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DCA Q&A – HOW SHOULD WE MANAGE OUR TAX?

Q: I have been working in a moderately successful partnership for a little over a year now. From the outset, we both agreed what salary we should both take out of the business and paid ourselves monthly after meeting our liabilities. However, since we submitted our tax returns, a potential snag has come to light. He is married, and claims his wife’s tax credits, while I separately dealt with some medical bills during the year. The upshot of this is that we both have different income tax liabilities to pay, with his being a few hundred less. When we set out, we originally intended to pay tax out of company funds, but he is arguing that this arrangement isn’t quite fair. I do see his point, but I’m now trying to figure out the best way to manage things. What’s your advice?

 

A: Thinking of partnerships almost as a limited company (with a little extra tax benefit) s is a common enough mistake – hence your original plan to pay tax out of ‘company funds’. In reality, you’re running a profit share, and you’re individually liable for tax on the profits that you take out of the venture (along with any other income). In that context, it’s good that you see your partner’s point of view.

 

There are three ways in which you can approach this. One option is for each of you to pay whatever you owe to Revenue back into the business’ account, and for the business to write a cheque for Revenue covering the total amount. Otherwise, you can both deal separately with Revenue to sort out payment details – or a payment plan if required. This would probably be the neatest way to do things.

 

If you do want to pay your income tax out of ‘company funds’, then your partner should get paid the difference between his liability and your own to be fair. Bear in mind that you will also have to account for this when you’re filing your tax return later this year. To be frank, your original plan is a bit messier than it should be.

 

This little problem underlines the importance of making advance preparation for your tax liability, and also having watertight agreements to cover every foreseeable issue. It’s good that you’re being reasonable and fair about a few hundred Euro, but business-busting rows have happened over less.

 

At DCA, we can advise partnerships on day-to-day matters such as their personal tax arrangements, along with key strategic issues such as partnership agreements and negotiating with Revenue. To set up a no-obligation initial meeting, simplycontact us.

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

A NEW LAND OF OPPORTUNITY?

A change of regulations by the Department of Justice presents a major opportunity for investors and Irish business.

 

For a number of years, Ireland has offered an attractive package to potential investors in the country. While the Industrial Development Authority (IDA) soaks up much of the public attention for this work, the Department of Justice has also sough to offer attractive residency terms for those willing to invest. A forthcoming change to the law on Real Estate Investment Trusts (REITs) looks set to raise the bar even further.

REITs (Real Estate Investment Trusts) are useful vehicles for buying exposure to commercial property, and listed on the stock exchange. Since they were introduced to law earlier this year, two such vehicles have already listed – Green REIT and Hibernia REIT, which raised €365m in its flotation this week.

 

Residency Benefits

Why is this of relevance? Well, the Department of Justice is expected to announce shortly that REITs are an acceptable investment vehicle for non-EU nationals who are seeking residence in the country.

While an official announcement has yet to me made, the scheme is expected to offer a stamp 4 residence permit for an investor, his or her partner, and all children under the age of 18 for a non-EU national who invests at least €500,000 in REIT shares. After hanging on to the shares for five years, they will be in a position to apply for Irish citizenship.

 

Useful Terms

Under the highly-anticipated regulations, successful applicants only need to travel to Ireland once a year rather than maintaining permanent residence. This is a key difference from most other EU countries, which only allow extension of residency permits for people who continually reside in the jurisdiction.

All this puts an amply-sized ‘open for business’ sign on the Irish commercial property market. Investors who commit for five years, at a time when prices are  still relatively low but recovering, will be able to continue living in their home countries and claim an Irish passport for themselves and their family in due course. Moreover, the managed nature of an REIT allows investors to benefit without having the hands-on involvement of a direct property purchase.

 

A Significant Impact

As you can imagine, the proposed change is going to be of serious interest for international investors, and far-thinking players in the domestic market. If this proposed policy goes ahead, and has its intended effects, the impact on Ireland’s commercial property sector – and commercial rents – will be significant. For this reason, it’s important that any businessperson (not just those potentially investing in Irish property) pay close attention to the new rules concerning REITs when they emerge.

At DCA Accountants and Business Advisors, we assist many businesspeople and investors in dealing with the impact and seizing the opportunities created by changing Government legislation. If you would like our advice on this or any other regulator change, simply contact us to set up an initial, no-obligation meeting.

DCA Q&A – SHOULD I GO AS A SOLE TRADER?

Q: I have been working on a fixed-term contract with a multinational company. However, my contract is up in December, and it’s unlikely to be renewed or replaced with a permanent offer. The reason for this, I’m told, is a company-wide hiring freeze that is expected to change in the middle of next year.

Between now and then, I have been asked if I would like to continue on as a self employed contractor for a number of months. Before I agree to this, I have a few questions about how it will work. Because I will only be working for one company, would the Revenue have a difficulty with my sole trader status? Also, the company is VAT-exempt, but my income will be over the VAT exemption threshold. Will I still need to charge VAT? I would expect also that I will be using my car  for business75% of the time. Will it be possible to claim car-related expenses as deductable because of this?

 

A: You’re right to be thinking extremely carefully, as making this change in your career is a significant decision. You may be aware, for example, that it will affect your social welfare entitlement if things don’t pan out as you expect. That alone would be enough to put some people off going ahead with this temporary arrangement.

 

However, if you decide to continue working with this firm, there are a few things you should know. Revenue do have an issue with self-employed ‘contractors’ working exclusively with one company. If Revenue deem you to effectively be an employee, they have the right to assess the company, you or both for any taxes that they deem should have been paid. Therefore, even if you only have one other small client as a sole trader, it’s worth keeping that up.

 

As for VAT, you will have to charge it. Deductions for use of the car are on a receipted basis for petrol and other expenses. You should keep a detailed diary tracking your business mileage versus your total mileage to get an idea of how much you can deduct. A rough estimate, unfortunately, won’t cut it. If your vehicle will be primarily used for business purposes, your insurance company will have to be informed.

 

Even though you are thinking of this as a temporary arrangement, it’s important not to assume that you will be made a permanent employee after a few months, so set yourself up in a professional manner. Engage the services of an accountant, keep track of your business expenses and invoicing, and set aside money for your future tax liability.

 

We advise many people taking the first steps into entrepreneurial activity, and we’re more than happy to offer a no-obligation initial meeting to discuss your needs. Just contact us to get the ball rolling.

 

Eamonn Garvey

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

COMING THROUGH THE CRUNCH

Many businesspeople are facing up to a hard deadline – October 31 – for filing returns and paying tax to Revenue. Adopting a few simple guidelines should help make it a little bit less daunting.

 

Many self-employed people frantically scratching out a living in Ireland today are dreading Halloween. That’s not because of an aversion to trick-or-treaters: rather, they simply don’t know how they will prepare their tax returns and pay the Revenue what they owe by this intimidating deadline.

 

If you’re struggling to file your tax return, it’s easy to fall into a trap of putting it off, rushing your return or failing to engage constructively with the revenue when you have a problem. While these are understandable responses to a potentially tricky situation, they’ll only make things worse. Instead, keep these four key rules in mind.

 

Start

When a major project looks impossible to tackle, the start-date often gets pushed back to ‘when I have time’ – which is code for ‘never’. Don’t expect to get through the entire return in one sitting, but tackle it piece by piece depending on how much time you can give it in a day. Even at this stage, most people should easily be able to file on time if they can allocate an hour a day to it for the next week.

 

Don’t Fudge

As you rush to complete the return, you will be tempted to take short cuts and rough estimates where getting accurate figures will take a few more hours. You might even rationalise it by saying that the Revenue won’t audit someone like you. But they can. And if they do, that shortcut will take a lot more time – and money – to straighten out. Resist the temptation to cut corners, because the risk is too significant.

 

Engage

When you are up against it, don’t just go to ground. Engage with the Revenue to advise them of the situation, even if it is just to let them know that the return will be a couple of days late. Contact is recorded on your file, and a history of engaging to try and resolve issues will come in handy if you’re looking for future flexibility.

 

Plan Payment

If you have the cash on hand to cover your tax liability, then you’re in luck. However, even if you don’t, you should make preparations to pay up as soon as possible. The Revenue are aware that businesses currently face a cash-crunch, and are open to working out payment plans with people. Once again, engagement is the key issue here.

 

At DCA, we have a lot of experience in negotiating with the Revenue to get our clients the breathing room they need. We can also help, even at this late stage, to file your returns in a timely manner. Just contact us and we can set up an initial, no-obligation meeting to discuss your needs.