Finance Bill 2014 – a new era for avoidance in VAT and RCT?

By | News | No Comments

For all that Budget 2015 was a give away budget with something for everyone, the Finance Bill was jam packed with anti-avoidance measures.

There are changes to the RCT rules, VAT changes introducing joint and several liabilities where there is VAT fraud, clogging of losses arising on passive trades, rules around pension funds and gilt stripping along with very far reaching changes to the anti avoidance and tax disclosure rules.

The VAT change was required by EU law but goes further than what was actually required, many of the income tax changes are copied from changes which the UK have introduced in recent years, but the package in total spells a new era for tax planning in Ireland. Recent austerity has created the political will to come down hard on tax avoidance, and this budget does just that. The next blog post will concentrate on the income tax changes and the general anti avoidance changes, the Vat and RCT changes are the source of the most immediate concern.

RCT Change

The first major change is to the RCT rules. A principal contractor is now subject to a penalty rather than a tax in respect of payments made outside the RCT system and the penalty ranges from 3% in respect of a payment made to a subcontractor who would have been eligible for a 0% withholding, through to 35% where the subcontractor was not within the system, and the previous €5k cap has been removed. Unlike the previous regime where the correct rate could be applied retroactively once the returns were submitted the new regime provides for no rectification since the amount is now a penalty and not a tax. The classification of the amount as a penalty means that it is not creditable against any income tax liability, and the obligation to make “unreported payment notifications” to Revenue carries no additional penalty, nor does it reduce any liabilities to penalties. In this regard it seems that there is no incentive for taxpayers to remedy any innocent errors made.
VAT changes

Where a VAT registered trader is reckless as to whether they are a party to a transaction which results in VAT evasion they can be jointly and severally liable for the VAT limited only by reference to any input tax which the fraudulent trader could have claimed a deduction for. This provision is much broader than the corresponding UK provision aimed at carousel fraud which is restricted to they types of goods usually used in that fraud being second hand electronics and phones and this seems intentional. While it may be difficult for Revenue to prove that a trader was reckless if they were charged VAT and didn’t know that the other party did not account for that VAT to Revenue, it seems certain that if a VAT registered business accepts a cash price for good or services and does not have reason to believe that the supplier is under the VAT registration threshold then they could be liable for the VAT. This will also take pressure off SMEs being pressured by large exempt clients to apply the wrong VAT rate since the large exempt purchaser now has joint and several liability.

Farm Taxation – Will the Budget increase Farm Mobility?

By | News, Taxation | No Comments

There were a number of provisions in the budget aimed at increasing farm mobility and utilisation in Ireland.

Many of the measures are targeted at making land available for leasing.

These include

  • a removal of the restriction that in order to avail of the income tax exemption one must be 40 or older;
  • An increase to €18k the amount one can receive tax free under a five year lease;
  • An increase to €22.5k the amount one can receive tax free under a seven year lease;
  • An increase to €30k the amount one can receive tax free under a ten year lease;
  • The introduction of an exemption of €40k the amount one can receive tax free under a fifteen year lease;
  • Relief will also now be allowed where the land is leased to an unconnected company
    Agricultural leases between 5 and 35 years will now be exempt from Stamp Duty

In addition land which has been let for 25 years prior to disposal will be eligible for retirement relief from capital gains tax on gains up to €750k for farmers under 66 and €500k on disposals by farmers who are 66 or older on disposals to third parties. This limit is €3m on disposals to family members.

This seems to be heavily targeting the New Zealand model for the dairy sector; in the beef sector conacre will likely continue. The reasonably low rental values combined with an innate fear of losing the land if leasing it under longer term leases leave conacre the preferred option.

While farmers can still benefit from the relief in non dairy sectors they are unlikely to achieve anything near the maximum tax free amounts at current land rental values.

Whether the abolition of milk quotas will result in a significantly different land rental market developing remains to be seen. I suspect that the innate emotional attachment to land, combined with a fear that somehow tenants can usurp landlord’s rights will trump the availability of tax free income.

Until 31 December 2016 land let under conacre, or land currently under conacre which is let under a 5-25 year lease before that date can be disposed of to non-family members until 31 December 2016 claiming retirement relief.

This encouragement to move away from conacre is again most likely to impact on dairy farms but this could be an incentive for older people to take the opportunity to actually sell their land realising a tax free gain.

On farm transfers consanguinity relief resulting in a 1% stamp duty rate, due to expire this December, has been retained for 3 more years where the transfer is 65 or older and the transferee is an active farmer.

Agricultural Relief from Capital Acquisitions Tax will be restricted unless the transferee is either actively farming the land, or who lease the land out on a long term basis to such active farmers.

The farmers’ flat rate allowance for VAT is to be increased to 5.2% providing additional welcome relief to farming families.

Capital Gains tax farm restructuring relief is being extended to situations where the first transaction takes place before 31 December 2016 and the final transaction by 31 December 2018. Teagasc guidelines are being amended to allow whole farm replacements be eligible.