can be claimed on the net cost of €2,500 at 12.5% per annum.

Revenue have confirmed the above treatment will apply for both the restart grant and restart grant plus

Revenue's Tax Bill

Revenue’s Tax Bill

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Since the beginning of the Covid-19 emergency, we have spoken many times about the various supports made available to both employers and employees to help weather the storm. Two of the main supports that was put in place by the government are the ongoing Temporary Wage Subsidy Scheme (TWSS) and Pandemic Unemployment Payment (PUP). The scheme has seen a number of changes since its inception last year, but this month saw many recipients left confused and concerned.

Over 630,000 taxpayers who were in receipt of either scheme will have received their preliminary end of year statements and found themselves facing a tax bill from Revenue. Any individual who was in receipt of either scheme must pay particular attention to their end of year statement as it is likely that there may be an underpayment of tax listed. While Revenue have long stated that this will be the case, this has still come as a shock for many recipients.

These bills have arrived because neither the TWSS nor the PUP schemes were taxed at the source through the PAYE system from March to August 2020. As a result, the employee is seen to have underpaid income tax and USC for 2020. Although tax was not paid during this period, recipients will still be deemed to have made their PRSI contributions, so neither scheme should affect social welfare entitlements.

The scheme which replaced the TWSS in September 2020, the Employment Wage Subsidy Scheme (EWSS), is now taxed through the PAYE system, so no further hefty tax bills should be seen as a result of this scheme.

The brighter news for those who find themselves with a somewhat unexpected tax bill following these schemes is that the bill is not required to be immediately paid, nor required to be paid in a lump sum at all if this is not something the employee can manage. Revenue have said that they will collect the full, or remaining bill interest-free by reducing tax credits over the course of a four-year period, beginning in January 2022, so there will be no need for immediate action.

It is recommended that you complete your online tax return via MyAccount to ensure that all information is correct and that your outstanding bill is also correct, this also allows employees to claim any tax credits or reliefs they may be due in order to reduce the overall bill (for example, the remote working credit is one which is often overlooked).

We hope that this information has been useful for you and as always, please don’t hesitate to contact us here at EcovisDCA where we remain open and ready to help. Please do not hesitate to contact us.

For more information visit revenue.ie

Euro Currency

Employee Wage Subsidy Scheme (EWSS) Update

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The first week’s of 2021 may not have held all the solutions or change from 2020 that many had hoped, with many businesses once again closing after a brief opening for the Christmas period, so we wanted to take the time to remind you that we are here and happy to help with any business questions or queries you have. We will also continue to bring you the information to help your business and financial lives, across, what will be hopefully, a brighter 2021.

As we work our way through another lockdown, we find ourselves once again focusing in on the supports available to keep businesses alive during Level 5 restrictions, with the Employee Wage Subsidy Scheme (EWSS) finding itself swooping in to save the day once more.

However, it is vital to highlight the changes to the EWSS since its inception and it’s important to keep yourself informed of the requirements and guidelines for eligibility, even if you are currently in receipt of the scheme. So it is important that you stay aware of what is required:

The Company must:

  • Have a Tax Clearance Cert for the duration of the scheme.
  • Have turnover projections and demonstrate that the business is expected to experience a 30% reduction in turnover between January 1st and June 30th 2021.
  • Show that this reduction in turnover is directly caused by Covid-19.
  • Show that this reduction is relative to the same period in 2019 if the company was in existence prior to this date.

Revenue’s in-depth guidelines can be viewed by CLICKING HERE

When calculating your projections for 2021, we strongly advise you to keep copies of both the projections and the actual turnover figures as they come in, in case Revenue requires them in the future. As always, it is better to be over than underprepared.

Should you have any concerns or queries about these or any other business and financial issues, please don’t hesitate to contact us here at EcovisDCA where we remain open and ready to help. Please do not hesitate to contact us.

Brexit - The Urgent Need To Be Prepared

Getting Your Business Brexit ready

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As we all know, Brexit will formally exit the European Union on 31st December 2020, and it is vital for Irish businesses to prepare for the changes ahead.

The Department of Enterprise has released a Brexit readiness checklist which we recommend consulting in full to ensure that your business is prepared, and to contact your Local Enterprise Office for information and assistance. We have compiled the main points to consider here.

 

Supply Chain:

If your business trades with Britain, you will need to take steps to reduce the impact of Brexit on your business and your supply chain.

  • Contact your suppliers and logistics carriers in Britain.
  • Look into the charges that may apply to you when your product reaches Britain, even as a stop-off.
  • Discuss with your Local Enterprise Office.
  • Look into the Brexit Loan Scheme to assist with cashflow.

 

Customs:

Following Brexit, you will likely be required to comply with new customs obligations. New declarations for both import and export will be necessary. There are a number of steps which can be taken in advance to limit the impact of this change on your business.

  • Obtain an EORI number if you have not already – This can be obtained via the Revenue website and will be essential for trade with Britain going forward.
  • Decide if you wish to hire an outside customs officer or process customs in-house.
  • It may be necessary to VAT register in the UK.
  • Ensure that you have a ‘Customs Guarantee’ in place. Authorisation for this may be required from Revenue, and this may provide some security against unforeseen costs.
  • Check with your Local Enterprise Office if they provide customs workshops.

 

Duty:

Beginning January 1st, Customs Duty will apply to the import of some goods from Britain. Here are some steps you can take now to prepare.

  • Classify your goods into the appropriate categories.
  • Identify the cost implications customs duty may have on your products.
  • Apply to Revenue for a VAT and Duty deferment, which allows you to defer payment to the 15th of the month.
  • Review contracts with your suppliers and logistics carriers.
  • Assess your accounts department for readiness to deal with these changes and adapt as needed.

 

Certification: 

There may be new certifications and licenses required for trade with the United Kingdom going forward, and it will be important to ensure that you are compliant with EU rules for trade outside of the union. The below are some steps that can be taken to mitigate these issues.

  • Check whether your current licenses and certifications will be valid after the transition period.
  • Check that your product meets all required guidelines for export outside of the EU.

 

Currency Movement:

Since the result of the Brexit vote, Sterling has been somewhat volatile and is expected to remain so for some time, it is important to consider the impact of this weakened currency on your business.

We recommend consulting with the Revenue website and your Local Enterprise Office for information on further steps that can be taken to ensure that your business is Brexit ready. Let’s get all businesses prepared for Brexit and do what we can to start 2021 off on a good foot.

As always, we are available and happy to help should you require any further information or guidance on any business or financial matters.

 

 

Revenue Irish Tax Firm

Revenue Compliance Checks on TWSS Payments

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As we are all aware, there have been a number of supports in place over the past number of months in order to safeguard businesses and employees during the Covid-19 crisis. One of the major supports in place that has changed format a couple of times this year but has been invaluable for many businesses is the Temporary Wage Subsidy Scheme (TWSS). This scheme allowed businesses to keep employees on their payroll during times the office may have been closed, or the business came under financial strain due to the pandemic, by having the Government cover the majority of an employee’s wage and the employer being given the option to top this up to the full amount. The subsidy has been extended into the New Year under new rules.

 

Unfortunately for some businesses, they may find themselves needing to pay back funds received through the scheme, as it has been reported that while the majority of companies have satisfied Revenue’s requirements for the scheme, as many as 66,500 or 10% companies in receipt of funds between March and August have failed to submit proof that these funds were used for the intended payroll purpose of paying employee wages. Compliance checks are not a new phenomenon with Revenue or TWSS as these have been ongoing since the change of the scheme in September, with some companies found in breach and required to repay their payments.

 

These businesses may be required to pay back a hefty €300m in subsidy repayments if they fail to satisfy Revenue’s reconciliation process before the timer runs out. These employers will be treated as owing the full amount paid out to them over this time period. It is worth noting that in addition to this, any companies failing to enter into the process will also find themselves excluded from Revenue’s debt warehousing scheme and will not be allowed to suspend their tax payments.

 

The first stage of the reconciliation process involves submitting the data as required as proof of how the funds were allocated, while the second stage could see Revenue assess employee payslips individually to assess the amounts paid against the amount received from the government, to ascertain if any outstanding amounts are in need of being returned.

 

We hope that this information will be of interest and use to you and that 2021 holds success and prosperity for you and your business. As always, we here at EcovisDCA are available should you have any concerns or queries about any business or financial matters.