The Self-Employed and Jobseeker's Benefit/Allowance

One issue that we are commonly asked about is that of social welfare entitlements for the self-employed, in particular JobSeekers Benefit. If you are self-employed, what social welfare safety nets are there should your business fail or not provide you with sufficient income?

Qualifying for Jobseeker’s Benefit

Most self-employed people cannot qualify for Jobseeker’s Benefit due to the fact that it is only given to people who have paid PSRI at Class A. However, if you have previously worked and paid Class A PRSI as an employee before becoming self-employed you may be entitled to Jobseeker’s Benefit.

To qualify for Jobseeker’s Benefit you need:

·         At least 104 Class A PRSI contributions paid since you first started work

·         And have 39 Class A PRSI contributions paid or credited in the relevant tax year (a minimum of 13 weeks must be paid contributions*) or

·         Have 26 Class A PRSI contributions paid in the relevant tax year and 26 weeks Class A PRSI paid in the tax year immediately before the relevant tax year.

The relevant tax year is the second last complete tax year before the year in which your claim is made. So, for claims made in 2012, the relevant tax year is 2010.

If you are unsure as to how many Class A PRSI contributions that you have, you can check your PRSI record directly with the Department of Social Protection (contact details available at www.welfare.ie).

I do not qualify for Jobseeker’s Benefit. What happens next?

If you do not qualify for Jobseeker’s Benefit you may instead qualify for Jobseeker’s Allowance which is a means-tested social welfare payment. If you have applied for Jobseeker’s Benefit and did not qualify, you should be automatically assessed for Jobseeker’s Allowance. In fact, you cannot actually apply for Jobseeker’s Allowance until you have first applied for Jobseeker’s Benefit (even if you know that you will not qualify for Jobseeker’s Benefit).

Jobseekers Allowance – Means Test

If you do not earn enough from self-employment and you do not qualify for Jobseeker’s Benefit, you may be able to get Jobseeker’s Allowance if you pass a means test. To qualify, you must also be:

·         Over 18 and under 66

·         Unemployed and available for, capable of and genuinely seeking work

·         Habitually resident in Ireland

How can I be available for work if I am self-employed?

You will no doubt have noticed that one of the qualifying criteria is that you must be available for and seeking work. For the self-employed, you can remain so and can even be engaged in self-employment every day and still be entitled to receive Jobseeker’s Allowance, provided your overall income stays below a certain amount. The number of days you are engaged in self-employment is not relevant.

In order to satisfy the criteria of being capable of, available for, and genuinely seeking work, you must be able to show evidence of this to the Department of Social Protection.

Available for work

Essentially the Department of Social Protection considers that you are available for employment if you are prepared to accept any offers of suitable employment immediately. It is important to be aware that you can be regarded as not being available for work and therefore not entitled to Jobseeker's Allowance if you put unreasonable restrictions on the following:

·         The nature of the employment

·         The hours of work

·         The rate of pay

·         The duration of the employment

·         The location of the employment

Genuinely looking for work

You must be able to show that you are making genuine efforts to secure employment. You need to provide examples of such steps. Steps which would indicate that you are considered to be genuinely seeking work may include:

·         Making oral or written applications for work

·         Looking for information on the availability of employment from employers, advertisements and employment agencies

·         Taking up reasonable training opportunities

·         Acting on the advice given by a Job Facilitator, a FÁS adviser or other placement agency such as the Local Employment Service (LES)

·         Taking positive, well advised steps towards establishing yourself in self-employment such as researching possible areas of self-employment,

·         Preparing business plans for a self-employment project

·         Attending relevant "start your own business" courses or seeking information, advice or guidance in relation to any of these steps

How is the Means Test Carried Out?

For information on how the means test is carried out, watch out for a future blog post coming soon.

Other Benefits

If you qualify for Jobseeker's Allowance you may also be eligible to apply for secondary benefits such as a medical card, rent supplement, mortgage interest supplement, fuel allowance, assistance with school costs etc.

Contact Details

www.fenero.ie

info@fenero.ie

01-6877400

Tax Tips - Corporation Tax

Although Ireland enjoys one of the more favourable corporation tax rates (currently 12.5% on trading profits) in Europe, more and more Irish businesses are finding the end of year tax bill to be a significant drain on cashflow. In order to assist companies manage this end of year tax bill Fenero have set out their top tips:

Corporation Tax Exemption for Start Up Companies

In 2009 the government introduced an exemption from corporation tax for the first three years of trading for certain new start up companies. Companies that qualified for the relief were exempt from corporation tax on trading profits (and also chargeable gains on the disposal of assets used for the new trade) where the total amount of corporation tax does not exceed €40,000, which equates to €320,000 in trading profits.

Where corporation tax for the period is between €40,000 and €60,000, marginal relief will apply. No relief is available where the corporation tax liability for the period exceeds €60,000.

Happily, the Finance Act 2011 extended the exemption for new companies commencing to trade in 2011, however with the addition of one extra qualifying criterion. In short, the 3 year relief from corporation tax for start up companies is now linked to the amount of Employers PRSI paid by a company in an accounting period. Companies can reduce their corporation tax bill by the amount of Employers PRSI paid subject to a maximum of €5,000 per employee (and an overall total reduction of €40,000).

Research & Development (R&D) Tax Credit

Many companies do not realise that they might be carrying out research and development activities and as a result lose out on the opportunity to claim a substantial tax credit.

In Ireland, a 25% tax credit is available for qualifying research and development expenditure for companies engaged in qualifying research and development undertaken within the European Economic Area. In simple terms this means that you can receive additional tax relief in the amount of 25% of the expenditure that you incur on research and development activities. This is a substantial saving.

The R&D tax credit will first be used to settle any corporation tax liability for the same accounting period. Any remaining amounts may be off set against corporation tax from previous years, carried forward against future corporation tax liabilities or directly refunded by Revenue.

Unfortunately, the R&D credit must be claimed within 12 months of the end of the accounting period in which the qualifying expenditure was incurred resulting in a lot of companies losing out on the tax credit. It is therefore important to review your company’s entitlement to this tax credit as soon as possible.

Purchase of energy efficient equipment

The annual allowance for expenditure on plant and machinery (i.e. capital allowances) stands at 12.5% in Ireland. This means that tax relief on the cost of an asset (e.g. air-con system, lighting systems, IT hardware etc) is granted over an eight year period instead of in the year of acquisition. A significant cash flow benefit arises where you are entitled to claim the full cost of the asset in Year 1, as your tax liability for that year will be reduced in one go rather than across 8 years.

In the case of assets in a category qualifying for accelerated capital allowances it is indeed possible to claim the full cost of the asset year 1. Examples of assets in this category are:

• Lighting and Building Energy Management Systems
• Information and Communications Technology
• Heating and Electricity Provision
• Process and Heating, Ventilation and Air-conditioning (HVAC) Control Systems
• Electric and Alternative Fuel Vehicles
• Motors and Drives

Companies planning on purchasing new equipment should therefore review whether it would be possible and beneficial to purchase new equipment which qualifies for the Accelerated Capital Allowance scheme.

Paying salaries v dividends

In Ireland the remuneration of individuals via salary payments is far more tax efficient than dividend payments. This is because companies receive a corporation tax deduction for salaries but not for dividends.

From a personal tax point of view, dividends and bonuses are treated very similar with no main tax advantage for receiving one over the other. Therefore it is better for a company to remunerate employees with salary payments rather than dividend payments.

Ensure provisions are “Specific” in nature

When preparing company accounts it is important to ensure all provisions are carefully documented and represent a reasonable estimate of future costs.

Under tax law, a provision may only be claimed as a corporation tax deduction provided it is specific in nature. General provisions which are not backed up by reasonable estimates should be added back in corporation tax computations resulting in no relief for the company in that year.

For example, a general provision for repairs which will occur in the following year may not be claimed. Whereas, a specific provision backed up by a reasonable estimate may be claimed as a qualifying corporation tax deduction.

Corporate donations

If you wish to make a charitable donation it is better to do so through your limited company rather than in your own personal name. Provided the total donation to the same charity in one tax year is €250 or greater and is paid to an approved charity or other approved body the company may claim the donation as a trading expense.

Payment and Compliance

Avoid Revenue interest and charges by ensuring the company submits tax returns and pays all taxes on time. For example, automatic surcharges apply to late submission of corporation tax returns. These surcharges are based on your total corporation tax liability being charged at either 5% or 10% of your corporation tax liability depending on how late the corporation tax return is filed.

Purchase of motor vehicle with low level of carbon emissions

Where a decision has been made to purchase a company motor vehicle all attempts should be made to choose a vehicle with low C02 emissions.

The annual allowance for motor vehicles (other than cars in use in a taxi or car hire business) is dependent on which category of carbon dioxide (C02) emission they fall into.

If a company purchases a motor vehicle for €40,000 with C02 emissions of 195g/km it will not receive any deduction for the motor vehicle in the corporation tax computation.

If however the company purchases a motor vehicle with C02 emissions of 155g/km the company will receive capital allowances of €24,000 spread over 8 years, irrespective of how much the motor vehicle costs.

Maximise use of losses

Subject to certain conditions, trading losses may be carried back for utilisation against profits of the preceding tax year, resulting in a refund of corporation paid. Any unutilised losses may be carried forward indefinitely for offset against future company profits.

Get help from a tax expert

In order to ensure your company is availing of all available tax breaks and claiming all deductions we recommend you hire a tax expert. Any good tax consultant should pay for themselves and more through the tax savings that they identify for you.

Top tax tips for limited companies and the self-employed in 2011!

€250 small benefits relief
Every employer is entitled to pay each employee a non-cash tax free gift of up to €250 per annum. These gifts generally take the form of the provision of gift vouchers and have become a particularly popular method of paying out Christmas bonuses to staff, although they can of course be paid at any time during the year.

The benefit to the employee is that they do not have to pay any income taxes on this and the benefit to the employer is that they do not have to pay Employers PRSI. If you have the choice to pay out €250 as a voucher rather than as a salary bonus, both the employer and the employees will save tax.

The important criteria to be aware of is that it must be a once-off annual payment. For example you cannot give one voucher for €100 and later give a second voucher for €150. The employer must also purchase the vouchers directly and then give them to the employees – an employee cannot purchase a voucher and then ask to be remunerated by their employer.

Pensions
If you are self-employed and operating through a limited company, it is significantly more tax efficient to contribute to a pension via an Executive Pension Plan rather than a Personal Pension Plan. This has always been the case but is even more so since the start of 2011 after the introduction of significantly reduced tax relief on personal pension contributions. If you currently contribute to a Personal Pension Plan it may be very worthwhile to look into replacing this with an Executive Pension Plan.

Maximise tax free travel and subsistence payments
In order to minimise income tax and PRSI costs, it is important to ensure that you are first maximising all your allowable tax free travel and subsistence payments, before taxable salary payments are then made. Many busy company directors often neglect to claim their entitlements in this regard or forget to include these as part of a remuneration package for relevant employees.

If you away from your “normal place of work” for greater than 5 hours a day, you are entitled to pay yourself a tax free amount of up to €13.71 for each day that this applies. If you are away for greater than 10 hours a day, a tax free amount of up to €33.61 is allowable. More information about this can be found in Revenue’s Leaflet IT54 – Employee Sunsistence Expenses available at www.revenue.ie

In addition, for every business journey that you make in your own private vehicle, you are entitled to pay yourself a tax free amount based on a rate (up to 59.07 cent) per km travelled. Don’t forget that business journeys include trips to the bank, to your accountant, to meet potential customers and suppliers etc. All of the small journeys add up so it is worthwhile documenting them and taking your tax free mileage payment. More information about this can be found in Revenue’s Leaflet:
IT51 – Employee Motoring Expenses available at www.revenue.ie

Home office expenses
Many business owners will often spend time working from home, even when they also have a shop premises or office unit. Where this is the case, tax liabilities can be reduced by claiming home office expenses, such as home broadband, telephone, gas and electricity. The amounts which can be claimed will vary depending on how much time is spent working from home and the nature of the work performed there. However it is worth reviewing this area and claiming for all amounts that you are entitled to.

Employer paid Travel Passes
The provision of monthly/annual bus and train tickets to employees is exempt from BIK. Therefore if you have employees who use public transport to get to work, it is in both their and your interest to arrange for the provision of an employer paid travel pass. The most important rule is that the employer must pay for the cost of the travel pass directly i.e. the employee cannot pay for it and later be reimbursed by the employer. Most employers agree a salary sacrifice arrangement with employees in relation to this i.e. the employee agrees to reduce their gross salary by the cost of the travel pass. Even under a salary sacrifice arrangement, the employee is better off as they are effectively paying for their work travel costs out of their before-tax income rather than after-tax income, thus saving income tax on the cost on the travel pass. Employers will save on Employers PRSI costs. More information can be found at www.taxsaver.ie

Pension Term Assurance vs. Life Assurance
Life assurance premiums are not tax deductible. However, if you replace your life assurance policy with what is known as a Pension Term Assurance policy you will be entitled to claim tax relief on the premiums under the same rules which apply to personal pension contributions. A Pension Term Assurance policy is a life assurance policy with two main restrictions i.e. the policy cannot be assigned to a mortgage or other loan and the policy cannot be taken out on a joint life basis. This can therefore be a tax efficient method for the self-employed to pay for the cost of life assurance.

Remunerate spouse
If you are married and your spouse is not working or is not maximising the use of their own personal tax credits and tax bands, it may be possible to remunerate the spouse from your company in order to maximise use of the tax credits and 20% tax rate band. Not all tax credits and bands are transferable between spouses so the best way to make use of them is to remunerate both spouses from the business. This can result in significant income tax savings for the married couple.

It is important to show that such a salary is reasonable i.e. that it is in respect of work carried out by the spouse and is not just to reduce taxes payable by the couple. This work could include a whole host of tasks that spouses often find themselves doing in support of their partner’s business, for example services as company director, general bookkeeping or administration services.

E-worker expenses
eWorking is regarded as method of working using IT. If you have employees who work remotely from home, even on a part time basis, they are entitled to a tax free payment of €3.20 per day that they are working from home to cover the cost of expenses such as additional heating and electricity costs. In addition the employer can provide computer and additional equipment and office furniture to the employee so long as the primary use of these will be for business purposes.

These provisions apply to eWorking employees only and not to employees who in the normal course of their employment bring work home with them in the evening etc.

Medical Check Ups
The provision of one medical check up per year can be paid by an employer on behalf on an employee without the employee incurring BIK. This is another tax efficient benefit which can be offered to employees.

Having trouble getting paid by your customers?

The difficult economic climate has taken a severe toll on most businesses and in many cases has led to an increase in the time that it takes to get paid by clients and customers.

However there is a piece of EU legislation which may partially help to compensate for delays in payments due to your business. This is known as the European Communities (Late Payment in Commercial Transactions) Regulations 2002. This legislation has been around for some time but many small businesses are still unaware of its provisions. For those who have heard of it, it is also worth revisiting as the rate of interest chargeable under this legislation increased at the start of 2011.

What does the legislation do?

In simple terms it allows businesses to charge interest on debts due to them after they have become greater than 30 days old. The legislation applies to all commercial transactions in both the private and public sectors. The reasoning behind it is that late payment of debt costs businesses when it becomes necessary to increase borrowing or increase overdraft facilities as well as additional costs in terms of time and resources in chasing up outstanding payments. This legislation gives businesses the option of attempting to recover some of these costs from their customers.

What rate of interest can I charge?

From 1st January 2011 the late payment rate is 8% per annum (being ECB plus 7%). This is the equivalent of 0.022% per day.

Should I charge interest on the whole amount outstanding?

Yes, you do not need to make any adjustment for VAT. You can just charge interest on the total amount which is payable.

How do I calculate the interest payable?

You first need to know the amount which is outstanding (say for the purposes of this example the amount is €2,000). You also need to know the number of days that the debt is outstanding (say for example 75 days). You first reduce the number of days that it is outstanding by 30, as the legislation only covers the time period beyond 30 days.

On the above details, the calculation would be as follows:

€2,000 x 45 x 0.022 = €1,980 divided by 100 = €19.80

That is: the amount owed multiplied by the number of days above 30 that it is outstanding multiplied by the interest rate and lastly divided by 100.

How effective is it in speeding up payments from customers?

This will vary from business to business and from customer to customer. The reality is that where one of your customers is genuinely struggling, the charging of interest will not make much difference to their actual ability to pay and potentially may end up damaging relationships depending on how it is handled. However in other cases it may help to keep you closer to the top of a priority payment list and may work well as a useful feature of a good overall internal credit control system.

Revenue to facilitate credit card payment of tax liabilities

Is this a positive or negative sign of the times? Up until now it was not possible to pay your tax bill by credit card. Only laser card, cheque or electronic debits were acceptable means of paying your tax liability which essentially means that you had to have the money in the bank to be able to pay your tax bills.

On the one hand, credit cards are an acceptable means of payment across most sectors of the economy so arguably this could just been seen as the next step for modernising the activities of tax collection and the Revenue.

On the other hand a cynic could perhaps suggest that in these troubled economic times, the Revenue are happy to take money in whatever way they can get it and opening up a credit card payment facility is for just that purpose! It is only inevitable that some cash strapped taxpayers will now consider settling tax liabilities by putting them on their credit cards and will deal with paying off the credit card company at a later stage.

From the perspective of a taxpayer, the more options open to them for managing their financial affairs the better. For anyone using credit cards to pay their tax bills however, don’t forget that credit card financing is one of the most expensive forms there is and we recommend that cheaper financing alternatives should be explored first.

Company Directors, the PAYE tax credit & Employers PRSI

PAYE tax credit

Company directors should normally be set up as PAYE employees of their company and are taxed under the PAYE system. However there are differences in the way that proprietary company directors are taxed under PAYE compared to normal employees. A proprietary company director is one whom also owns 15% or more of the share capital of the same company. You are not entitled to the PAYE tax credit when you are self-employed or when you are a company director who also owns greater than 15% of the share capital of the company. The PAYE tax credit is an important consideration as it in effect allows you to earn an additional annual €8,250 free from PAYE taxes (based on the PAYE tax credit of €1,650 applicable for the 2011 tax year).

It is however possible for company directors to restructure their affairs. For example, you can stand down as director but retain your shareholding. Alternatively you could reduce your shareholding to less than 15% and remain as director. In both of these scenarios you would no longer be classified as a proprietary director and would then become entitled to the PAYE tax credit.

Employers PRSI

A second important issue for company directors to be aware of is when Employers PRSI is and is not chargeable on their salary. As Employers PRSI costs are charged at either 8.5% or 10.75% of the gross salary payments, avoiding Employers PRSI can result in significant tax savings for the company. Any re-structuring of your affairs in order to become eligible for the PAYE tax credit should be done whilst also taking account of Employers PRSI costs.

The rules concerning when Employers PRSI should be charged on director’s salaries is not as clear cut as the rule regarding the PAYE tax credit. Employers PRSI is not charged on salaries paid to company directors whom are considered to have a “controlling interest” in the company. The difficulty with this is that as there are no statutory guidelines or judicial interpretation of what constitutes a “controlling interest” it is open to debate and must be judged on a case by case basis.

The important point to be aware of is that if in restructuring your affairs in order to become eligible for the PAYE tax credit you wish to stay on as a company director (but plan to reduce your shareholding to less than 15%) it is important to ensure that you can still demonstrate that you still have a sufficient “controlling interest” in the company.

PAYE tax credit vs. Employers PRSI

In some cases restructuring your affairs to avail of the PAYE tax credit may mean that you will no longer be deemed to have a “controlling interest” in the company and therefore the company will be required to pay Employers PRSI on your salary. Where this is likely to happen you will need to make a calculation as to whether you will benefit more from the PAYE tax credit or from savings on Employers PRSI. Depending on the amount of salary being paid, the savings on the Employers PRSI can outweigh the loss of the PAYE tax credit – for higher salaries this would be the case. However, where lower salaries are being paid then it can be better to pay the Employers PRSI and get the benefit of the PAYE tax credit.

Non-financial considerations

There are other matters to consider other than just financial when considering restructuring your affairs. One is the desirability of handing over your shareholding or stepping down as a director.

On what may be considered as an upside is to consider the social welfare benefits. Company directors with a “controlling interest” pay Employees PRSI at Class S which does not entitle them to a number of social welfare benefits including disability benefit and jobseekers benefit. If the director is no longer deemed to have a “controlling interest”, they will instead pay Employees PRSI at Class A which is the class which entitles you to a full range of social welfare benefits.

Lastly, proprietary company directors are required to file an annual income tax return (even where their only income is the PAYE salary from their company). If you were no longer a proprietary company director you would not be required to file an income tax return, thus reducing your tax compliance burden and saving on professional fees.

Revenue Audits: can I do anything to reduce my chances of being selected?

It’s safe to say that nobody ever wants to be the subject of a Revenue audit. Even if you are 100% confident that your tax affairs are in perfect order, there is still the time and inconvenience of having to deal with Revenue as they conduct their review. And for most people there will always be the niggling worry that an error may have been made or something may have been forgotten.

Gaining an insight into how Revenue select their audits can be useful in helping to minimise your chances of being audited or to select the best strategy for dealing with an audit if and when it does arise.

There are a number of factors which can affect the likelihood of being selected for Revenue audit. The degree of control that individuals and business owners can have over these factors varies.

REAP
The Revenue are becoming more sophisticated in their selection techniques with the development of REAP, their ‘risk evaluation, analysis and profiling’ system. REAP first went live in 2007 but Revenue stated that 2008 was the first year that it was used in a “proper, sophisticated fashion”. As more and more data is collected and retained on REAP, it will become an increasingly powerful tool for Revenue.

REAP works by compiling a profile of each taxpayer based on past experience with that taxpayer. Data such as background, lifestyle, ownership of assets, tax residency history, tax returns and payments are just some examples of information entered to REAP and there are an increasing number of data sources being utilised. One example of Revenue working with third parties is obtaining information from banks and credit unions on the amount of interest earned on deposit accounts.

REAP interrogates all this gathered data by applying a set of rules to each user’s profile and assigning a score. Taxpayers are then ranked by their score. Depending on their score, certain follow up actions could occur, ranging from a follow up letter or phone call to a full investigation. According to reports there currently exist 220 rules which REAP uses to generate a score. Revenue have recently estimated that 60% all of their audits are based on the top 20% of risks identified via REAP.

Revenue have also stated their intention to extend REAP to cover PAYE workers. Their expected timetable for implementing this extension is the end of 2010. The main focus of REAP on PAYE tax payers will be to look at additional assets held by the individual.

So what can I do to minimise my chances of a Revenue audit?

There are certain factors that will be very much outside of your control. For example, Revenue regularly conducts audits on a sector specific basis. In recent years these have included retail jewellers, retail pharmacies and the construction industry. If you operate within a targeted sector you may find that you are selected for audit on this basis alone.

However there are a number of other factors which you do have a greater degree of control over. These include your compliance record i.e. if you have always filed tax returns and made payments on time. It also includes the accuracy of your records – if you have submitted a lot of amended tax returns, this can raise questions as to your internal control systems and why tax returns are not submitted correctly the first time.

Other factors that Revenue can look at are significant changes to your profit margins and turnover or other financial indicators. If these differ significantly from your previous year’s figures or even from industry averages, this could trigger the Revenue to look deeper into your affairs. If you are showing an unusual set of figures in one year, you may consider including a note on your tax return to explain the issues which impacted on the business for that year. This may give the Revenue the answers they seek without them contacting you or looking any further into it.

Summary
In summary, Revenue’s methods for selecting which businesses and taxpayers to audit are becoming increasingly sophisticated. With better use of IT systems, Revenue are gathering more and more data and also finding increasingly efficient ways of processing this data to their advantage. And with tax revenues at a severe low in the current economic climate, Revenue are coming under increasing pressure to identify errors and omissions in tax returns which will lead to higher returns on their audit investigations. Being mindful of this, ensuring a good compliance record and being pro-active in communications with Revenue over unusual transactions or trading histories will take you a step closer to minimising your chance of becoming the subject of an audit.

What is an Annual Return and why is it so important?

If you have recently set up a limited company, you have probably received a letter from the Comanies Registration Office ("CRO") notifying you of your requirement to file your first Annual Return. So what is this, what does it involve and why do you need to do it?

Annual Return - The basic facts

An Annual Return is a form which must be submitted to the CRO each year. It contains all the main company information such as its registered office, its directors and shareholders. The very first Annual Return is due 6 months after the date that the company was first incorporated and the second and each subsequent Annual Return is then filed on the 12 month anniversary of the first Annual Return. A set of company accounts must also be submitted with the second and each subsequent Annual Return.

Annual Return - The important facts!

An Annual Return must be delivered to the CRO no later than 28 days after the company's allocated annual return date. Failure to do so can result in some very serious circumstances.

Firstly there are automatic fines payable for the late filing of a return. There are almost no circumstances in which these late filing fees can be waivered. The fees are €100 and then an additional €3 per each day that the return is late, subject to a maximum total fine of €1,200. Addition fines can also become payable if the company is prosecuted for persistent late filling of annual returns.

In addition when your annual return is late you are required to submit an audit report with your accounts. This applies not just to the current year which you are late in filing, but also to the following year's accounts even if you are filing next year's annual return on time. Submitting an audit report with your accounts means enlisting the services of a registered auditor to conduct an audit of your accounts, which can be an expensive extra service to have to pay for when it was not needed.

If you leave your annual return very late to file, you will eventually find your company on the strike-off list and if you still fail to send in your annual return at this stage, your company will be struck off the company register.

What does it mean if my company is struck off?

There are a number of consequences will result from strike off. The assets of the company become vested in the Minister for Finance and if the company continues trading, the owners no longer benefit from limited liability and are therefore personally responsible for any debts incurred by the company.

The company directors may also be disqualified from acting as directors by an order of the High Court. This can affect other company interests that the director may have or indeed, future business plans.

How do I know if my Annual Returns are up to date?
If you are not sure whether your annual returns are up to date, you can check very quickly at the CRO website www.cro.ie using the "Search/Purchase Company Info" option. If you enter your company name you will see a list of basic information including your company number, address, next annual date return and last annual return received. The company status is also shown. Your company status should be "normal". If the status is "strike off listed" you need to take immediate action. If your status is "struck off" then your company no longer exists and you may need to address the issues outlined above.

It is important that you are sure you know who has the responsibility for filing your annual return. Have you asked your accountant to do this and have you checked that this has in fact been done? If in any doubt, contact the CRO who will be able to tell you very quickly what the current status of the company is and when you next annual return is due for submission. It is worth repeating the fact that there are amost no circumstances in which late filing will be excused by the CRO - this includes the fact that you may have devolved responsibility to your accountant or other agent who then failed to do it.

An annual return (and many other company forms) can be completed and submitted online by using the CRO's online service at www.core.ie

Fenero also provide a range of company secretarial services, including the preparation of Annual Returns, and are happy to help if you have concerns over the status of your Annual Returns.

Enterprise Boards announce Spring/Summer 2010 programme schedule

Fingal Country Enterprise Board has announced it’s schedule of business information seminars for spring and summer 2010. The cost of the seminars are very reasonable and cover a range of subject matter including financial management, digital marketing and selling techniques. Full details can be found at www.fingalceb.ie/events . Other local county and city enterprise boards also offer lectures and seminars. To find the enterprise board nearest to you, check here:

Find Your Nearest Enterprise Board

If you have attended any of these lectures and seminars which you found particularly useful, please share your feedback with us.

Employment Subsidy Scheme - Is Your Business Eligible?

The government recently announced a €250 million temporary scheme to support qualifying businesses suffering as a result of the economic downturn.

How does it work?
The scheme will provide successful applicants with a maximum subsidy of €200 per week for each full time employee for a period of 26 weeks. After this initial 26 weeks, the payment reduces to €150, €100 and €50 respectively for each subsequent 13 week period for a maximum of 15 months until 21 November 2010. A maximum of €9,100 will be paid out for each employee and the maximum total subsidy which can be paid to any one business over the period of the scheme is €500,000.

Who is eligible?
In order to be eligible for the scheme, a business must:

• Be a manufacturing or internationally trading firm;
• Employ 10 or more full time employees;
• Demonstrate that the business was not in financial difficulty on 1 July 2008 and now come into difficulty as a direct consequence of the global financial crisis;
• Demonstrate that the business has enough resources (including any assistance from the scheme) to continue trading as a viable operation until 31 December 2010.

How do I apply?
There is a detailed application form required to be completed and can be submitted online. The closing date for applications is 4th September 2009.

Further information, including details regarding the online application process, is available at www.employmentsubsidy.ie

Free online digital marketing tutorials

A small Dublin based firm has recently started offering free online tutorials covering aspects of digital marketing.

The service is targeted at small businesses and start-ups who may lack basic knowledge of online marketing methods e.g. SEO, Twitter etc. Each tutorial is less than 3 minutes long in order to provide a quick and easy introduction and basic reference guide.

Here is what they have to say about themselves:

Digital Marketing School is a free online video resource for anyone who has an interest in the world of digital marketing, from a beginners level, right up to seasoned professionals.

We aim to help people with some of the basics, put some meaning behind the buzzwords, and give a broad understanding to newcomers of what is possible in the world of digital marketing
We’ll also be looking at more advanced areas, new evolutions in technology, and where the digital marketing industry is going in the coming years.

Each month, we’ll also have a guest speaker from the industry, discussing a digital marketing campaign that really captured their imagination.

Save money on your business supplies

SAVE MONEY ON YOUR BUSINESS SUPPLIES – HASSLE FREE OVER THE BORDER SHOPPING

It is no secret that there are many savings to be made by shopping over the border. One Irish company has chosen to make this process easier for both businesses and consumers by offering a competitively priced delivery service. Dealhunter assists in both sourcing goods and delivering them. In essence, businesses and consumers can make their purchases online from the relevant UK companies and use Dealhunter’s Belfast delivery address. Dealhunter will then deliver these down for a fee based on the size and weight of the goods. See their website for more details.

If you are VAT registered DON’T FORGET to tell the UK companies that you are ordering from as under EU VAT rules, they should not charge you VAT on their goods once you quote them a valid Irish VAT number.

Applying for Charitable Status for your business

There is no fully comprehensive legal definition of a charity in Irish legislation and as such, no Registered Charities in Ireland. There are plans afoot to change this, but in the meantime the only charitable status that exists is that granted by the Revenue Commissioners.

In order to be granted charitable status, the Revenue requires the organisation to:

1. Be legally established in the State; having its centre of management and control in Ireland;

2. Have a minimum of three directors/trustees, with the majority being resident in Ireland;

3. Be bound by a Governing Instrument, e.g. a Memorandum and Articles for a limited company or a Deed of Trust, Constitution or Rules for an unincorporated body.

4. Ensure that the objects and powers of the Governing Instrument are established to deem the body to be charitable (see below).

Objects and powers of the Government Instrument should contain certain clauses in order to be considered for exemption by the Revenue Commissioners. These should refer, amongst others, to:

1. Non-distribution of income, assets or profits to its members;

2. Keeping of annual audited accounts and making these available to the Revenue on request;

3. Prohibiting the payment of fees and salaries (other than reimbursement of out-of-pocket expenses) to officers/directors for services rendered in relation to the their service with the body;

4. The measures in place for winding up the organisation, including the transfer of assets to some charitable body having similar objectives itself, or failing that, to some other charitable body;

5. Obtaining approval from the Revenue prior to making any changes to the Governing Instrument.

Applying for Charitable Status

In order to apply for charitable status, a form in the CHY1 leaflet should be completed. Details required by the form include:

1. Details of activities to date and activities proposed;

2. Copy of most recent financial statements;

3. Details of bank accounts where charitable funds are held;

4. Details of any property owned by the organisation;

5. Name and address of all directors/trustees/officers and any connections that individual may have with other charities;

The Governing Instrument also needs to be submitted along with this form.

Information to prepare prior to application

- Are you aware of any other organisation/charity engaged in similar activities to yours? And do you have any formal or other links with these organisations?
- Detailed statement of activities that has been undertaken by your organisation to date and the intended activities for the coming 12 months.
- Details of the organisation’s main sources of income.
- Letters of support from any relevant sources e.g. existing charities, government ministers and ambassadors.
- Letters from any companies or individuals considering making donations or providing funding to you.

Tips for Improving Cash Flow

TIPS FOR IMPROVING CASH FLOW

Profitable businesses fail regularly due to poor cash flow. Finding a market and selling your goods or services is only half of the battle. A sale isn’t really a sale until you have the cash in the bank. And while you are waiting for your customers to pay, you still have to service payments to your suppliers. In today’s difficult economic climate, good cash flow management is more important than ever. Good cash flow management is all about three things:

• Slowing the speed of cash outflow to your creditors
• Increasing the speed of cash inflow from your customers
• Reducing the amount of time that cash is tied up in holding stock

TIPS FOR SLOWING THE SPEED OF CASH OUTFLOW TO YOUR CREDITORS

1. USING ROS TO FILE RETURNS AND MAKE TAX PAYMENTS
Apart from the administrative conveniences of filing your tax returns online, there is also a cash flow advantage to doing so. The Revenue grant an additional few days for the payment of most taxes filed and paid online via ROS (Revenue-Online-System).

An additional two to three weeks are granted for income tax payments when returns and payments are made online.

The Revenue also recently introduced an extension for the payment deadlines of VAT, PAYE and RCT when returns are filed and paid online. Previously, the deadlines for PAYE and RCT were the 14th of the month and the deadline for VAT was the 19th. All of these deadlines have been pushed out to the 23rd of the month for tax returns filed and paid online. It is crucial to be aware however that these deadlines are only available when you both file AND pay online. You cannot pay by cheque or other methods when you wish to avail of the extended deadlines.

More information regarding these extended deadlines is available in the Revenue’s e-Brief No. 10/09.

2. REGISTER FOR VAT ON A CASH RECEIPTS BASIS
Another Revenue incentive that all small businesses should avail of is to opt to account for VAT on a cash receipts basis. There are qualifying criteria for this option but the majority of small owner managed businesses will meet this criteria. A business may opt for the cash receipts basis for VAT when:

(i) Turnover does not exceed €1,000,000; OR
(ii) 90% of your turnover consists of the supply of goods or services to persons who are not registered for VAT.

The significant advantage of accounting for VAT on this basis is that you do not have to pay over your VAT to the Revenue until you have actually received payment from your customers. The alternative is accounting for VAT on an invoice basis, which means that you pay over the VAT as you issue invoices to your customers, regardless of when you actually receive any payment from your customer.

If you are currently set up to account for VAT on an invoice basis (the default basis for which the Revenue will register your business unless you elect otherwise) and believe that your business is eligible for the cash receipts basis, you may contact your local Revenue office in writing to request a switch.

Further information in relation to this is available on the Revenue’s website by clicking here.

3. USE HIGH INTEREST REGULAR SAVER ACCOUNTS TO MEET YOUR INCOME TAX LIABILITY
If you are a sole trader, the use of high interest regular saver accounts is a good temporary home for the cash that you will require to pay your annual income tax liability. It is advisable for all sole traders to set aside a portion of their earnings on a regular basis to ensure they will be able to meet their income tax liability when it falls due. It can be too tempting and too easy in your first year of trading to spend all the money that you earn in the belief that you will be able to fund your tax payments from future earnings. Far too many people are caught out by this either because their trading activity isn’t as healthy as expected or because they are unaware of preliminary tax requirements which can have the effect of a double tax whammy at the time of your first income tax return.

The Revenue offer direct debit facilities to enable individuals to make their tax payments evenly over the year. Paying by monthly direct debit is an advisable option for smoother cash flow. However, a far better option is to set up a standing order to a high interest regular saver account with a bank. This will have the same effect on smoothing your cash flow but with the advantage over the Revenue’s direct debit system that allows you to earn a little interest on your cash before you are required to pay it over to the Revenue each October 31st.

TIPS FOR INCREASING THE SPEED OF CASH INFLOW FROM YOUR CUSTOMERS

1. MANAGE YOUR DEBTORS
(a) Ensure your own bookkeeping is kept firmly up to date so you know who owes you money at any particular time.

(b) Unless you are business that requires payment for goods and services upfront, ensure you sit down and do your own sales invoicing on a frequent basis. Whatever payment terms you offer your customers, they are not required to pay you until you issue an invoice to them. The longer that it takes you to issue sales invoices, the longer it will take for cash to come in.

(c) Consider your customer’s credit history before making a sale. Attempting to chase a customer through the courts for an unpaid debt is all too often a prohibitively costly activity for the vast majority of SMEs. It is far better to do some ground work in establishing the creditworthiness of your potential customer prior to making the sale. Many businesses no adopt the use of credit references from other suppliers to your customer.

Requesting payments up front is a reasonable demand of customers with poor credit ratings and slow payment record. Don’t be afraid of losing the customer by stipulating this if you have genuine concerns over their ability to settle their debt to you when it becomes due. Remember a sale is not really a sale until you have the cash in the bank. And the chances are that your competitors would make the same demands of the customer if they are also adopting good cash flow management techniques. Another alternative is asking customers to build up a payment history with you, by providing only a very low credit limit for the first few months. If you find that the customer has difficulties keeping to their credit terms over this initial period, do not increase their credit limit.

2. EXERCISE YOUR RIGHT TO CHARGE INTEREST ON LATE PAYMENTS
The European Communities (Late Payments in Commercial Transactions Regulations 2002) came into effect on 7 August 2002 to help combat the frequency of late payments in commercial transactions. The legislation allows for penalty interest to be charged when payments are not made within 30 days, unless otherwise specified by a contract between the two parties.

Late payment interest is charged at the ECB rate plus 7%. The ECB rate in place at 1 January and 1 July each year is taken as the relevant ECB rate for the following 6 months.

More information regarding the current rates and examples of how to calculate the interest due is available from the Department of Enterprise, Trade and Employment website at http://www.entemp.ie/enterprise/smes/latepay.htm

3. OFFER EARLY PAYMENT DISCOUNTS
One method of encouraging customers to pay on time is to offer an early settlement discount e.g. a 5% discount if the bill is settled within 14 days. Obviously you need to build these discounts into, or be aware of their effect on, your profit margin.

4. INVOICE FACTORING
There has been an increase in the number of invoice factoring services entering the Irish market. In short, invoice factoring is a method to immediately generate cash from your sales invoices without waiting for your debtors to make the payment. Essentially, you are selling your debtors at a discount to an invoice factoring company who will pay you upfront for them and then chase your debtors for their payment.

Each invoice factoring company will have slightly different terms and conditions so it is advisable to research each carefully. Two of the most important considerations to be aware of are recourse and non-recourse factoring and also the fees that these companies charge you for the service.

As there is a fee for invoice factoring, you need to ensure that the benefits of receiving cash today outweigh the cost of this service.

TIPS FOR REDUCING THE AMOUNT OF TIME THAT CASH IS TIED UP IN STOCK

1. HOLD AS LITTLE STOCK AS POSSIBLE
Holding excessive stock keeps cash tied up as you have paid your supplier for the goods but have not yet sold it. You should review your stock levels and aim to hold stock for the least amount of time possible between purchasing goods and selling them on.

2. DISTINGUISH BETWEEN SLOW AND FAST MOVING STOCK
It is good to be aware of which stock is slow moving and to particularly ensure that you hold the minimum amount of slow moving stock as possible. You may consider a sale or special promotion to move excess slow moving stock.

3. LEARN ABOUT AND APPLY ‘JUST IN TIME’ (JIT) STOCK CONTROL METHODS
Just In Time (JIT) stock control methods aims to reduce costs by cutting stock to a minimum. Stock is delivered when needed and used immediately. To avoid the risk of running out of stock, JIT stock control methods employ a number of techniques to assist with the efficient management of stock levels, including Economic Order Quantity (EOQ). Depending on the size of your business a manual stock control system may suffice. Other businesses may find it useful to purchase a computerised stock management system.

Guide for Non-Residents setting up an Irish Company

Ireland’s Low Taxation Environment

Ireland has long been a leading choice as a base for many international businesses. Small and medium sized businesses can benefit from an Irish base as much as the large multi-nationals. The most popular and well known reason for setting up in Ireland is its low corporation tax environment. Ireland has one of the lowest corporate tax rates in both the EU and the world, at only 12.5% on trading activities.

In addition, a new incentive exists for new companies which commence trading in 2009. This is an exemption from corporation tax for the first THREE years of trading, an effective 0% rate of corporation tax. There is currently no information as to whether this incentive will be made available again for new companies in 2010. This makes 2009 one of the best times to set up a company in Ireland.

Other Reasons for Setting Up in Ireland

Of course there are a great range of other reasons to set up a base for your business in Ireland. These include:

• Extensive Double Taxation Treaty network with countries all around the world;
• No withholding tax on branch profits;
• No withholding tax on dividends to EU or treaty countries;
• Tax credits available for research and development expenditure;
• Young and well-educated workforce;
• Established and stable business environment with advanced infrastructure.
  

How Can A Non-Resident Set Up A Company In Ireland?

Forming a company in Ireland is a straight forward process. Company formation agents, including Fenero, can assist you with the necessary paperwork which enables your company to be set up and ready to use in 3-5 days.

All Irish companies are required to have a minimum of 2 directors.

At least one director is required to be Irish resident. The company can exempt itself from the requirement to have an Irish resident director by holding a bond, in the prescribed form, in force to the value of €25,394.76. The bond must have a minimum validity period of 2 years. A valid bond must be in place for as long as there is no Irish resident director in place.

What Is An Irish Resident Director Service?

If you are unable to provide an Irish resident director, you can avail of a Irish Resident Director service whereby an Irish resident director is provided to the company at a fee.

Should I Choose A Bond or An Irish Resident Director Service?

As with everything, there are cost considerations. The cost of putting a bond in place is normally cheaper than availing of an Irish resident director service.

However, if any of your reasons for setting up a company in Ireland are to avail of the low corporate tax rates, then it is crucial to be fully aware of the impliations of your choice between selecting a bond or an Irish resident director.

In order for a company to be eligible for the 12.5% corporation tax rate, it must be considered to be Irish resident. The term 'residence' was not until recently defined in law. The general rule was that companies whose 'central management and control' was exercised in the State, were treated as resident here. This rule or test emerged as a result of judicial decisions set down in case law.

Factors to be taken into account in establishing where the company's central management and control lie include:

• Where meetings of the Board of Directors are held;
• Where the majority of directors reside;
• Where the company's head office is located.

Due to the above, it is highly recommended than Irish resident director and an Irish registered office be provided to any company wishing to avail of the 12.5% corporation tax rate.

Further information regarding the rules for determining whether a company is eligible for the 12.5% corporation tax rate can be found on the Irish Revenue website by clicking here.

Why Choose Fenero?

We are members of the Association of Chartered Certified Accountants (ACCA), the global body for professional accountants. Fenero is a Dublin based professional services practice offering a full range of company formation, accounting, tax and financial services. We offer a fully comprehensive menu of all services that you may require, both to ensure that your company is compliant with all legal and tax issues, and also to ensure that you take advantage of all incentives available to you in order to financially make the absolute most of basing your business in Ireland.