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The Irish Accounting & Tax Summit
Session 6 - Tax Planning in a Downturn
Session 6 - Presentation
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He specialized in Irish, multinational science, mergers, acquisitions, corporate reorganizations, parcel tax planning, and tax efficient debt financing, and also involved in a lot of property transactions. He’s a charter tax advisor visor, and also as a member of the SCCA.
So delighted to have him on board, he’s going to go to the tax funding and downturn, as we know, we’re in a strange situation, you’re a cautious King. So he’s going to look at whether the quality of walkways can be used tax try and, uh, you know, make the most of the cash we have against some cash and maybe for an off system,
or how do we is succession planning a good time for things our roofs are not in relation to us and I’m going to, I spoke with various tax tips and he’s going to touch on that the way still see towards the end. So I’ll hand it over to you that part. Thanks very much for that, John. So as you mentioned, we’re going to cover a few different topics,
fairly broad ranging bullet, all have a team. So insofar as they will be useful for a client and circumstances in which, you know, their profits are folding for a year or they’re facing capital difficulties, which at least for 2020, most people are likely to experience in some form. So I’ll jump ahead and start to share the slides with everybody. Mmm.
So that’s just the first page there, or jump into a slide show now, and now presenting everyone can see that that’s our cover page, title, tax planning, and a downturn. And then we have the different topics that we’re going to cover, which are in the first instance, cashflow management, that’s being critical, I’m sure for you and all of your clients,
um, for the past boy, that’s been the major issue, helped a lot by someone who helps to these games and probably to a lesser extent, but potentially in the longer term by some of the Goldman went back the owns. And what I discussed is the role in different taxes and doing that partially. Um, and do I only touch on that a little bit,
the way it shops the scheme would be the biggest, uh, benefits and what everybody is very familiar with that at this stage, I’ve intuited a comment in the last section about exiting the subsidy scheme because it’s something that a lot of companies are finding they have to do before August. Um, and it’s really just understanding what the processes are exiting and what would the possibilities be for getting a call back all of amounts already claimed,
um, in the event that the performance of the company exceeded expectations, which as it happened for a lot of businesses turned out to be the circumstance. So after that, um, piece on capital management, Twitch cause a is everything except the wage subsidy scheme in a way, then I move on to, for either a company or for sole trade, some of the contradictions that are there,
uh, which can be exploited in our risk tax law, around the basis of assessment, uh, for people profits and how switching the basis of assessment it’s possible to reduce profits, um, in the period in which they’re already falling, of course, but to capitalize on that change. Um, and then probably the largest section, which covers asset protection and succession planning.
Um, I would have focused on asset protection, but that always crosses over. And when you’re transferring assets, if somebody needs to do that, because there is a cohort of businesses, however, generally good, the recovery has been so far in many ways and thankfully some businesses were effective, but a last six months in total, um, there are still some that are going to end up,
you know, not being able to reopen, um, potentially being kind of insolvent, just because a combination of being shut down together with some of the restrictions are the unwillingness of people to, to gather kind of in large numbers would mean that, you know, hospitality will be the obvious one, but it may not be as profitable. So we’re a person and dope running a travel company,
something to that effect. They know they’re going to go buy a steel, what’s the best way to try and minimize their risk and event that a company fails or they’ve given personal guarantees and property, et cetera. So that’s what that event you out of the is covered off here. And the last piece is, as, as I mentioned, is just,
uh, one aspect of the wage scheme, which is how to leave us and how to do so in a way that doesn’t involve a callback of amounts previously claimed and what revenue opinions are on that at the moment. So I’ll jump in, uh, please, if there’s any questions, just ask them along the way at Delloyd, they’ll pop up on the screen here.
If somebody wants to tell you about them RFI, we get chatting just, just a mute yourself. So, um, this isn’t just a general introduction. I’m saying though, you know, the recognition, bye everybody is this, you know, all good businesses still need strong cash in order to maintain themselves. And then we’re going to see, unfortunately,
a lot of good ones Stroger for a period of time, uh, struggled, maybe to get proper financing, working capital for a business and by careful tax planning, uh, that can result in better budgeting controls. And, and, and then as a result, cash flow and those types of tips yeah. Tend to help people. So I go through each of the different taxes and no provide us everyone.
Again, this is common knowledge. The first bullet point under the rest of it is the additional kind of advice or ways in which it can be used. Mmm. The, uh, the debt collection and charging of interest on a VAT returns January, uh, up to effectively June, uh, has been suspended. So, you know, fortunately I think in many ways,
Mmm. You know, there’s no no collection of VAT. So people have been able to use that quite frequently. Now that may end as of June. So for now that isn’t an issue only of course, taxes has to be paid back sometime. And so some of the things that are really more available from June onwards when businesses have to make arrangements to pay back at the bash,
or that will be done over time, or just to pay the car, in fact, that would be there in July and August. Um, one potential option is to, uh, have a system whereby depending on a person’s threshold. Yeah. They would move to, you know, a four monthly or six month or even an annual kind of basis.
So those thresholds that distinguished people who are obliged to file, um, you know, on a two monthly basis are those that can fight over longer periods. So if somebody, um, it doesn’t have, uh, you know, the, uh, requirement to file on a two monthly basis can be significant boost if they can do a, um, you know,
on a, you know, on a Mmm okay. You know, on a regular basis, especially, and instead, um, no it’s all one or two people coming through there. Um, thing I just wanted to make sure that everybody can see the notes for the session, John props. You confirmed that, that, that right. Okay. I just saw,
yeah. Perfect. Um, thanks. Uh, okay. The next point will be, um, cash receipts spaces. So, I mean, if you have a difficulty with your debtor days, and because, you know, you’re running a deficit wearable year, attended up paying people before you get paid yourself a wound basis, I doubt that you can do in certain circumstances,
use cash, receipts, accounting. I’d probably use to people who have 90% of their supplies, two non-biased registered people, um, and where your turnover doesn’t exceed 1 million. So a shop, you know, what often do cash receipts, bullet. It is something that, especially if things are toys in terms of, yeah, liabilities have to be paid,
you have to pay rent. You know, you’d be in default of a tenancy arrangement, gosh, payments that could be a bit slower than invoices then switching, or to collect payment, then switching to cash receipts, which a couple of businesses already do or it’s at, or advantage would be an option where that is having a material impact on the business’s cash flow.
There’s some terms and conditions that go with those, um, anybody who doesn’t go with the cash receipts basis, then watching the VAT on bad debts is very important because all the VAT has to be paid over in respective raised, um, you know, on less, they are qualifying that desk. Um, no there’s conditions. And you have to credit note that bad debt has to be a strong possibility that you won’t be able to,
uh, came back to the, uh, the VA to the recover, the VAT from the person that you’ve charged us. So it’s not automatic. Every time you make a provision for a bad dash, it has to be almost guaranteed to be recoverable when that is the case. It shouldn’t be factored in either too a current about return are into a forwarder vibratory in most cases.
And so that a person isn’t cost, uh, with the VAT. Mmm. You know, one example, Oh, all of a non VAT of, Oh, you do a is too okay. Customer deposits, you know, for the hospitality industry, uh, they tend as a deposit not to be a supplier for services, so that doesn’t need to necessarily be paid in respect of those.
And that can be reclaimed on them in previous years or person cancels for the service. So that would have happened quite commonly over the past kind of year or two. And, um, I think it’s an opportunity for people who have had those kinds of relations, uh, to non-core VAT in relation to the amounts they received for a canceled service. Mmm.
And the final point I have on VAT is in the circumstances for non Irish based suppliers. Mmm. Because the about registration Mmm. Cute time can take a Bish. Um, just making sure you guess, uh, the proper VAT numbers and all of on all sides that you’re giving your non, our supplier is your, the a T registration number that has been received on time,
if it’s a new business, because otherwise without that and confirmation that the reverse charge based surprise you could end up with foreign boss and foreign body is extremely difficult to try and reclaim, because even though it is an online portal to reclaim it, if it’s incorrectly charged, it can take a number of months. And that was before resources were diverted from revenue into subsidy schemes.
So it used to be about three months to get it recovery all back charge in another country in the EU that could well be up to four or five ones now. So it’s easily avoided by making sure that the person has a bat number, uh, that it’s active, that it can be quoted to a supplier from outside of Arland so that they can just zero rate the probably on their end.
And then the person here, the recipient customer, you can just help account for it the normal way. And it can be something on occasion. The amounts can be trivial, of course can be quite substantial if there’s an error where they think that the arrow Bloyd should charge for us, I’ve already completed it. And it gets picked up at a later stage.
A refund is paired, but it takes a long number of months in order to get it back. Sorry, probably just come in that and just on the cash receipts basis, practically, if you move them from an invoice to cash, receipts basis and their status there, you just have to isolate the, or what way does that work? Let’s say you have to invoice Tinder in your debtors.
Um, no. And then now we move to a cash receipts basis. Practically. How does that work? Do you just assign them onto our dedicated over our, let’s say you get a credit and all expiation credit and all of that issued an invoice on the invoice basis basis. Yeah. I mean, usually the there’d be an expectation. It can be done in a clean way,
you know, because like a good few of the businesses, you know, that would the eligible forest. Mmm. You know, their business model would suit being able to transfer over, you know, without a large amount of debtors, you know, because I think that they would be able to structure that over time in a circumstance in which you transferred over and there was some remaining,
then you just collect those in the normal way. You know? I mean, that would be for prior back period. So assuming that you changed for July and August cash receipts. Well, if you had to put out an invoice in may, June, for somebody who owned you at that time, you wouldn’t recognize any VAT on the Castro seat at that point.
You know? So I think that would have been paid over presuming that you’ve gone past the funny short day of the following month, you know, after the period. So there wouldn’t be a second accounting about VAT Mmm. Be looked after in the norm or way which have been paid over in the BA too, and nothing. Right? No, it’s on connection.
Yeah. So there’s a credit note for, Okay. Uh, the professional services withholding holding tax, you know, doesn’t affect, um, Manny companies. Um, but it is something, you know, still arises, you know, that, so when some of the consequences will be, uh, professional services, oppression services<inaudible>, as in doctors did a lot of those people who deal what’s public sector,
but you’d find anyone that has large public contracts and they inevitably get this then would have, you know, 20% withholding every time they received a payment. So doing anything to bear in mind, even though people may not normally do us a, is that there is a facility for an intern refund. So as a 20% would have, and then of course,
corporation taxes is only 12 and a half percent. And there’s also expenses because it’s 20% all of the gross amount that you receive. So where somebody is in, I substantial, I really fun position because they have a rather 70 net profit margin, you know, that there paying, um, they might have sales books, they can net off against a large amount of expenses,
or just a mismatch between the rate that they ultimately pay and the amount which would be 12 and a half and a company and the amount which is 20, uh, then they can apply in the middle of the year foreign into them refund without waiting to actually go and, uh, oil and corporation tax return. Because if you take it to us, January to June has passed at this stage and somebody submits a refund application or up to the end of June.
Um, otherwise if they wait for their tax return, that may not be in until next September. You know, I might actually be a payable position of some kind, and that wouldn’t be reflective of the, of the PSW HD refunds. So they can accelerate the refund by a year or more depending. Um, you know,<inaudible> February, March,
you know, the practicalities of companies are all, is that it tends to be towards the latter period. So, Mmm, not applicable to all businesses because you need to be involved in state contracts as see the benefit us. But for those that are, and having considered as an interim refund of VSL for the cheek, Contacting the parties that contacting revenue or wanting them just to,
um, revenue, where in saying, I want to do it an offset here on accolade or whatever else it is, it’s in that way. Yeah. And in this case, um, well, it’s, it’s refundable because it’s the doctors against the amount of tax that you pay on your income. So it will be against the income tax or corporation tax.
You paid direct taxes. So on the assumption that you can verify you’re in a refund position, you typically say for the business that has a district revenue or slightly reorganized now in terms of growth, large cases, and then they have a business district of the country or whoever your district is. I think the, for the sake of this, you just write into the district because they need to see the original PSW T star.
So it’s not something that can be fully done online through my inquiries. Um, and then once you have the starts available to you, which are fr two bites, and then they a simple submission, uh, to indicate how much of a refund your Jew against income toxic corporation talks and they’ll process payments against it. So it’s mainly the direct taxes that it comes up against.
Yeah. Alright. I’m just some clarification there on that. Just some queries. I think it’s just a typo on your, on your study, just as the bath on the cash C space is 2 million and not long, you might ask him to confirm that, so, Okay. That’s confirmed. Yeah. And then, yeah, it’s just the fact that he can be 2 million and then you can be someone that could,
that could be over 2 million. I have 90% of their sales to non-registered resident persons. It’s just clarification of that fact. Perfect. Yeah, that’s fine. I’m fine. Yeah, no, that’s 2 million. That’s correct. Okay. Alright. Okay. I will continue then with corporation tax. So one of the latest innovations, which, um, the government have it’s smaller compared to the other taxes is that they’re not charging a surcharge,
you know, for the corporation tax returns, which were initially Jew on March 23rd. So this is from June, 2019 onwards. Um, the surcharges suspenders. And so, and in that circumstance then, you know, and that is ongoing. So, I mean, it deploys up to if had a tax return was due in June, given that it would have the September year end,
uh, there was no surcharge. Now we’re waiting for an update on whether or not what time they’re going to kick in the books, probably given that people are back to war on August and September fully, the normal September filing deadline for December year ends will continue. Um, but there may be a waving of the surcharge if businesses are still facing issues around cash grill,
typically for the actual corporation tax, that is jus so assuming a person by the tax return revenue would waive us, um, on a concessional basis, so that at least to flourish, you know, for a period of time, but there isn’t any official guidance there in the same way as there is for bath and pay where we, so for corporation tax,
if you find a return and therefore don’t incarcerate a charge, well, there is a liability outstanding that you can pay. You have to submit a form to revenue effectively every month. Let’s say that you you’re unable to pay due to lack of trading or poor cash flow. And they will allow it to be suspended on a rolling basis. So you have to go back to them at the start of every month and tell them it you’re in a position to pay.
So for a number of clients, we started this in March and I’ve done it for March, April, may, and June. And we’d do it again most likely for July and August and because the tax would be payable eventually, if the company starts to recover, uh, they will, uh, be quite happy to make the corporation tax payment, but right now,
Mmm, you know, revenue are willing to grant that the pharaohs, um, all it would be at the, the processes that are the bureaucratic and that it involves the submission of a, I pay monthly form to them to get approved for fresh Mmm, preliminary tax, which does a similar enough scenario. So we’re talking mainly about the tax payable when you submit a return,
what for a preliminary tax, um, that too is possible of being kind of deferred at this time, subject to revenue consent. Um, there’s two ways in which you can calculate the can be a hundred percent of last year and 90% of the previous year. That’s assuming you’re a small company. So the current situation might be that 90% would give a much lower and realistic figure.
Both. I think I have, would have to be assessed depending on how people do throughout the year. I think it’s one year in particular where people will look at the option. Normally it’s more companies just automatically pay, you know, what the, uh, the 90 of 100% last year, because it saves them having to estimate the 90% of the current chair.
And if they got it wrong, revenue could charge interest. Yeah. If somebody sales, if they were had junior year end will be a good example. Uh, so their sales were down substantially, you know, between kind of February to June, uh, that could be a very substantial benefit to them using the 90%. And it could give an affordable figure that could be paid now.
So I think running that calculation for companies who fall into those categories, so they’re coming up to their year end and 90% you think is likely to give a much lower figure, um, should be utilized for as typically it wasn’t taken into account only for larger businesses. Mmm. The last point I’ve made on this Lloyd is just about people who have commends to trade,
um, and being mindful of the fact that there are pre trading expenditure that can be to doctors. Mmm it’s okay. To the forest periods, um, before there’s any kind of trading and how you define trading and when it starts and not. And this has been the subject of a number of different cases, but essentially the scope of when a company begins to trade has been broadened revenues,
original view was you need to have income coming in from customers and now even proprietary activities, uh, to commence, uh, the receipts or the making of sales tends to be regardless trading, but this isn’t as critical as it was before where, you know, you, you tend to, to only began trading once you had certain revenues, you at least want to have proper sales.
And, but to the extent that people in court costs on trading as distinct from investment, a rental within the first three years beforehand, they can be added in and carried forward and adopted against future years. So it’s as well to keep track of those where somebody is in a pre trading scenario, just to make sure that their deductible at the time that they earn income.
Uh, the final one is, is it’s a bit of a reminder of ordinating is that we’ve got a four year time system for refunds, uh, but R and D credits, which can be a very valuable refund. Um, our, within 12 months of the end of the year. So the deadline for R and D tax credits is December this year or 2019.
Um, and because the refunds can be quite substantial that I think it’s, it’s, you know, it’s to be cognizant on what they’d often go in on a corporation tax return, booklet money businesses don’t know that they qualify. So, and they’ll only discover it to a process because it’s ring fence in most cases to certain industries. Um, but it includes innovation and processes and procedures.
Um, and I think those, you know, can improve a business, you know, and how it kind of functions. So we have some production clients that claim us those that are in the manufacturing sector, some others that are in construction. So what is more popular amongst the it and biotech sectors? Um, it can be claimed on a quite broader basis.
And some of those industries aren’t familiar with the book they are prevented from doing multi-year claims after the 12 month true, and right now revenue, or are giving out the refunds Mmm. Earlier. So typically they’ll only pay it out in September if you’re a December year end, well, this year they’ve been paying them out in March and April and where somebody files their tax return early.
So for certain businesses, it can be, you know, quite a significant refund because it’s 25% and 2%, in addition to your corporation tax expenditure can be refunded, uh, to a company. You know, if that encouraged that type of expenditure, Just on the R and D plans party, are you seeing revenue auditing them a lot? Or what way are they still not watering?
Yeah, they are not at the moment because they’ve suspended their auto thing. And, you know, a lot of what they do are field orders, which are to come out and visit businesses. And so, you know, in the last two or three months, they haven’t been active with new audits, but before then, yeah, there was a lot more than before.
Um, you know, when you go back to the intersection with the R and D credits and VRD 2000, 2003, I think it was the initial year. And it was certainly the base year for calculating the credit afterwards. Well, for 10 years there was very difficult R and D audits. And, you know, probably the people were all reclaiming us.
Um, but that came to an end, you know, um, in around that time, I would say it probably started a bit earlier, 11, 12, uh, in the recession, maybe when revenue, we’re looking for receipts and it’s ended up in a circumstance where up to 70% now with people who’ve submitted an R and D refund came, have been ordered,
you know, it’s very high. And, and if you look at it on a, on a sliding scale, you know, you just have a graph that shoots up from 10%, 20, 30, 40, 50, 60, you know, people who submitted a cane are then all of it at some point on that claim. So there’s a very high probability,
Oh, at least a review. If you submit an R and D tax credit refund, um, well, it is always in the first instances, a standard letter that goes out to clients where revenue get proper responses to that letter, then they usually move on to another person. But whether the responses are lace or inadequate or whatever the case may be,
it ends start to dig deeper. So the key enforced all in an audit is once you get the letter, which has a standard number of questions to be prepared with the responses on you. Yep. The audit, the boats kind of in most cases then. Yeah. And I’d say that those start off and do the generally going to corporation tax. If they see something,
an issue at R and D or no notes, no little fits all. There’s no specific rule in relation to that. Like that’s how they do with the R and D is that there’s someone at the time said no, having an offer in the CTE section because the ratio is there. They can too, because I mean, you know, it’s a credit usually against corporation tax,
the ones I’ve seen have more, been fully focused on R and D. And that would be because the take that they can get from an R and D claim, you know, it is a generous refund can be quite substantial. So, you know, if an auditor decides to check a hundred companies and he goes into one and it gets back a million years of an old of a claim that was,
you know, that there, that they feel is Jew, that’s often their day’s work done, you know, with the company then, you know, they won’t necessarily around for something else. So it just varies from case to case and the disposition of the auditor. Now, within the course of reviewing it, it was obvious the proper books and records weren’t maintained.
There was a clear, bad exposure because they had multiple rates about, and we’re charging a lower rate, say on all our products. I mean, Docker come up very quickly, you know, from an auditor’s scan of a system, our record, a reconciliation of, you know, turnover, you know, to the barber turns, et cetera. So I think they do a high level check of anything else with the business.
And if they spotted something like low hanging fruit, they go after us. But the majority are R and D audits and again, quite a bit from those. So they kind of, and to just stick to that. So with that specialist, Yes, it’s kind of, it’s a part in that if you want, same with that, you have your,
your homework gone on, you’ve made your, you made it a nine o’clock. Yeah. We would typically do all portfolio report for a client that wants to make a claim. So it’s just they’re unfold and it’s, it’s not fully modeled off revenue’s ladder, but we’ve seen enough of them now to know that there are a proforma, you know, they just put another company’s name on the front of us and send it out.
So we have to do our own work and put in an executive summary and technical analysis. It’s essentially designed to just, pre-populate a response back to revenue. And we find it the easiest way. They’ve got a standard approach of making these inquiries, and we’ve got a standard report to applying them still. I think this, and having a copy of that letter,
at least, you know, the standard letter and knowing what it would say if they asked me know it would be a minimum, but ideally anybody making a claim would have something fairly comprehensive on to board understand those. They are doing something to qualify as their R and D. And that has been quantified correctly to, you know, those excessive overheads haven’t been brought in.
That’s a common area of focus in revenue at stage at that overheads can’t be allocated on a profit basis. For instance, they only supposed, and in their manual, what they’re talking about is you’re only allowed direct overheads. And then I think that’s promotable use isn’t permissible to Bush. You know, that the legislation would be a bit different from that in many companies kind of do some form of allocation.
So if you’re going to prepare that you need to be very sure about which staff were using what equipment at different times, and requires a lot of time recording on a temporary basis, like throughout the year, as much as putting something together for the tax return. Yes. It’s a yearly thing. You have to have your records in place. It’s like,
Just so you can have the information there too. Yeah. And usually have the systems too, so that you can collect it along here. Thanks. So then in relation to capital gains taxes, people will know what you can’t set off losses in one company against a gain in another. So yeah. And it would in a group, whereas normally with other types of trading losses,
you can set them off against that. There’s lots of provisions there for that, but in the case of a capita gain, if you’ve got holding company and company and company B, um, and they’ve been all part of the same group indefinitely, but then companies, AEs losses can be used to offset company B’s game. So a simple way of doing this,
then it would be simply transfer the property into group from the company that’s got us now. And what has it latent capita gain to say, I call that company and you transfer it to company B, who’s got the capital loss and B can then sell. Yeah. So make the game because the original transfer was group relieved. So B inherits the base cost of the ass for me,
it’s now got a gain on the sale of analysis and it’s got a loss to offset against us. And no, there is well out of legislation there, you know, about pre entry losses. So companies come into groups that are bullshit losses and those not being available for offset against capital gains. Our role is in the group beforehand, but that’s anti avoidance legislation to do with buying losses effectively,
both in the normal course of events, a continuous group with the history. Mmm. It’s a simple planning step, um, to use your losses against your gains, just make sure you transfer the assets when it’s going to be sold to a third party, to a company that’s got a capital loss because otherwise you won’t be able to talk, say one against the other,
okay. A bit more on losses, which will be, um, you know, by and large. So trading losses there, you can set them sideways, you can bring them back. You can carry them forward, you know, apart from the terminal loss relief that can be brought back when he one year it’s three years in the case of terminal loss relief,
some other types of I’ll say non Mmm. So the, so the losses as trading losses, then there’s charges, you know, a non-trade charges and so on, uh, trade charges, which is section two 47. Relief is interest relief for purchasing shares in a subsidiary by a holding company and is only allowed and to be surrendered on a current year basis.
So if you purchase a subsidiary, uh, claim and interest relief, um, and take a deduction and the holding company, you can surrender that down to the trading company and offset against your profits in the first year that you do it for the year that you and car that expense. Well, if the interest relief has carried forward, then it becomes ring fence within the holding company.
It can’t be surrenders to another group company on an ongoing basis. It has to be surrendered in the year that it’s encouraged. So it’s just the importance of making that election. Um, every time sorta there’s a proper offset because the holding company would usually be dormant with no income or expenditure other than the interest. So it has to be able to transfer that across to one of its subsidiaries in order to ensure that it’s taken as a deduction in the year that it’s encouraged,
uh, the payment for losses, which is what you do under a group group payments doesn’t have any tax impact well can increase and improve cashflow and can be useful in terms of having one company with distributable reserves are not for the purposes of running a closed company. So charge. So, Mmm. You know, Euro for your payments for loss 40 for one company,
boys, the last release from another, and, you know, it’s fairly tax neutral, but it just helps if one company in the group needs the money and not the other. So one company might need the money. The other one might need the losses, and it can just manage the overall position of the group in terms of which company might be Jewess surcharge,
or, you know, in a, on a financial basis needs, uh, cash. And likewise, you know, that that’s similar to just reviewing management charges and group scenarios. I mean, one way of all by ensuring that you get relief for something where you lost, for example, interest relief and the holding company, which it’s carried forward would be start to attribute a management charge to that company.
You know, so you’d run a management charge from a parent company down to a subsidiary you generate income then that you could use to deduct interest that will be paid down the shifts they live shares against in a prior year. So<inaudible> because we’ve got a one, usually a wound rate of Oh, tax on corporations, which is 12 and a half and management charges.
They don’t really come to revenue’s attention. They’re all fair to say, Mmm, I think got it. You know, innocuous, and by and large, of course, if you’re running management charges between a company that’s paying tax 25% on rental income and then 12 and a half percent on the other and cutting down the rental income, you’d have to comply with normal transfer pricing roots.
You know, so you’d have to be mindful of the fact, even though our transfer pricing routes, historically didn’t cover those types of transactions. They have been broadened out to non trading transactions in January, 2020, so that these types of relationships where there is a reduction in tax, whether it’s Irish tax or if we’re dealing with non Irish companies Mmm. The management charges,
which are, they’re probably going to come under greater scrutiny in the next couple of years. Uh, so the second piece here on losses, um, is just about provisions in relation to group transactions. Mmm. And that’s where there is stock mainly kind of moving within the group. Um, so that can result in kind of debt or credit for balances between,
uh, into uninjured company transactions. Mmm. And the effect of making provisions or doing writeups in relation to those, is it, if a company as taken a deduction previously, or stock that a just from a group transaction, if there’s a write off of that or a provision for us, because they’re not going to be able to repay it, then that results in income being taxed on the beneficiary.
So the person who is getting a write off, they get taxes, if they’re received income, simply because they took a deduction before for the items that they both from the group company and final one on losses. It’s just that if there are trading losses there, um, our losses indeed, you know, in relation to assets, it can give an opportunity to extract assets out.
Normally when you take assets out of a company, you might end up generating a capital gain of some kind. If it’s been transferred into personal ownership, of course, distribution tax treatment is another, the reason why, if there wasn’t full value page Mmm. If a game is not on guard to the same extent, uh, within a company, so assets and depreciation value,
and that can be an opportunity to either use other losses in the company and, or use a reduced based cost and the assets in order to transfer it out to a shareholder without incurring capital gains tax and the company. Now I can take questions on this as we move on to a different topic, if you like. And just a, There’s a question,
there’s a question in here. I’m<inaudible> and if a partnership carries on two trades, so let’s say farming construction, uh, set up to build 20 houses. If their last house has been sold in construction trade, what are still a large bank go and steal their standing? Is there any way to interest on the building can be used against the Fran and trade,
which is large profits. So the last house has been sold. Is that right? Yeah. Yeah. And we assume that there’s no other houses going to continue to be sold. Is that it? They haven’t said that, but I see potential. Yeah. Well, I think if we’re dealing with a serpent, the key is to keep the trade continuing in some form or another.
I mean, if it’s a circumstance that that trade has ceased, then any expenses that are incurred in relation to us, typically can’t be obsessed because, you know, it’s non trading expenditure effectively. So if we’re coming up to that point and whether or not a trade is ceased is dependent on a number of factors. There’s, you know, 100 years of case law seminar to the commencement of a trade that we’re talking about earlier on when a trade is deemed to have ceased.
And it’s not always when you make your last sale, because there can be wind down activities over a period, many businesses go on to incorporate a companies go on for a number of months to liquidation of the case may be, you know, before, even after this out of their ass assets. So I don’t see that the selling of the last property is vacant to taking a tax deduction.
What, at some point I don’t, unless there is further sales or future activity In tenders, then if the trade ceases, you don’t get a deduction for the interest as the card. If the trade can be deemed to continue, because there might be another development in the future or some other Corpus, there’s a lot of wind down activity within that business.
So it’s still active. Then you would get an deduction as normal, you know, for your trading on that aspect. Yes. So the fact that the fi if it sees for the farm trade, won’t be able to take it to the auction cause it’s not to do with its effect. Yeah. So you’d have to normally set it off sideways and you can do that if you’ve got two trades in the one company,
but if you’ve just got a dish that’s being satisfied in relation to a trade, that’s been shut down, you can’t make the payment in that circumstance. So it’s, it’s trying to keep the auto trade alive, I suppose, as the key to getting it adoption for the interest. Um, just relevant, I suppose, potentially is let’s say some people might say they were in the,
during the bad times now, and COVID-19 is a huge issue on their moral kind of tanking, but I’ll just give up and liquidate the company and claim, let’s say entrepreneurial relief, the fact that the toast, because it had to coast, you know, do you believe that would affect, let’s say an entrepreneurial relief theme in a liquidation costs because you know,
revenues guidance is if it’s an entrepreneurial leaf, you have to have a liquidator appointed prior to see station. Yeah. They do say that. I mean, it seems to have been written by somebody who never did a liquidation, you know, because everybody knows that there’s, you know, that there is a period in between point a liquidator, very few businesses are smack bang in the middle of trading.
And then a liquidator is a pointers. So like the we’ve had retirement relief a lot longer than entrepreneurially because everyone knows from the beginning, like from capital gains tax is there. And what that says is the revenue, except that there’s a six month window, you know, in which you can sell the assets of a company and do a wind down and then claim,
you know, your retirement relief when you appointed liquidator. So they allow six months effectively of a period in between trade station. Their manual talks about slightly different circumstances in terms of setting assets. But the concept is the same. So what entrepreneurial leave does is say, you must be trading at the time of liquidator is kind of a pointers. And now this comes back to the definition of,
of trading. And does that mean I have to have a sales invoice that I’m just about to collect and that’s the liquidator brings in for me? Um, I mean, I think that’s a stretch. I think continuing with the operations of the business ID, generating invoices, even if they’re small, but at least remaining active, um, would get you over the trading threshold.
That fast guidance is something that could change because I don’t think it tastes of the facts. Businesses do not usually trade to the same extent as it normally would at the time of liquidator is appointed. So, um, right now, if you took the letter of their manual, um, yeah, you’d be trying to do as much as you code to continue actively trading until the liquidator was appointed because otherwise somebody could argue that you wanted to trade in company when you went into liquidation.
Just, just wondering if, just one more question on your child, your charges, let’s say our section two 47, Are your interests, Am I right in saying, if there’s a losses forward in the trading can get you acquired you can’t, you can’t set it off. You have to use your last part start video. Yeah. There is an order offset.
So you have to use the loss forwards before you transfer between the different groups, you know, even on a current Gerry expense. So that is the order of offsets. Thank you. I don’t see any other questions there, as we said, if anyone has any questions, please put them into the box. Thank you. Okay. So just going to cover off directors zone as a standard standalone topic,
um, yeah. We’ve had a bit of movement in the last couple of years around the company law implications. Mmm. The tax implications of, of making a director’s loan is that you’ve got it 20% withholding tax on the growth of a mountain. So effectively 25% withholding tax. And then you’ve got BIK at 13 and a half percent. And so that’s it for tax purposes.
You know, you, I need to draw down a director’s loan to fund expenditure. You think you’d be able to pay it back sooner? No. And you don’t want to take out a salary, which would be taxed 52% say for most people. So you end up paying the BIK, which is, you know, 50% of the target and a half percent deem loan rates.
And then if you can wait until Jew in terms of see tax return for that year, been submitted with the 25% withholding tax. Uh, it can be a way of accessing cash in a company, uh, for a period of time. The main obstacle before was that if you went over 10% of your net assets, you were in breach of company at all,
and that applied to companies that you would own and become, and directors have too, uh, that’s eased away in recent years. Sure. It’s common kind of ground at this stage. Been covered with the summary approval procedure whereby instead of, um, well, they used to be golden share arrangement use to get around this and across company lending. Yeah.
In both cases, either to a connector company or to an individual, it’s possible to find a summary approval procedure to validate the director’s loan. Of course it comes with the possibility that you’re guaranteeing the assets of the company for a period of time. It’s a good declaration of solvency. And so that is available to a person who does those and, you know,
and it’s always been more of a legal issue than one that was pure tax and where somebody is comfortable with the legal aspects. And they want to do the tax to BIK is reduced to 4% where it can be used for the purchase or improvement of a house. So that’s one way to cut down the BIK. And then the, uh, time equates to 20% withholding taxes due,
which is often the big tax on this. Um, you know, it is possible, uh, to try and defer, you know, the payment by having a different year end. And, you know, that could involve, you know, for instance, where you were taking out a loan and you had a junior end and you’d attempt to change it to a as September year end or whatever the case may be.
Mmm. You know, I think it’s, there are, it’s certainly possible because when this tax is due, the 20% is Ash the time would you file your tax return or an accounting period. So boy, changing your year end. It will be possible to defer that. What I would typically do in these circumstances is if somebody knows they’re going to take a loan and unless they needed origin,
Italy is try and wait until the very forest, they of their new accounting periods, because that means that you guess effectively one and three quarter years you get until, uh, if your accounting year is January to December, you checked out the loan and the 1st of January, and it’s not true until the time following September. So one year, nine months later.
And usually that’s long enough for them to sort out whatever Castro wishes to have. And if it goes on longer than two years, maybe they need to pay themselves a salary anyway. Yeah.<inaudible> if it’s that long. So I think either deferring it by changing the year end, or as just starting us at a point on the very beginning of the year,
you know, the nightmare scenario is you started in December and you’re on a 41 December year end. And then it’s June nine months later, you know, which isn’t enough time for beeper to kind of trade the way out of us. Mmm, no. Where, where it does relate to, to a normal trading transaction, it can be still in school.
The extended credit terms are normal and in the course of space business. So I think you can argue for it. You can have it in the past, argued for a reduction in the, in the benefit you provided that it doesn’t come under the pillows company rule Bush. And that it’s a normal trading transaction, you know, between sort of a shareholder in a company or a director in a company.
But I think that’s when you look at the clothes company legislation, it’s tenuous enough and revenue would look for the 20% withholding. And in most cases, even where it was lending to a partnership or on trading terms, et cetera. Mmm. And define other thing in terms of satisfying, it would be, well, people did a lot in the past is either create a director’s role in or satisfy a director’s loan by transferring an asset into the company.
And<inaudible>, if there was no CGT because the assets had an increase in value, um, are factoring in the stamp duty costs 1% on residential property that was seven and a half percent of commercial. It used to be 2% of commercial. So this was a common, a tax planning method in the last recession that we had in between nine and 12,
13, um, people do with tons of cash and companies and a lot of deaf person, they Mmm, yes. Things out are you transferring the indebted property, which they were having to pay it back from a salary that have been tax at 50, 60% into the company, then the cash, the large will install. I think that article is property companies sprung up as on the cellulose parallel to trading companies over a period of time and,
and were quite useful in that period when it was high levels of deaths, relatively successful trading performance. Well, people were stuck in the middle of having to withdraw money from companies to pay off the bank loan, um, moving on to different topic. But, um, One question that, um, just, uh, D do you know, just this question,
our revenue bottom BIK on directors dorms at the moment, you know? Yeah. Are they charging it right now with us? What are they hot on looking at those areas and in revenue, I guess They wouldn’t be in fairness because of, you know, what’s, what’s happening. I’d say there’d be a bit of leniency. I made it very rare to get,
I bought it in any case. So say somebody took out 20 grand out of a company now. Mmm. And they paid it back before the year end. If we’re talking about revenue audits now more than anything else, um, then You know, that’s not going to get picked up, you know, until, um, well, it doesn’t really get picked up a person doesn’t declare it because by the time the tax return to get submitted,
that’s the only showing that there will be of a balance between the two, you know, like directors and all. So if someone pays it back at an intervening period and hasn’t paid BIK enough revenue typically won’t identify it or your orders. So they wouldn’t become aware if it’s showing up on a corporation tax return and no tax has been paid. And whether it is withholding tax or whatever it is.
Okay. You know, you can be guaranteed. You’d get in a letter at that stage to ask you for bolts. And, you know, unless it’s been repaid, you know, you, you at least have to pay the BIK. So I think where a short term loan needs to be given out, and it was in this period and somebody decided not to charge BIK in us.
You notice probably a low risk that revenue are going to be seeking that I wish identifying a charging tax. And, but that’s subject to, with being repaid, you know, in a very prompt manner and say by the end of the summer. Okay. Mmm. Okay. I am conscious of telling him to kind of move through the other ones slightly more quickly.
Mmm. This is as a, as a straightforward case in which, you know, many companies will have a good 2019 and a poor start to 2020. So instead of running a single set of accounts, um, they would instead run an 18 one set of accounts, which then it means that they’re assessable on for 2019 on 12, 18, all of the cumulative profit of bullet periods,
that’s just normal accounting and tax rules. I need to see the numbers there in relation to the generation of the savings. So, you know what, it’s simple, max, you know, a lot of companies would have had something like not, not, not those, a good chunk has maintenance of 80 90%, but there would be some, you know,
you take the average bull, Mmm. Income would be zero, you know, from March to June. So a business like that to consider a longer accounting period and could have a very healthy saving and talks with them. The application of something similar for income tax is a little trickier. And so far as we have roots in section 65 of the taxes act,
what do you do when somebody changes year end all the solar trades, and there are coming in from the old UK legislation, they don’t really factor in. So sort of more contemporary, um, I think pieces. So there’s, it’s a bit of a new poll. It can lead to what seems to be contradicting, which able to in fact, that ego position.
So you take it here. You’ve got in the first instance, four years of profits, a decline in, um, opposite a year to toward you, one March, 2021, starting in April 20, 20 natural to see a falloff in profits. In that case, you change to the 31st of December, 2020. That means because you’ve got two accounting periods in that. Yeah.
You’ve got to go with the later of the two periods. So that’s the rule in section 65. If you have two accounting year ends in any tax year, you pick the latest. And if that’s December, you have to do a 12 month, January to December, 2020. So that’s your 2020 period. You then have to, uh, change your 2019 return.
The profits for January to December, the comparative period for 2019 are higher. Then the original amount you assessed, no, because 2019 is the same as January to December, 2019 is the same as Turkey. One, March, 2019. You don’t need an adjustment. So that’s the rule is that if you change and there’s two within a year, you have to take the later of the two.
If that happens to be the calendar year, you take the calendar year and then you have to revise the previous year upwards. If it’s less than the calendar year for that G or tubes, they’re 2019, because 19 is the same as 40 1st of March 19. There was no adjustment on the other side, but as you can see this change, when you apply those rules,
those results in a hundred thousand over adoption profits, effectively falling out of assessments, which isn’t widely known know strike somebody that is unusual really only has a benefit when you’re in declining profits phase. It’s probably accentuated by the deck of the drop that I put in there, having the profit for the car chair, which perfectly feasible, gosh, that is the principles on which we base,
uh, people’s tax. So, Mmm. I think it’s available to people we’re in solar trades or partnerships, um, and who are considering us now, that’s the sum total of the example, is there, um, definitely happy to take questions on us and it’s unique enough sort of tax relief. I’ve moved on to the asset protection slides, but if anybody wants to jump in on,
on those pieces, I can. Okay. Yeah. Thanks for the ideas. Um, the incorporation then, and looking at it as an asset protection peace. So where a person, you know, has an own whole rate of business.<inaudible> if something goes wrong, they’re fully responsible. So the idea is that you would incorporate the company. So you have limited liability.
Only the company is responsible for its own debts, very simple and effective form formats to protection. Some of the limitations can be, uh, often you’re going to be asked for personal guarantees. You know, that’s just, you know, a function of having that status, you know, which is that, even though you still set up a limited company,
the bank wants you to guarantee any loans personally. Mmm. Another restriction is the many professional trades are prohibited. And, you know, in some cases now accountants are actually allowed to do it almost in all cases, but solicitors and doctors are the classic ones where there’s legal restrictions on them doing it. So not. So it for everybody, the mechanism,
there’s an incorporation relief from CGT. There’s a stamp duty. Yeah. Not relief. Well, there was a method of doing an incorporation where you don’t sign a written contract and the assets pass by delivery and by oral agreements. Um, and there no stamp duty in those cases. And you usually get cons for business relief from bath. So it’s very easy to implement an incorporation tax rate and can give a person significant protection.
Most, most businesses are incorporated. Now bare trusts are completely different. That’s where you all ownership. They give no protection against the assets for creditors, but it can be useful for competency out of these. So I agree to be the bare trust for somebody who doesn’t want to be publicly shown. You know, as the owner, with the introduction of declaration of beneficial ownership,
it’s become a nice, important, well, it was commonly used the setup patrols and put the trust down as a shareholder of a company. So nobody would really know who owned us up until last November. And they can just have other advantages and not declaring the true owner, but not very effective or protecting assets in the event that somebody becomes insolvent and the bank is chasing them.
So the life trust then is a amen that of giving somebody a life interest in us. So you settled assets onto a trust and they get it for their life. And then somebody tax treatment would be that you’ve got a full disposal into the trust if it’s an asset. So if you put a property in a trust for the benefit of some of these lives,
you’ve sold it to the trust. And then the trust is, is the full owner. And then it gives somebody they’re interested in it for period of time. And then it would pass on to the remainder mine in that circumstances. It’s not perfect either for asset protection, because if there’s income arising to a person, then a creditor can take the benefit of that income and could potentially,
you know, uh, seek to, to secure that or influence the trustees and how they invest so that they do have an income stream. And so it’s not, it’s not that, uh, beneficial. Uh, the one that’s typically used as a discretionary trust. So this is a permanent transfer of ownership. Uh, there is a class of beneficiaries,
but the trustees have very broad discretion on how they, ah, exercise their powers so they can choose, um, you know, what or notch to make appointments. And so it’s quite difficult for somebody who is a creditor, okay. Tackle for the benefit of their children. Um, usually the trustees are deemed to be the owners of the assets, and typically they’re set up off shore too.
So you set up a Jersey trust or a BVI trust, you know, the less cooperative they are with Irish tardies, the better sort of would be the rule. So you set it up in a country. That’s very protective of its own all is. And then a person who wants to get hold of your assets, say, it’s a bank, they’ve got to go through a network of trust potentially.
So you could have a trust. And that would be in one country owning assets that are also had an interest in the restriction in those countries. And if somebody, you know, why this isn’t tax efficient and there’s lots of legislation around us, I’m usually setting up a network of cross off shore is quite nice. Yeah. From the point of view,
while protecting yes, somebody<inaudible>, when they knew they were just about to go bankrupt, et cetera, it has to be done in good order. And, you know, because I need transport as you do just before about payment to a credit score, and that wouldn’t be validated Bush. Well, other than that, and they effectively can be tackled by Irish creditors.
So they’re, they’re very effective. There’s lots of tax avoidance routes on transferring assets abroad. Um, section eight or six, people would know what to do, what on table, even some precisely that topic, taxation of nonresidential. So it isn’t ideal from a tax perspective, cause you can end up having to pay tax on the income or gains across generates Bush,
extremely effective as protecting assets from banks and other creditors, uh, know more simple way would be transferring it to a husband or wife. You know, that’s happened very commonly. It’s been all over the newspapers, people who did that in previous years, you simply get in there early transfer something before things<inaudible>, if at all possible, you know, before you ended up in the court at an early enough stage of a business,
like when, you know, there could be a benefit to it, there’s a possibility, well, some people not being able to pay back all of the borrowings and they transfer family homes, other assets to a husband or wife, um, and I’ve listed out some of the, you know, some of the pitfalls there, which would be, you know,
the potential for separation, how it happened then would the spouse end up in the bankruptcy proceedings, which has happened in art. And I know other Irish people that have left abroad, um, and you know, it to be kind of taken in check counts, it’s a simpler way of doing it, which if implemented in time is usually effective in shoring dust,
the husband or wife, it doesn’t end up having their assets are covered. Transfers to children are typically a lot more complicated because you don’t have the tax exemptions between the two Parsons. So you got to transpiration pay tax. Now there’s lots of relief for farmers relief, business relief, agriculture leaf tax rate threshold for transferring the kids. It still is a full on disposal for tax purposes.
And then you’ve got to take into account of the child’s age assets, you know, for a period of time. So not a straightforward decision. Um, you know, you know, if all else kind of fails and trusts their own wieldy and they’re too costly and, you know, a transfer to a husband or wife that just isn’t the right thing for whatever reason yeah.
Children, uh, can be used, you know, for direct transfers of assets, usually with a trust, you know, if they’re under 18, that that’s a requirements. What if they’re 80 and 1920, they may not have the maturity for us, but they are entitled to receive assets. And the final piece then that I was going to cover off,
not really of this, uh,<inaudible> the other piece, you know, with some of the other aspects would come up in the last week or two with people who are now starting to see their businesses pull back, um, you know, to pre cool, good kind of income and profit levels and are going to be exiting the wage subsidy scheme. And for July,
at least, you know, maybe even June and at the moment, there’s just very little out there and haven’t gone through the process, but a couple of clients who exited earlier on having came that originally, Mmm. You know, revenue do have some guidance now with us in the first stages of the exit, you just stop processing the normal payroll submissions and you just go back doing what you don’t have done previously and then reconcile it all year.
The biggest question would be for somebody who has now not had a 25% drop off in their income, would it be a revenue going to review? There are circumstances for the March to June period, and feel that they overcame it. And at the moment, you know, revenue are saying a little lonely that they’ll provide guidance on what they’re do. I mean,
our expectation is that they won’t seek a retain of subsidies from people whose incomes, however, turnover orders, you know, more or less Mmm. Then did the reduction was less than expected provided that there’s adequate records. So we think the key in to that is that have all of the backup, the documentation, the financial projections, the board meetings, the full suite of documents.
Just say that, even though my income was only at a certain level, it was only reduced by 10%. The expectation was in the middle of March when there was so much uncertainty that we would have that, and therefore I follow best practice. Um, and the letter of the law is that you have to believe that you’d suffer the reduction rather than you have to encourage.
Okay. From my experience, many companies are in that stage where year has turned out better than expected. And they’re now in a position where they’re concerned if revenue were going to go for a refund, both, they don’t have grounds to do that. As long as proper records were maintained or the directors and shareholders at the time showing that and level of reduction equivalent to say 25% or more was forecasts at the time that the decision to enter into the subsidy scheme was made.
So, okay. Free for any questions now, if you want to shoot them true for all right on time. Yeah. No, thank you. So I’ll just say we’re just a little bit over, so people want to leave, they can leave this fine time, but there’s a few questions here that would just ask if you’re okay with that. Perfect Is just,
there’s a question and it’s 25% drop off just as the T WSS is 25% job isle only in period to June. What about July and August? It is only the period to June because the legislation, you know, like what happened at the time was that we just had an election, you know, in February and we had a sentence. Yeah. And yeah,
this is my, make an understanding of it. In any case, is this at the time, then you had the transition Having Bolden powers. So that Colburn bill that was introduced was the last piece of legislation enacted by the last old, until we get a new government, there can’t be any new legislation. So the bill is very clear about a reduction within the March to June period.
And then it says the revenue will provide guidance on how to interpret us with the revenue commissioners can introduce goals. And my understanding is this until we have a new government, we can’t make new laws On the idea of TSS GWSS would be extended for seasonal employees, not on payroll in January, February. Uh, now that we’re here in anywhere that the recs are taking a do death.
Mmm. So is it changing year and give a permanent tech saving or artists just delay at that is a permanent tax saving. If you call it true to numbers, that would be a permanent status text saving to case. Uh, has mommy revenue made any further comments and strong cash reserves or accompany advantage and GWSS decrease in turnover? Uh, they, they have issued,
I don’t know how to put in graphic use, but that the Institute charge accountants at a FAQ is from them. And also the Irish tax has to have had it how’d that had happen webinars and on responses to queries of data that the members haven’t raised them. What they had the effect we said is, and the response is ones that you look to Q2,
uh, far, whether you meant the 25% test, but then you also for cash rich companies. And if the cash is increased, now you have cash more than what’s required to service with that. Well, then they will believe that should be coming off of her from, you know, after 200 of those periods. Uh, as I say, as Jonathan said,
there are that there are some questions there, which are Pacific forum for park. And obviously these are just my opinions. So I would take some of that questions and I’m giving the party. I hopefully get back to you with those questions and Joe course, thanks again for your time. So this is, uh, obviously they treat<inaudible> so does eight more sessions left?
So sure. Dressed in looking at the various sessions, you have look at that, the website and relation to what they are our next session then is, is that this, this, uh, this toasted, um, and there’s taken concessions on for calf, uh, thanks again for your costume. Mmm. And hopefully you’ve got some insightful ideas from there as you went through products,
details are on the, the presentation at the end of his presentation. If you are interested in talking to two too, I knew