Pat Sutton is delighted to accept appointment as a director of County Kildare LEADER Partnership. Proposed to the role by County Kildare Chamber Pat hopes to make a positive contribution to LEADER and add his financial expertise to the organisation. Employing over 50 people directly the organisations principal activity is the administration of several National and EU funding and training programmes. It is responsible for the delivery of a range of rural, enterprise, social inclusion, and community development initiatives in County Kildare.
Many property owners are currently refurbishing their properties and making significant investments in capital reconstruction, plant & machinery and repairs. The challenge for the property owners is to claim the maximum tax relief through either repairs or capital allowances without getting it wrong. We have advised many property owners on how best to maximise allowances whilst meeting Revenue guidelines. Owners of Hotels, Restaurants, Data Centres, Nursing Homes, Commercial Units, Office Blocks, Industrial Buildings, Distribution Centres, Manufacturing Units, Supermarkets/Shops, Motor Garages, Farms, Stud Farms etc, all face the same challenge how to split the expenditure between capital, plant & machinery and repairs.
If the expenditure qualifies as straight repairs expense the good news is that 100% of the expenditure can be claimed in year one.
If it is not a repair then it is capital and you need to decide if it is Building Costs or Plant & Machinery.
- Building costs on non-qualifying property – no write off can be claimed but the costs incurred is added to the original cost of the property
- Building Costs on qualifying assets – you may be able to claim Industrial Building Allowance (IBA) which allows you to claim a write off at 4.0% per annum.
- Plant and Machinery – you may be able to claim wear and tear allowances (WTA) which allows you to claim a write off at 12.5% per annum.
The categorisation of the spend under the appropriate headings is complex and frought with difficulty, it is not as simple as you may think and to get it wrong can be significant in terms of tax, interest and penalties.
When assessing whether expenditure can be treated as repairs for tax purposes it may be helpful to consider the following questions;
- Was the expenditure incurred on a similar replacement where there was no element of improvement to the asset?
- Was the asset replaced with the nearest modern equivalent?
Tests used to determine whether qualifying as Plant & Machinery;
- Function Test – relates to the function of the item
- Business use test – whether the item is employed in carrying on the business
- Premises test – whether the item is part of the premises
- Setting test – whether the item itself plays a part in conducting the trade or is simply part of the decoration
- Completeness test – whether the building would be complete without the item
When refurbishing a building you need to consider all elements of the spend such as plant, electric’s, heating, partitions, flooring, fit-out, windows, doors, roof, lighting, painting, decoration, car parking, fees etc.
There is huge amount of case law available which has to be considered. Every case is different and should be considered on its own merits. You will need a very experienced Tax Accountant to get the split correct. Make sure to ask your advisor do they have they the necessary experience to advise on this and don’t be afraid to get a second opinion.
O’KellySutton has successfully claimed capital allowances for all types of property investments for a diverse section of clients. Our extensive experience has enabled us to develop a tried and tested methodology for preparing fair and complaint claims.
The most recent increases to the EIIS scheme were a step in the right direction. This is a very important tax relief scheme for investors and one that many companies use to raise much needed seed capital. Over the last number of years O’KellySutton have advised and assisted several companies in their quest to raise the necessary funds required to deliver on their strategy.
The Employment and Investment Incentive Scheme (EIIS) is the replacement scheme for the old Business Expansion Scheme (BES). The scheme is available to the majority of small and medium sized trading companies, most of whom qualify, however certain activities are excluded.
The concept behind the scheme is that investors make investments in a company and get tax relief. The reason for the tax relief is to encourage investment in early stage start-ups which by their nature carry a reasonably high level of risk. There’s normally a fixed return on the investment of between 10% and 20% (excluding tax relief) at the end of year 4 or 5. Tax relief is allowed at the top rate of tax at 40% subject to the taxpayer actually paying the top rate. The relief is split 30% in year 1 and 10% in year 4. Investors can invest in stand alone projects or through EIIS funds put together by Brokers.
A qualifying company can raise a lifetime maximum of €15m with an annual limit of €5m.
An individual may invest up to €150,000 per annum in this scheme. The maximum limit applies separately to both spouses, provided that they both have sufficient income in their own right. Where full relief cannot be availed of in a tax year, the excess can be carried forward to subsequent years.
The lifetime limit that a company can raise is €15m with the annual amount being €5m.
The period for which shares need to be held has been increased from three years to four years. A claw-back of relief will arise if shares are disposed of within 4 years.
The scheme has been extended to 31st December 2020
The restriction that applies to High Earners removal was made permanent with effect from 1 January 2017.
Share must be held in the company for a period of 4 years from date of issue or from date company commences to trade if later.
- A connected party may not invest however investors may invest in his/her own company where the amounts subscribed for do not exceed €500,000 at the time of share issue.
- Employees and directors of the investee company may invest provided they are not connected parties as defined or are not receiving payments from the company other than reasonable pay and expenses.
- Connected parties include those who control the company or own more than 30%, or are associates/partners of the company.
- Financing activities
- Dealing in or developing land
- Operating or managing nursing homes and hotels
- Extension of a nursing home or residential care units associated with a nursing home owned by a company.
- Professional service companies
The operation of hotels, guest houses and self-catering accommodation is a “qualifying activity” where the conditions of the Tourist Traffic Act are met.
Capital Gains Tax
- For the purpose of computing an individual’s liability to CGT the purchase prices of the shares will be considered to be the cost before deduction of the tax relief.
- In general losses on the sale of shares will not give rise to an allowable loss fort CGT purposes.
For assistance in applying for EIIS approval, develop a prospectus or fund-raising contact Patrick Sutton email@example.com
Accounting in Corporate Structures
Since the introduction of the new financial reporting standard FRS102 in 2015 we have found the accounting treatment of Investment Properties are not being dealt with correctly in many instances. Here are some basic rules to follow when accounting for your investment property this year.
You are required to use fair value unless fair value measurement would present undue cost or effort, in which case cost is permitted. It would only be in very unusual circumstances that property could not be revalued due to the cost or effort of acquiring the valuation.
Revaluations are accounted for through the profit and loss account.
Deferred tax is required on all revaluations. Deferred tax represents the future tax consequences of transactions and events recognised in the financial statements of the current and previous period.
Revaluations may result in either a deferred tax asset (in the case of a revaluation loss) or a deferred tax liability (in the case of a revaluation gain). Before providing for deferred tax asset there would need to be substantial evidence to prove that you can realise the capital loss in the future.
The financial treatment of investment properties in financial statements has consequences in the hands of third party users be it bankers, private capital houses, third party investors or Revenue.
Taxation in Corporate Structures
A capital goods scheme record (CGS) is required for all commercial and industrial properties that are registered for VAT. Every property must have this 20-year VAT passport, it is a requirement by Revenue and will be required in the event of sale. Care needs to be taken when leasing to non-VAT registered entities by a VAT registered entity. If VAT is not charged then this will most likely trigger a VAT repayment of some or all of the VAT originally claimed on the purchase or refurbishment of the building.
Corporation tax of 25% is applied on all rental profits in a company structure. Undistributed remaining profits after corporation tax is taxed with a further Surcharge of 20% if not distributed within 18 month from year end. There may be ways of dealing with this surcharge in certain circumstances depending on one’s structure.
Only costs that are directly incurred in the management and maintenance of the properties are allowed as deductions for corporation tax purposes. As a rule of thumb Revenue will allow 15% of Gross Rental income to be treated as salary in the normal course of business.
For more information on the taxation and accounting treatments of investment properties please contact Pat Sutton, firstname.lastname@example.org or 045 530777
by Patrick Sutton
As a start-up founder, you will be working very long hours, possibly seven days a week, and managing all aspects of the business. As time moves on, you begin to build a team around you to fulfill certain roles such as admin, finance, technical, production, or sales. After you’ve assembled a solid core team and started to get traction in the market with your products, you may then find yourself at the crucial stage at which you are ready to scale the business. One of the most important milestones is hiring your first executive. Depending on the stage of development and the business you’re in, that senior executive could have a title such as chief executive officer, chief operating officer or managing director. The hiring of that first executive if you get it right can really fuel the growth plans, but it is expensive and hugely risky if you get it wrong.
It’s often said timing is everything, and this is never more true than when hiring your first senior executive. Those with proven track records don’t come cheap, so is your business ready for the acceleration? Is your product ready for scaling? Are you properly financed? Are you ready to let go?
Prepare and update your cashflows, discuss them internally and with your advisers. Stress-test the cashflows and prepare for contingencies if growth is not as quick as you would like. Share the cashflows with the proposed new executive and get their buy-in that it is achievable.
What do you need?
Prior to hiring an executive, have a good look at yourself and the skill set of the existing team. Understand where the most critical skills weaknesses are in terms of scaling the business. Some founders are born salesmen but can’t run a business, others are technical geniuses so need help with marketing and selling, others simply may not understand the target market so need an experienced industry executive to open doors and lend credibility to the business.
Investors and professional advisers
It’s difficult to evaluate an executive for a position if you’ve never done the job before or if you’ve never worked in a similar position. When under pressure to hire, it’s very easy to get so focused on a candidate’s impressive resumé that you fail to ask the hard questions to truly understand if they were effective at their job. Investors and advisers will have been down this road many times before and will have a good understanding of the pitfalls. Make use of their expertise.
Every start-up is different so it is difficult to generalise as to what is a perfect executive candidate. However, you need to identify the must-haves and deal-breakers for your first senior hire. In addition to having the right experience, they need to be passionate about your space and what you’re building. You want the candidate who isn’t afraid to roll up their sleeves, take responsibility and be an individual contributor. If there’s excessive discussions around title, perks, severance, time off, working conditions, working hours, minding the kids etc, these are bad signals. They should be secondary to the opportunity to make a significant impact and the potential upside of joining an early-staged company. Three good references from previous similar roles are essential.
After selection, the ideal scenario is to try out the arrangement for a period of time before either party commits long-term. Of course, this is not always possible so it is important the candidate is brought in on a probationary period. This trial is a two-way selling process. It’s an opportunity to see how the executive works and for them to get to know the team personally. During the trial period, everything should be more or less done together, from important client pitches to spending time in social settings. Without the trial period, it is difficult to understand if someone is a good culture fit until you interact with them on a day-to-day basis and deal with adversity together.
Once you’ve selected the executive, you now face a major personal challenge as to how you will work with that person. You’ll need find the balance of working closely with them yet not micro-managing. Your start-up is your baby and it’s difficult to let go and delegate, but you have to trust your team members. In order to attract and retain great leaders and managers, give them the opportunity to execute.
Hiring your first executive is an important step in scaling your business. It needs to be planned carefully and not rushed. Our experience shows that it takes three to six months to find and hire an experienced executive. Once the right person is on board, you should see the business grow and scale up just as you imagined it would.
You can email Pat Sutton of O’KellySutton at email@example.com
It is important that business owners have the right structure in place so that the appropriate relief from taxes can be claimed in the event of sale or transfer of your business assets. In particular, if you are over 45 years of age you should seek advice as tax planning cannot be done retrospectively. Two of the more advantageous reliefs are Entrepreneurial Relief and Retirement Relief.
In the recent Budget 2017 The Minister announced an amendment to the CGT entrepreneur relief, which was introduced in Finance Act 2015. The tax rate applying to gains arising on the disposal of qualifying assets after 1 January 2017 has been reduced to 10% from 20% on gains up to €1 million. Gains in excess of €1 million will still be chargeable at 33%. The Minister indicated that the €1 million lifetime limit will be reviewed in future budgets.
The relief is available to the individual owners of a trade or business (owners/founders of private unquoted companies, sole traders and farmers) in respect of the disposal of all or part thereoff of that trade or business which they have owned for at least 3 years. A qualifying business for the purposes of the relief is defined as any business other than the holding of securities, investments, or development land, and the development and letting of land.
In relation to a private company, individuals seeking to qualify for relief must own not less than 5% of the shares in the company or at least 5% of the shares in the holding company of a qualifying group. A qualifying group exists where a holding company holds one or more companies as its 51% subsidiaries and those companies are wholly or mainly engaged in a qualifying business activity.
The qualifying individual must also be director and / or employee of the company who spends at least 50% of their working time in a managerial or technical capacity, such position being held in a qualifying business for a continuous period of three years out of the last five years prior to the disposal.
Two types of “retirement” relief apply if you are aged 55 or more and you dispose of a business or farm (qualifying assets):
- If you dispose of your business or farm to your child, the gain is exempt. There is no limit on the value of business assets that may be passed to your child in this way. “Child” includes an adopted child, a favourite nephew or niece, and, a foster child. From 1 January 2014, in respect of disposals by persons aged 66 or over, the maximum value that can be passed tax-free to children is €3,000,000.
- If you dispose of your business or farm to any person other than a child within (a), the gain is exempt if the proceeds do not exceed €750,000. If the disposal proceeds exceed €750,000, marginal relief ensures the CGT may not exceed half the difference between the proceeds and €750,000. This is a lifetime limit per individual. From 1 January 2014, in respect of disposals by persons aged 66 or over, the €750,000 limit is reduced to €500,000.
These two reliefs operate independently of each other. Therefore, if you had two separate businesses, you could claim relief under (a) on the disposal of the first business and under (b) on the disposal of the second business.
Qualifying assets means you must own the assets for a period of more than 10 years on the disposal date. And for shares in a family company you hold at least 25% of the voting rights. If you do not, you must have at least 10% of the voting rights, and, together with your family, have at least 75% of the voting rights.
Contact Pat Sutton or Patrick O’Rourke on 045 530777 for more details and specific tailored advice.
Irish Businesses have grown used to the benefits of Open Source Software for their web presence There’s no disputing that it has dramatically reduced the cost, and increased the ease with which complex e-commerce applications can be deployed. But deployment is just the start. O’KellySutton have been helping Irish Businesses to use Open Source Software for over 12 years now. Read our tips and become an Open Source Ninja!
- Select WordPress. With 70% and growing of the CMS market share, it offers the most template and plugin choice. It has seen steady market share growth, and O’KellySutton predict it will continue to be the dominant platform, and will continue to gain market share in the future.
- Manage Security Proactively. The install of the software is just the beginning. Since the application is facing the Web, this is different to installing something at home, or in the office. It needs to have the security managed pro-actively. Many ‘web developers’ don’t do this, and too often, security is reactive. Be proactive.
- Update the software. Bugs are discovered in releases of software, new releases are made correcting it, automated scanning tools scan for the vulnerable, and those sites are hacked. So don’t expose your site: update and patch your open source software, and avoid being picked off by hackers.
- Not all hosting is created equal.There has been a proliferation of cheap hosting services, and these work by sharing a vast number of URLs on one address. This has implications for site speed, reputation and availability. These in turn impact on traffic levels and profitability. Choose your hosting wisely.
- Be conservative with plugins. They slow your site down and each one comes with its own security risk profile, and requires updating.
- Choose your design template carefully, and preserve any modifications in a ‘child template’ to allow the master template to be updated.
- Don’t break the UX (user experience). Templates are more than just how they look in an exec’s browser, and clumsy modification can disturb the user experience on other platforms. Select a theme you like and keep within the parameters for modifing it. It’ll be cheaper in the end.
- Plugins and services can be altered or discontinued. Be very careful about relying or building on them for critical business functionality. Where you provide part of your company’s USP online, it can be better to own that application.
Do you use Open Source? O’KellySutton provide a managed service for clients that wish to operate Open Source software, or to develop hybrid open source – propriety solutions, for mission critical applications. Contact us to know more.
- Spending increases and tax cuts of €1.3bn. .
‘Help to buy’ scheme
- A new ‘help to buy’ scheme will see first time buyers entitled to a 5% grant on newly-built homes (signing contract date after 19/7/2016) up to the value of €20,000, includes self builds. A rebate will be available for income tax paid over the last 4 years, up to a maximum of 5% of the purchase price up to Euro 400,000. Relief is available for new houses up to Euro 600,000, with no relief available for houses above this amount.
- Applies to new properties including self-build but second-hand homes will not be included.
- Must take out a mortgage of minimum of 80%.
- As predicted, Universal Social Charge (USC) bands for all workers to be cut by half a percent to the 3 lower bands – down to 0.5%, 2.5% and 5%
- It will increase the entry threshold for USC by €104 to take those on minimum wage outside of the top rates.
Capital Acquisition Tax
- Capital acquisition tax thresholds to be increased as follows: – Category A Threshold (incl gifts to children): Increase by €30,000 to €310,000 – Category B Threshold: Increase by 8% to €32,500 – Category C Threshold: Increase by 8% to €16,250
Entrepreneurs / Self Employed
- Entrepreneur relief to be amended to reduce special capital gains tax rate from 20% to 10%. The lifetime cap of Euro 1m to be reviewed.
- The Start Your Own Business Relief is to be extended for a further 2 years.
- ‘Earned Income Tax Credit’ for self-employed being increased by €400 to €950
- New SME focused share based remuneration scheme to be introduced in Budget 2018.
Renewable Energy / Combating Climate Change
- Extension of the scheme of accelerated capital allowances for investment in energy-efficient equipment to sole traders.
- Extension of the relief from vehicle registration tax on electric vehicles for a period of 5 years giving the motor industry and motorists the confidence to invest in this cleaner technology:
- Extension of the VRT relief for hybrid vehicles for 2 years;
- Natural gas used as a vehicle fuel will be taxed at the EU minimum rate of excise for a period of 8 years;
- Introduction of a relief from carbon tax for solid fuels that include a biomass element to incentivise the development of these greener fuels; and
- The interest restriction on rented property introduced in 2009 is to be phased out. The deduction available for qualifying interest payments on residential rental properties has been increased from 75% to 80% in 2017 and will be increased further by 5% per annum thereafter until the restriction is fully phased out.
- New low interest loans to be available at a rate of 3.0%
- Income averaging – can now step out for a year including 2016.
- The flat-rate addition for farmers is being increased from 5.2% to 5.4%.
- A new Fishers Income Tax Credit has been introduced of €1,270 per annum for Fishers who have fished for wild fish or wild shellfish for at least 80 days in a tax year.
- The Minister confirmed the reduced 9% VAT rate for the tourism and hospitality sector will be retained.
Rent a Room
- There will be a boost for those who want to earn extra money by renting out a room in their home – the tax free rental allowance under the ‘rent a room scheme’ is being increased to €14,000 per year.
- Minister Donohoe also says there will be a new round of Sports Capital Grants in 2017.
Home Renewal Incentive Scheme
- Extended for a further 2 years to 2018.
- Homecarer’s tax credit increased by €100 to €1,100.
- DIRT – The rate of income tax on deposits has reduced from 41% to 39% and it is due to reduce by 2% per annum for a further three years to 2020 when the rate will be 33%.
- €5 million to be allocated to employ an additional 50 Revenue staff.
Tax minimisation on Retirement and Transferring Assets
There’s been a lot of talk recently in the media about increasing Capital Acquisition Tax (CAT) Thresholds and quite rightly so. Currently, there is the possibility of families paying tax twice or three times or more when transferring assets down through the generations’. Assets include property, cash, shares, paintings etc. Why should tax payers be penalised for making good investments all of which are bought from after tax income in the first place. There’s RICT’s and foreign property funds in Ireland who are using trust mechanisms to pay little or no tax in some instances.
We at O’KellySutton urge our clients to plan well ahead before making any decisions about transferring assets. There are many tax mechanisms available which can be used to reduce tax exposures such as Business Relief, Agriculture Relief, Dwelling house Relief, Favourite Nephew, Discretionary Trusts, Corporate Group Structures, etc. Substantial tax savings can be secured by the correct use of our tax planning mechanisms.
If you are in the Construction Industry and a Property Investor there are action’s you can take to protect your asset base and minimise your tax exposure. Some typically end up with a lot of properties and very often not held in the right structures, leaving them paying high levels of taxes and with massive exposure to their families in the event of death. That’s not a position families should find themselves in.
Contact Pat Sutton or Patrick O’Rourke at 045 530777