Growing older to reduce taxation

Your Age and Irish Taxation

Some people are old at forty and some eighty year olds are as young as the grandchildren they babysit.

We all grow old it is the basis of life in the universe. From the time of the Big Bang forward the universe has been steadily aging, cooling, and converting its energy from ordered into unordered forms in order to eventually over billions of years to come to an end. If that didn’t depress you then the good news is that in Ireland your age can offer some tax benefits

(1)    Pension Contributions: the amount of money which qualifies for tax relief that you can invest in a pension as a percentage of your income increases as you get older:

Age	Amount which qualifies for tax relief
Under 30 years	15% of net relevant earnings
30 to 39 years	20%
40 to 49 years	25%
50 to 54 years:	30%
55 to 59 years	35%
60 and over	40%

This is subject to a limit of €115,000 of income which can be taken into account and the fund can only be €2 Million before any amount drawn from it is taxed at the high rate of tax (2016 Levels)

(2)    If you are over 65 then then the first €18000 of annual income is exempt from income tax and €36000 for a married couple (increased by 575 for first and second dependent child and 830 for each subsequent child) Perhaps when you are 65 it would be a good time for them to be leaving home but if they do stay then at least your tax is lower.

(3)    If you are over 65You get an extra tax credit called the Age allowance which is worth €245 if you are single or widowed and €490 if married or in a civil partnership.

(4)    Retirement Relief is available on the sale of your business once you reach 55 and over

(5)    You are exempt from DIRT if you are over 65 and your income is below the exemption limits above. (If you are over 65 and have been charged DIRT then get on to us and we can help you reclaim it.)

(6)    Young trained farmers, there are a number of tax breaks and stamp duty concessions available for young trained farmers. These are farmers who are under 35 and who have completed certain farm related qualifications.

Like everything in the tax code your treatment depends of very specific details. Taxation is based on detailed laws and regulations and not on fairness (even though it is meant to attempt to attain fairness which is hard to see in the current system with a 12.5% tax rates for the biggest of companies). It’s important not to miss out on any tax breaks you might have coming to you due to your age.

© Frank McGivney, Frank McGivney & Co. Chartered Management Accountants, 0469293891 27/04/2016

Tax Planning Exempt Income

Exempt income

Life is full of decisions one of the ones you can decide to make is whether you try to minimize the amount of tax you pay. This leads to a further decision of whether you do this legally or illegally.

Legally this is called tax avoidance or tax planning depending on the scale of how you organize your affairs. Both are perfectly valid means of minimizing your tax

Illegally this is called tax evasion, the shadow economy or sponging of the rest of society. It has high penalties for detection including hefty fines and prison sentences. Each time you evade tax then you end up driving the amount taken by other people to higher levels as they have to compensate for the amount you are not paying.

One of the ways to avoid income tax is through exemptions.

Within the Irish tax code there are various exemptions to income tax.

(1)   Exemption Limits:

Once you reach the grand age of 65 then any income you earn below €18000 is exempt from income tax. Once you reach 66 then you also avoid PRSI. If you are over 70 then you are charged a reduced rate of Universal Service Charge

 (2) Personal injury settlements (s 189), payments from the Haemophilia HIV Trust (s 190), Hepatitis C compensation (s 191), and payments in respect of thalidomide victims (s 192).

(3) Income of artists, writers and composers, subject to an overall annual limit of €50,000 (s 195).

(4) Interest on savings certificates (s 42) and instalment savings schemes (s 197).

(5) Income of recognised charities (s 207, 208).

(6) Income of amateur sports bodies (s 235).

(7) Rent from letting farm land (s 664). A claimant must be aged 55 or over, or unable through physical or mental incapacity to carry on farming. Exemption is given for the lower of:

(i) the farm rental income surplus, or

(ii) €40,000 where the lease is for more than 14 years, €30,000 where the lease is for 10 to 14 years, €22,500 where the lease is for seven to 10 years, or €18,000 in any other case.

(9) Rent-a-room relief (s 216A). Income from lodgers is exempt provided your gross income from such letting does not exceed €12,000 in the tax year.

(10) Home childcare earnings of up to €15,000 in the tax year (s 216C).

(11) Earnings of special assignees (s 825C). 30% of income above €75,000 in the case of employees assigned from a tax treaty country to work in their employer’s Irish operation.

(12) Start Your Own Business relief (s 472AA). Where a person previously long-term unemployed sets up a business, the first €40,000 of profits in a tax year are exempt. Expires 31.12.2016.

Frank McGivney www.meathaccountants.com 0469293891

Capital Gains Tax Planning with residence and domicile

Capital Gains Tax Planning with residence and domicile

Capital Gains Tax (at 33%) in Ireland is a tax imposed when you sell an asset. This is distinct from when you operate as a trade which is taxed by way of income tax. It was introduced to the UK in 1965 to commercial trasactions which up to then were outside of the tax net and 10 years later the Capital Gains Tax Act 1975 was introduced in Ireland. I have outlined below three tax planning mechanisms that can assist people in certain circumstance to minimise their capital gains in Ireland

(1) If you are non resident (you have spent less than 183 days in Ireland in a tax year or 280 over two years) but still ordinarily resident in ireland (i.e. you are less than 3 year out of Ireland)then you can use the fact that irish tax treaties take precidence over domestic tax law. By living in a country with a lower capital gains tax rate (which has an appropriate tax treaty with Ireland), you can elect to have a gain taxed in your new country of residence and avail of the lower rate.

 (2) If you are married to someone who is non domiciled in Ireland. i.e they were born in another country and have not changed their place of domicile to Ireland (there is more to domicile than this but it gives an indication of what it means) then if you transfer foreign assets to your spouse before you sell them and as long as the proceeds from their sale are not remitted (brought into Ireland) then they should not be taxable under capital gain tax in Ireland

 (3) If you are non domiciled in Ireland (i.e. born in another country and you havent changed your domicile to Ireland) then if you sell assets abroad then only the amount that you bring back into Ireland is taxable

Of course these tax planning issues are only outlined above and you should get professional advice from an accountant such as ourselves before you avail of them. In particular in relation to the five year rule for CGT holidays (which would appear to be in contravention of EU Law.
 Author Frank McGivney BA ACMA CGMA
 Frank McGIvney & Co. Ltd,
 38 Cherryhill Court, Kells,
 Co. Meath
 0469293891 fmcgivney@live.com

S.W.O.T Analysis of the Agrifood Business in Ireland

S.W.O.T Analysis of the Agrifood Business in Ireland

Written by Frank McGivney BA ACMA CGMA

Date 02 May 2013                               

Introduction: Ireland has been a country of farmers for centuries we have the strong natural resources to both sustain ourselves and to export the balance of our agricultural produce to the outside world. In a dynamic and changing world what is the future of Irish agriculture? Agrifood is the business of selling our agriculture produce both domestically and internationally. 

(1)   Strengths

Ireland is one of the largest beef and dairy exporters in Europe. We have a long established agrifood business which is based on the many strengths that Ireland has as a agricultural country. We have a very productive natural resource in the land and the climate that we experience. There can be adverse climate effects over the course of a number of years such as the current lack of growth in feed and grass due to the cold weather we have experienced. Ground temperatures have failed to reach the 6degrees necessary for growth and animals are dropping in the fields from a lack of fodder. However in general over the longer term we have a very productive natural resource.

We also have a very strong reputation in foreign markets. Ireland is seen as a country that supplies high quality produce and this helps the Irish agribusiness to get a foot hold in the supply chain abroad.

We also are known for having a regulatory framework which ensures the quality and consistency of the agriproducts we produce. It was Ireland and its monitoring environment which highlighted the presence of equine meat in the human food chain throughout Europe. We have a very strong TB testing regime and the department of agriculture and the use of herd numbers and paper trails based on animal tagging ensures the traceability of all animal stock in the country.

We also have strong human skills and experience which are world class. We have been farming and involved at a high level in the agribusiness for many years. These skills are the foundation of the future growth and prosperity of the Irish agribusiness. After all you can have the greatest resources in the world but they are no good to you if you don’t know how to use them productively and efficiently in a manner that meets market demands.

(2)   Weakness

We also have some significant weaknesses which hinder our potential progress unless they are addressed properly.

We have an inherent constraint on our production capacity due to the size of the country. There is after all only so much land available to us. There is nothing we can really do about this however what we can do is operate the land we have available to us in the most efficient, effective and productive manner possible. One of the hindrances to this is the traditional ownership model in Ireland. The average farm size is 33 hectares owned by individual farmers on an owner occupier model. This model does not lend itself to efficient methods of production. Larger farm sizes if run properly could lead to significant economies of scale and marked increases in production and output. Of course this is a purely economic analysis and does not take account of the socio economic consequences of a complete divergence from traditional farm structures. Although listening to the recent outcry about the fodder shortages I feel a change may be no harm when the sadness, isolation and loneliness of a generation of bachelor men living on farms was brought to light.

Our existing model of agribusiness is based on selling our produce as a commodity or as a food ingredient. We do not sell to a large extent to the final consumer. The problem with this is that the margins on commodity sales are a lot lower than the margins on end user sales. Therefore although the volume of sales is high the profit margin can be low. It certainly isn’t optimized by ignoring our potential to sell directly to the final consumer either through ourselves or in partnerships. Any move up the supply chain may offer greater profit margins.

There is also a lack of resources allocated to investment in research and development of products and product innovations. Consumer demand is rapidly evolving and it is vital that any business recognizes the need for constant innovation in order to remain appealing to the final consumer

(3)   Opportunities

I feel that with all the talk of recession and gloom and doom that people can forget that there is always opportunities for business. It is just necessary to discover where the opportunities lie. If you are a plasterer and think you can continue to make money hand over fist by subcontracting into the construction business on housing estates then really you are only fooling yourself. If however you are a plasterer and you research consumer demand and discover a way of using your skills to offer premium services to the final consumer (such as for example restoration work) then you have the potential to develop a successful business. The same is true for the agri business.  The potential is two fold first of all investing in innovative products which meet the demands of the consumer and secondly moving into the markets which have the greatest potential for growth.

The agribusiness has to offer products that are demanded. In order to access the high margin levels of the supply chain we need to offer innovative products. This may be just a case of marketing existing products in a different manner or accessing the retailer directly or even entering the retail market ourselves.

Traditionally the Irish agribusiness has concentrated on existing markets which are largely developed countries. However it has started to make inroads to newer markets such as the BRIC countries of Brazil, Russia, India and China which are all considered to be at around the same level of development. Also the VISTA countries of Vietnam, Indonesia, South Africa, Turkey and Argentina are under going significant development and growth. It is these types of countries where we can differentiate the Irish agribusiness and avail of the opportunities that they offer. We can’t really produce the volume to feed the poorer countries food demands and we may not want to try. The high volume sales that poorer countries offer are usually at very low profit margins. Ireland however has a limited supply of agricultural produce so we need to maximize out profitability on this limited supply and this is achievable by targeting the growing middle classes in developing countries.

The opportunity is there to go to these countries and perform the due diligence and research needed to generate a market for Irish agrifood. We could foster partnerships both within our own economy in order to achieve economies of scale and to reduce costs such as marketing and transportation. We could also establish partnerships with retailers or producers in the developing countries to reach higher levels of the supply chain and sell high volume output at high margins.

Another major opportunity is to sell our skills set. We have some major agrifood businesses which have developed into world leaders. We can sell the skills we have obtained to other countries. Many countries may have great natural resources or machinery but they lack the people necessary to optimize these resources. By sending our talented people to these countries we can make a lot of money and help develop markets that we can then sell our products into.

(4) Threats

The world economy is currently in a major recession and this is a barrier and threat to the Irish agri business. The banking sector is very hesitant to give finance to business and this may prevent the necessary investment needed to access global markets. The recession has also resulted in weak demand through the world economies as unemployment levels rise and the disposable income of people falls dramatically.

The common agricultural policy is been renegotiated and this can be seen as a potential threat if the negotiations do not promote the growth of the agri business sector.

There are factors outside the control of the agribusness such as ever increasing energy costs and weak exchange rates for the euro. These have to be worked with and managed by the industry.

The biggest threat is the consumer itself. The consumer is constantly changing its behavior and demand patterns. People no longer are influenced so much by huge advertising campaigns. Increased access to the internet makes people aware of the full range of foods available and also allows them to judge the quality and source of the food they are buying. It is the objective of any agribusiness to keep up with the demand patterns and behaviors of consumers and to offer products which meet this demand.

In conclusion the agri business has potential to avail of the huge forecasted growth in global demand for food products. We just have to be aware of this potential and focus our efforts on the areas which will offer the greatest returns for the resources we have available to us.

Why the audit function is so important to larger public companies

Why do large companies need auditors?

Author Frank McGivney

Date 20 April 2013

The company structure is the vehicle by which people with resources can invest in different enterprises in order to increase the long term value of these resources (share capital growth) and to obtain some short term income from their investment(annual dividends) .The company structure allows investors to risk some of their resources while availing of the protection of limited liability. This means that the extent of any loss they will incur is limited to their investment. If a company fails then their other  resources and assets will not be affected. This is a vital prerequisite in order to encourage investors to take the risks involved in putting money into any enterprise. Before the advent of the principal of limited liability the investor could lose all of their wealth if an enterprise failed. 

As companies have developed over the centuries there has been a separation of management from the ownership of companies. In the modern world companies are owned by a large number of investors (shareholders) and the company is run by the directors. This means that the people who run the company are different from those who own the company. This has lead to the development of the agency theory. Essentially the directors act as agents for the owners. The objective of directors should be to maximise the return to share holders both in terms of long term growth and in short term revenue, while also protecting the interests of other stake holders, while still operating the business in accordance with company law regulations and requirements. Agency theory contends that directors however will be motivated to maximise their own salary, benefits, bonus and share options. While also maximising the short term share price so as to reflect favourably on their own personal success in operating the business. However the pursuit of these objectives does not necessarily lead to decisions that are in the best interests of shareholders. This conflict of interest is the reason that auditing is so vitally important. Once one man is entrusted with the resources of another for the pursuit of wealth then given the nature of man it is vital that the fidelity of the controller of the resources is checked and verified.

In Ireland and the UK there has developed an option for smaller private companies to claim audit exemption. This is because in a lot of small companies the above separation of ownership and control does not occur because the owners are also the people who run the company. Therefore the need for an audit is diminished. Also it allows small companies to avoid the high costs of audits, However even within these companies there are published guidelines as to how their accounts should be produced so that they still have financial controls to protect other stakeholders such as creditors and the revenue commissioners.

 Of course in most cases auditors and mangers are on the same side as they attempt to protect the assets of a company and identify anyone who is trying to commit fraud. However they can diverge when it is the managers/directors who are the actual ones who are trying to commit fraud or enrich themselves at the expense of the shareholders of the business. At this stage they separate as the auditors are the ones who will attempt to identify any such malpractice or fraud. The effectiveness of external auditors to actually identify such misbehaviour has been justifiably called into question. Most fraud is identified by whistleblowers and by other parties rather than the external auditors. Currently a lot of work is been undertaking in the accountancy field to rectify this situation. Of particular concern in my opionion is the fact that the four big accountancy firms are the only ones who perform audits in public companies quoted on stock exchanges. Also companies don’t change their auditors regularly and therefore a relationship develops which is not consistent with the off hand nature that auditors should operate in. Some suggestions are that public companies will have to change their auditors regularly. It is also suggested that the firms of a size just below the big four accountancy firms should be allowed to develop to order  to compete for public company audits, There are market forces which are an obstacle to these firms growing to the size where they can compete for public company contracts and these need to be removed in my opinion in order to give more credibility to the profession

 The Cadbury report was produced because of Robert Maxwells Mirror group scandal and the BCCI scandals. In 1992 it stated that “The central issue is to ensure that an appropriate relationship exists between the auditors and the management whose financial statements they are auditing.”

Prior to 1844 in the UK and Ireland only the crown could issue Charters of Incorporation. Examples of such charters were The Honourable East India Company and the South Sea company. The south sea Company was the Enron of its day where false claims of potential profits lead to huge investments in the company. The business proposals proved to be fraudulent and the company collapsed leading to the ruination of many of the investors. The industrial revolution lead to a huge increase in the level of trade and manufacturing in the UK and  an Act of Parliament was passed in 1844 that allowed the incorporation of Joint stock Companies. This was followed in 1855 with the passing of the Limited liability Act which allowed for investors to quantify the risk of loss they were taking in their investments. This resulted in the divergence of ownership and control in large public companies as discussed above.

In 1900 the push towards accountability took a big step with an act that required the publication of a audited balance sheet and thus began the steps to the modern situation of producing full audited accounts by large public corporations in a way to ensure transparency and accuracy in the accounts and information presented to the public.

In Summary audits of large companies are necessary in order to protect the interests of all its stakeholders. These stakeholders include the owners of the business. The auditors function is to ensure the owners investment is safe and that the directors aren’t diverting the resources to their own gain. The auditor also protects creditors to ensure that the assets of the business are preserved to allow it to pay its debts. The auditors’ objectives are extremely complex in the modern business environment and hopefully all of the current developments will give confidence back to people in the work of the auditor.  

We specialise in producing audit exempt accounts for small and medium size companies in Ireland to the high standard required by the Companies acts 1963 to 2013 and accounting standards.
Frank McGivney & Co. Chartered Management Accountants Kells, Co Meath