The new personal insolvency regime is now force. Overseen by the recently established Insolvency Service, three non-judicial debt relief procedures have been introduced and the bankruptcy term has been reduced from 12 to 3 years. There are various debt relief procedures depending on the amount of debt involved and each arrangement has its own particular rules.

Under all the arrangements, applicants will be required to stick to strict budget rules over a number of years of supervision, allowing for ‘reasonable living expenses’ (see below). Creditor approval for the arrangements may also be required, again depending on the amounts and type of debt involved.

Debt Relief Notice (DRN)

DRNs allow for the write-off of unsecured debt of up to €20,000 if the applicant meets the  income and asset criteria outlined. If successful, an applicant would enter a ’3 year supervision period’ where creditors would not be allowed to pursue any action against the applicant for the recovery of debts under the DRN.

The application must be made through an ‘Approved Intermediary’, which includes such organisations as the Money Advice and Budgeting Service (MABS).

For more information, click here.

Debt Settlement Arrangements (DSA)

DSAs apply to unsecured debts with no asset/income qualification restrictions.  A 5 year ‘supervision period’ applies in this case.

Unlike DRNs, DSAs will require the applicant to use a Personal Insolvency Practitioner (PIP), an approved and qualified intermediary who will apply for a protective certificate and manage the process on behalf of the debtor.  This protective certificate will protect the applicant from enforcement proceedings while the PIP presents a proposal to the creditors involved which could include debt write-downs.

A successful application will require the approval of 65% of creditors by value and an individual may only enter into a DSA once.

If the stipulations agreed in the proposal above are successfully complied with, the debtor will be released from the debts specified in the DSA at the end of the period.

For more information, click here.

Personal Insolvency Arrangement (PIA)

Like a DSA, a PIA requires the use of a qualified PIP but must include secured debts. I.e. this is the arrangement applicable to those with mortgages seeking debt relief. An applicant can enter into a PIA with one or more of his/her creditors.

A limit of €3m applies to the amount of secured debt that can be included in a PIA, unless all secured creditors consent to the inclusion of a higher amount.

A PIA must be approved by a qualified majority of creditors; 65% of total creditors by value and at least 50% of both secured and unsecured.

As with DSAs, the PIP will submit a proposal to the creditors and assuming the stipulations therein are met, the debtor will be released from the unsecured debts at the end of the PIA period, usually 6 years. Secured debts can be restructured under a PIA and depending on the terms, the applicant may be able to avail of a write-down. Whether the debtor is released from the secured debt at the end of the relevant PIA depends on the agreement.

For more information, click here.

Reasonable living expenses

Guidelines as to what constitute reasonable living expenses have been issued. The format involves ‘set costs’, dependent on the structure of the household and derived from a schedule of applicable costs, plus childcare, housing costs and ‘special circumstances’.

For more information on the above, click here, and for the Guidelines themselves, click here.

As of 1 July, Revenue will begin collecting Local Property Tax (LPT) at source from pensions and salaries. As this is a new tax, where liability and/or instalment payments are not universally applicable, it represents a departure for employers from the operation of PAYE, PRSI and USC.

Notification

In June, employers will receive updated P2Cs (employer tax credit certificates) only for those employees to whom the instalment arrangement applies and will be obliged deduct the LPT at source where appropriate.

An employer can only deduct the LPT from payroll if instructed to do so via P2C.  An employer cannot do so under any other circumstances, even if requested to do so by the employee. Similarly, if an employee objects to the LPT being deducted at source from their salary, the employer has no discretionary power. In such cases, and in those where the LPT has been overpaid, employees should be advised to liaise directly with Revenue.

An employer is only permitted to cease deductions once a P2C is received showing the liablity as “LPT: 0.00″.

Operation

Deductions must be spread evenly over the 6 months from July to December. In cases where the employer has already run the July payroll by the time P2C notifications are received, the payable amount can be spread over 5 months.

Employers should ensure their payroll software is up to date to facilitate LPT deductions.

Records

Employers are obliged to keep records in relation to:

• The payment of net emoluments to employees in respect of whom LPT has been deducted,
• The deduction of LPT from the employees’ emoluments, and
• The remittance of LPT deducted to Revenue.

These records should be kept for a period of 6 years from the end of the year to which they relate.

Failure to deduct LPT

Where an employer fails to remit LPT deducted to Revenue, Revenue may recover that LPT from the employer.

Where an employer fails to send a Form P35 or Form P45 to Revenue on time, indicating the amount of LPT deducted, the employer will be liable to a penalty of €500 per month for each month during which the form remains outstanding, subject to a maximum penalty of €3,000.  Where the employer is a body of persons, the secretary of that body will also be liable to a separate penalty of €2,000.

FAQs

Revenue has issued comprehensive guidance with worked examples for various scenarios, including what to do if there is insufficient salary/pension from which deduct the advised. The examples also include what do in other irregular payment/reduced payment situations, such as maternity leave and sick leave.

Revenue has advised that the extended income tax deadline for 2012 returns is 14 November 2013.

The extended deadline applies to those taxpayers filing their returns and making the appropriate payments online. Where tax payers do not both pay and file online, the deadline for filing is on or before 31 October 2013.

Owners of a residential property in which they do not reside are reminded that, despite the introduction of the local property tax for 2013, the Non-Principal Private Residence (NPPR) charge still applies for 2013.

The charge is based on the ownership of the property on the 31st March 2013 and is payable to the local authority. The owner of the property in question on this date only is liable to pay the charge on or before 30 June. Failure to pay can incur significant charges.

For more information, or to pay online, click here.

Revenue has indicated that the local property tax (LPT) will not be treated in isolation for self-employed taxpayers. This group will be deemed not to have filed their income tax returns should they fail to pay the LPT, a move that has important consequences for the taxpayer.
Non-payment (or late payment) of the LPT could result in interest of 10% being charged on the underpaid tax on filing of the income tax return. Furthermore, the taxpayer will not qualify for a tax clearance certificate and will therefore not be able to tender for business where a tax clearance certificate is a prerequisite, such as contracts from government bodies.

Revenue has recently been conducting an investigation into expenses claimed by contractor companies, such as engineers and IT professionals, and their directors, with a particular focus on travel and subsistence and motor expenses. At present, 170 cases are under investigation in the South West region and Revenue will be sending out further letters in the coming weeks.

In many cases, the companies under investigation do not appear to have substantial business other than a small number of contracts and the only employees are often the directors. As a result, the investigation looks likely to be expanded both geographically and in scope, with particular likelihood of an investigation into whether the contractors are engaged in a contract of service as opposed to a contract for service – i.e. that the directors are for all intents and purposes direct employees of the contract awarding entity. However, at the moment the investigation is focused on directors’ expenses and whether the expenses are legitimate.

The fall out for directors found to have claimed unvouched expenses appears to be severe. In many cases, the expenses claimed did not have sufficient back up and Revenue is treating it as an underdeclaration of tax. In most cases, the apparent underdeclaration has spanned a number of years and Revenue are therefore treating such cases as deliberate defaults.

Deliberate default attracts stringent penalties, all of which are based on the amount of tax underpaid:

• An unprompted disclosure (where no notification has been received from Revenue) will attract an automatic penalty of 10%;
• A prompted disclosure (i.e. after notice of audit has been received) will attract penalties of 50%;
• No disclosure or an incomplete disclosure will attract penalties of between 75% and 100%.

Download our PDF summary here: KHR Budget 2013

• Local property tax – rate to apply of 0.18% up to €1m and 0.25% thereafter from 1 July 2013. From 2015, local authorities will be able to adjust this rate by +/- 15%.
• Maternity benefit to be taxed from 1 July 2013.
• Standard rates of USC to apply to those over 70 years old with incomes in excess of €60,000.
• PRSI – whereas until now employees did not pay PRSI on the first €127 of their weekly earnings, this has now been removed.
• PRSI – the minimum amount payable for self-employed is to be increased to €500 from €254.
• PRSI – self employed to be charged PRSI on all unearned income from 1 January 2013. The same is to apply to everyone else from 2014.
• Chartiable donations to be relieved at a blended rate of 31%.
• Film relief is to be extended to 2020 and the relief is to be reformed into a tax credit system by 2016.
• CGT, CAT and DIRT rates will all be increased to 33%.
• CAT thresholds are to be reduced by 10%.
• VRT, motor tax, alcohol and tobacco are all to be increased at various rates.
• Corporation tax – start up relief is to be extended to allow companies to carry forward unused relief. This relief will be limited in any one year to the amount of employers’ PRSI in that year.
• R&D tax credit – the first €200,000 of qualifying expenditure will now form the basis of the relief, up from  €100,000.
• Real Estate Investment Trust model for property investment to be established. These listed companies will be exempt from corporation tax but instead will be required to distribute profits which will then be taxed at investor level.
• VAT – cash receipts threshold increased to €1.25m from 1 May 2013.
• Farmer’s flat rate addition reduced from 5.2% to 4.8%.

The Department of Finance’s Budget 2013 website can be accessed here and the full Budget Statement 2013 can be downloaded here.

Revenue has extended its simplified filing arrangements of VAT, PAYE/PRSI and RCT returns for small businesses. From 1 January 2013:

• Businesses making total annual VAT payments of less than €3,000 are eligible to file VAT returns and make their payments on a 6 monthly basis;
• Businesses making total annual VAT payments of between €3,000 and €14,400 are eligible to file VAT returns and make their payments on a 4 monthly basis;
• Businesses making total annual PAYE/PRSI payments of up to €28,800 are eligible to make their payments on a 3 monthly basis;
• Businesses making total annual RCT payments of up to €28,800 are eligible to file RCT returns and make payments on a 3 monthly basis.

Revenue will be writing to qualifying businesses to advise of the new arrangements before the year end. Read the full eBrief here.

On 14 November, the government released its Medium Term Fiscal Statement 2013-2015. The document provides an assessment of the country’s performance to date in restoring order to public finances and outlines further steps deemed necessary to meet debt-to-GDP targets by 2015.

The government has downgraded its economic forecast for 2013 to a growth rate of 1.5%, down 0.75% from April, reflecting the deterioration of the outlook for “the external environment”. The level of employment is expected to be flat for the year as a whole, though the government also expects net job creation in the second half of the year, implying that more job losses are expected in early 2013.

The forecast envisages an adjustment package of just over €8.5bn over the next three years if annual deficit targets are to be achieved and Budget 2013 is to account for €3.5bn of this adjustment. This is further subdivided into €2.25bn of expenditure cuts, tax measures carried forward of €220m and new tax measures of €1.03bn.

How the government intends to raise the extra €1.03bn is a matter of speculation at the moment. The new property tax is almost certain to be brought in by July 2013 and will account for a large portion of this (widely estimated to be up to €500m). The current Government policy is to maintain the current rates of income tax together with bands and credits so the balance is envisaged to arise from the adjustment/abolition of certain income tax reliefs and the broadening of the PRSI base (almost certainly to include rental income), among other measures to broaden the income tax base generally.

Click the link below to download the full document:

Medium Term Fiscal Statement Nov 12

On 14 November 2012, the ESRI published a number of papers relating to pensions. The papers in their entirety examine:

• defined benefit pension schemes with regard whether they correct ‘short-sighted savings decisions’;
• A framework for pension policy analysis and;
• Executive directors’ pensions versus employees’ pensions and whether there’s a level playing field, drawing its conclusions from 2009 figures from 48 large listed companies.

The papers argue that the biggest beneficiaries from pension reliefs are high earners and highlights a number of ways to refocus the relief on low-to-middle income earners. These include:

• A further reduction in the standard fund threshold to €622.5k from €2.3m;
• A reduction in the present earnings contribution limit from €115k to €75k;

The full papers are available here.