The Shadow Economy

The Shadow Economy

The shadow economy costs every tax payer money through higher taxation. If everyone declared the income they made then the tax take would increase significantly and the tax burden on an individual basis would fall so we would all pay less.But of greater concern is the effect people,operating with out paying taxes, have on legtimate business. If you are a carpenter qouting for a job and you competion is some guy who pays no tax and no insurance then you just... simply cannot compete. The home renovation scheme has helped alleviate this to some extent in the building industry but it still is a prevalent hinderance to fair trade through out all sectors of the economy.
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1. What is the shadow economy?
In general, shadow economy activity is activity in respect of which businesses (including professions) and individuals engage in inappropriate practices with the aim of not complying with their legal obligations relating to matters such as taxes & duties, PRSI, licenses and employment. Shadow economy activity includes -
not declaring, or under-declaring, a source of income (for example, not declaring or under-declaring 'cash jobs') so as to avoid tax and other liabilities;
employers paying employees in cash under an 'off the books' arrangement so as to evade tax and PRSI liabilities;
'working and signing' - working or running a business whilst at the same time claiming falsely job-seekers benefit from the Department of Social Protection;
non-operation of the VAT system;
tobacco smuggling including the sale of illegal tobacco products;
oil laundering including the sale of washed diesel.
Most of the shadow economy activity takes place within that which is referred to as the ‘cash economy’ (i.e. the payment for goods and services by way of cash).
2. What are the main effects of shadow economy activity?
Shadow economy activity –
reduces tax, duty and other revenues owing to the State;
creates an un-level business playing field that has a negative impact on legitimate businesses as regards competitiveness, sustainability and long term job creation.
3. Reporting shadow economy activity
You can report (or report via your representative body) to Revenue details of shadow economy activity by using our Online Reporting Form. Alternatively, a report may be made by way of a telephone call to your local Revenue office.
Frank McGivney & Co. Ltd Tel 0469293891 email fmcgivney@live.com

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

Brief summary of some tax rates in Ireland in 2012 and 2013

Brief summary of some tax rates in Ireland in 2012 and 2013

(A) Corporation Tax is the taxed charged on the profits of a company. They are calculated on an annual basis on the taxable profits of the business

Trading Profit and foreign dividends derived from trading income are taxed at 12.5%.

Start up Relief: if you start a company and it is not set up to replace a former trade (i.e. you not switching an existing trade to a new company whether sole trade or another company) then  the first 40000 of corporation tax over the first three years is not collectable by the Revenue. This is linked to employers prsi at a limit of 5000 per employee.

Non trading income such as interest, foreign rental income, miscellaneous income and rental income are all taxed at 25%.

If you have investment or estate income and do not distribute it to shareholders by the end of 18 months then any of this income not distributed is subject to a surcharge of 20%

The same is true for a service company at the end of 18 months but at a rate of 15%.

Company chargeable gains are taxed at 25%.

Vat

The Vat rates are

0%

5.2% Farmers flat rate

13.5% reduced rate which for certain industries is 9% until December 2013

23% standard rate

The rate you charge depends on your product or service. There is a list on www.revenue.ie .

Some business such as in the education and medical fields are exempt from vat.

Capital acquisitions tax is charged at 30% on all amounts over the relevant thresholds. If you receive the following amounts from these people then you are exempt from the tax. However the amount is cumulative so if you get 100,000 of your mother in 2010 and 200,000 from your father in 2012 then the 50,000 over the 250,000 limit is taxable

(1)   parent to son or daughter 250,000

(2)   Brother or sister, nephew or niece 33,500

(3)   Cousin or stranger 16,750

Stamp Duty

Stamp duty on transfers or conveyance of land or buildings is at the following rates

(1)   non residential property 2&

(2)   Residential: first 1,000,000 is at 1% and balance is at 2%