Is it tax avoidence or tax evasion

An accountants job is to prepare your accounts, to give you tax advice to minimize your tax liability and then to calculate how much you owe in tax in a timely manner so that you keep up to date with your responsibilities in relation to tax. The process of minimizing your tax liability is done by intelligently applying tax avoidance measure (it could also  be called efficient tax planning.  However the process of illegally avoiding tax is called tax evasion

(1) Tax avoidance: this involves  availing of reliefs and allowance within the tax code to minimize how much you pay in tax and will involve one or more of the following
      (A) Structuring transactions correctly. So structuring a transaction in such a way that it avails of a relief.
      (b) Time management of transactions. So timing a transaction either bringing it forward or delaying it so that it comes with in a certain time frame in order to avail of reliefs
      (c) Arbitage. making sure transactions are in the correct structure or switched between different structures to avail of reliefs i.e. between company and personal, and between income tax and capital gains tax etc

(2) Tax Evasion is where you deliberately under declare your income to the tax authorities in order to avoid paying tax . So you earn 80000 in a year but you only declare 30000. This can result in fines and penalties and possibly imprisonment.

Therefore in tax avoidance your declare all of your income but in such a way that you pay the least amount of tax possible while staying within the law. This is compared to just simply not declaring your income correctly. The first one takes planning and is an intelligent way to run your business. The second one will just lead you to paying more tax than you should have paid and possibly jail. Remember the Revenue Commissioners deal with millions of people and have come across most if not all the crazy schemes that you may think up that you believe are original. 

Banking for business by Frank McGivney in simple terms and a short history

Banks aren't the most popular institutions at the moment if they have ever been popular. The first banks similar to the ones we have today started in Italy in and around the 14th century during the Italian Renaissance. they were generally family run and controlled. There was older forms dating back to around 2000BC in ancient Greece and Babylon. The ancient ones arranged loans for merchants and charged them interest. These are the ones mentioned in the bible outside the temples. Banks have developed and changed since then but essentially provide the same service.
                     In my opinion banks play a vital part in any economy and so they are in a strong position to dominate the economies of the countries they operate in. They have the cash resources of a country in their hands and therefore they need to be controlled and strictly controlled. That is the reason in my opinion for the property bubble that happened to Ireland and a lot of other countries. After September 11th the American government flooded the world with hard currency and this feed into the banking system where previous controls were changed in order to allow this money to be given out to the public. This resulted in money been given out in circumstances where it shouldn't have have been given and this lead to property price increases as people had access to indefinite amounts of money. For instance during the boom a common way of financing a number of properties was to take out the equity in one property and using this as deposits on numerous other properties which were then geared up with further loans. i.e. Euro 200,000 of equity in one house was used to provide the four Euro 50,000 deposits for 4 new properties and then mortgages were taken out to top these Euro50000 to the purchase price of the properties. Equity is the difference between the value of a property and the mortgage on it. Methods like this just lead to property prices been inflated in order to allow for these finance models to work. Now that only my opinion.
                        If your in business you need a bank account. You also could probably do with having an overdraft and possibly a start up loan. The first thing to do is to set up a bank account in a bank you feel confident in. Make sure it offers the services you need and that it is close enough to you so that you can use it easily. There are three types of finance that businesses really use. There is of course loads of different products called lots of different names but these three classifications encompass all these products
                 (1) Operating Finance. This consists of short term loans, credit cards, invoice discounting, factoring and overdrafts. These are meant to be used to finance the working capital requirements of a business. They are meant to be short term and the most important thing to remember is that you need to keep them short term. Therefore use them to buy stock to process an order or to pay employees for a pending job . But then when you get paid for your sales make sure that the short term finance is paid back. In my opinion businesses should be self financing and short term finance is only a means to get income in. Short term finance is by its nature the most expensive form of finance.
                  (2) Financing Loans such as leases,medium term loan, start up loans and hire purchase agreements etc. The function of this finance is to allow you to purchase fixed assets such as plant and machinery, motor vehicles, computer technology etc which will be used to run the business in to the future. It allows you to buy that new low loader which you can then hire out to make money. This finance is well justified as long as there is the demand for the product or service that you will sell by using it. The same with office equipment which may reduce operating costs and free you up to concentrate on running the business. You have to do detailed financial projections in order to ensure that the item you are buying will add value to the business.
                    (3) Long term finance such as property loans and mortgages. These can be for 20 years or more and allow you to buy your business premises. Hint: Often in small and medium size businesses their is a justification for the premises to be bought by the share holders themselves and then rented back to the company (if in a company format) This is so that if the company goes into liquidation that the premises aren't used to pay the debts of the company and to secure the asset for the share holders
                       This may seem basic to people used to banks but I get a lot of client in starting in business who have never dealt with banks.So make sure you get either the bank or your accountant to show you how to do simple banking such as filling out lodgement slips and cheques. Get them to go through the internet banking system if you avail of it. You often can pay creditors directly into their banks. If they are in your own country you just need their sort code and account number and if they are international you need either their IbAN and BIK code or a swift code which they can find on your bank statement to give to you. Above all remember with your bank that you are the customer and don't allow them to treat you with anything but respect and of course show the respect back , remember it isn't the clerk at the front desk's fault that the bank lost billions of the countrys euro's. Building a good relationship with your bank will help you to run your business but you have to be firm and confident dealing with them and make them treat you as an individual not as only a number.


 Written By Frank McGivney & Co. Chartered Management Accountants, Kell, Co Meath fmcgivney@live.com For credit card processing from your smart phone https://sumup.com/#a_aid=Frankmc1000

Universal Service Charge

 My Views on the Universal Service Charge (USC) and how it is acting as a disincentive to investment in Ireland
By Frank McGivney

This is a simplified analysis and doesn’t take into account more complex tax issues but does apply to most small and medium size businesses and Paye workers.
The government of Ireland imposed a further tax on the Irish people in 2011. It’s called the universal service charge (USC for short). Never has a name been more appropriate for a tax because it is applied in a way that is universal to peoples income and it even is based on income that people never even receive. This tax is charged on your income in a given year at the following rates generally
The first Euro 10036 is taxed at 2%
The next Euro 5980 is taxed at 4 %
Then the balance is taxed at 7% i.e. anything above Euro 16016.
This is of course on top of your income tax and Prsi payments. Now with income tax if you are self employed you are taxed after you take away any losses you may have had in previous years and also after you have taken away your pension contributions and after you take away capital allowances (which are the allowances for the purchase of fixed assets such as heavy machinery, motor vehicles etc. which you are allowed at 12.5% per year). However USC is calculated before you deduct these items. This means that you are paying a tax on your absolute total income for a year with out taking into account any pension contributions or more importantly without allowing you to write of losses forward or capital allowances.
In order to set up a business you need usually to invest in machinery or vehicles at the beginning in order to get it up and running. This often times involves buying machinery or motor vehicles etc so that you can actually carry out the business. Then these are allowed against your income tax, however they are not allowed generally for USC purposes. In other words you may spend a large amount on starting the business up in order to make a living for yourself and to give employment and you are in effect taxed on this investment.
In the first few years of business it is common to make a loss and of course you can make a loss at any stage of running a business. It is standard good practice in most countries with a proper tax system that you are allowed to write of these losses in future years to reduce your tax liability. This is a very important aspect of the tax code as it allows a business to get over loss making years and continue to provide employment and to hopefully be a success. However USC circumvents this by being calculated before losses are deducted. Once again this is a disincentive to investment and entrepreneurship as any self employed person or company needs to be able to recover from its losses by having tax relief.
Paye workers probably do not even realize that USC is calculated on their income before pension contributions. A lot of people who make pension contribution have no option but to pay them for example anyone in the civil service. In effect what is happening is that their pension contributions are reducing their net pay by 7% of the contribution if they are already earning over Euro16016. So they are coming out with less money in their pay packet based on income that they can never have received. I know the pension contributions will benefit them in the long term. However I believe that up to a certain level pension contributions should be tax free. The reason been is that the way the government is running the country we are most likely going to be bankrupt in the future. This is because there is no way we will be able to pay back the current debt burden that they are imposing on us, in order to repay the bank debts. If this happens we will be either poverty stricken or subservient to the powers in Europe and people can forget about getting old age pensions. So it’s vital that we put money aside for our own future incomes. This should in my opinion be limited to exclude relief for massive pension contributions for the wealthy.
In my opinion this is a completely unfair tax but it is the tax that the government will increase in the budget, as a 1% increase in USC will have a much greater tax take effect than an increase in any other tax. I have no problem with a high tax regime. In fact I think that in order to stimulate growth that governments should be elected that alternates between high and low tax regimes. This is a reflection of the inertia of the human condition. In order to stimulate an economy it has to be hit with different tax and economic policies over time. This would in my opinion help to prevent the swing from depression to recession. However a basic requirement of a high tax regime been successful is that the tax take is then used by the government to increase their capital and current expenditure. This way the tax taken is kept in the domestic economy and stimulates growth. However the huge mistake been made at the moment is that the tax is in fact been taken out of the economy to repay bank debts to foreign bond holders. This is just draining the economy. I would in fact accuse the current government of implementing the very same policies as the government did in the boom except in reverse. So in the boom the government drove a boom higher and now in a recession the current one is making the same mistake in reverse by driving us further in to recession. However that’s an argument for another article.
Frank McGivney is a practicing Chartered Management Accountant in Kells Co. Meath, Ireland and can be contacted at fmcgivney@live.com .














Computers for business

advice on setting up as Company or sole trader

You have decided to take control of your destiny and start up your own business. The route of self employment is a long and sometimes difficult one with a lot of benefits and potential pitfalls. Once you have decided upon what business you are going to run, you will have presumably loads of marketing ideas and financial aspirations and so forth. However the first practical step to starting up your business is to decide how the business will operate. The main choices are as a Sole Trader/Partnership or as an incorporated company. A sole trader and partnership are both similar in that the business is operated by the owners as self employed people in their own right. The main difference between sole traders and partnerships is whether there is one owner or more than one owner of the business. I am currently writing an in-depth article about the consequences of going into a partnership with someone. This current article is dealing with the fundamental choice of been self employed in your own right or in starting a company.
A company is a separate legal entity to the people who own it. It can trade, own and operate a bank account, be sued, liquidate (cease trading), etc on its own behalf. The big advantages of a company structure is that it offers limited liability and a low corporation tax rate. Limited liability means that a company can only be sued for whatever it owns itself so that the shareholders (owners) private assets are protected. Companies are taxed on their profits by way of corporation tax. The taxable profits are calculated after the director’s wages have been paid. In Ireland the current corporation tax rate is approximately a fifth of the marginal highest income tax rate. However in return for these benefit’s the administration and accounting requirements for a company are more stringent and involve a greater cost and consume more time than a sole trader's. Also any money that a director takes out of a company is taxed at income tax rates and therefore the corporation tax rate is only availed of if the company makes more money than the directors are paid as wages
A sole trader is a person who operates a business in their own right. As such they are solely the ones taking the risk of the business failing they are also the ones who benefit fully if the business is a success and makes a profit. A sole trader does not have limited liability and thus his/her own assets such as the family home can be under threat if the business is sued or it fails to pay all its creditors or debts. However a sole trader is a simpler way of running a business. The returns to the Revenue Commissioners are less arduous than the returns for a company. If the business has a small turnover with relatively low risk of been sued or if such risk can be insured against then this is a good choice. All the advantages and disadvantages of both options should be weighed against each other based on the specific business been proposed and then an informed decision made. The assistance of a trained professional advisor such as a solicitor or accountant is recommended to ensure the best outcome
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Frank McGivney & Co. Ltd Chartered Management Accountant fmcgivney@live.com
 Frank McGivney & Co. Chartered Management Accountants Kells, Co Meath