Income Tax first year of business

There seems to be confusion that business's don't pay tax the first year that they are in business. Unfortunately you pay tax every year that you have taxable income, it's just the timing of it that can cause confusion. You put in your tax return for any given year by the following 31 October. Therefore you do put in a return for your first year however isn't sent in until the following October. At this stage you need to pay the first year's tax and preliminary tax for the second year. So you get hit with a double tax therefore I always advice clients to pay income tax on a systematic basis in the first year to avoid a situation where you cant afford to pay all the tax that may be due. Its actually further complicated by a concession by the Revenue Commissioners that you can wait two years to submit the first return. This can be advantageous if your business is in need of a lot of working capital to get to a point of sustainability but it is a risky concession to avail of if you haven't planned for the amount of income tax that will become due in the third year which could amount to 3 years of income tax.

Proposed Light Version of Examinership in Ireland

Proposed Light Version of Examinership in Ireland

In Ireland the Examinership process is a means by which companies can avail of the protection of the High Court for a period in order to explore options to reorganize and restructure in the hope of securing the future viability of the company. As High Court Justice Clarke noted in the Traffic Group Ltd Case (2008) "It is clear that the principal focus of the legislation is to enable in an appropriate case, an enterprise to continue in existence for the benefit of the economy as a whole and, of equal, or indeed greater, importance to enable as many as possible of the jobs which may be at stake in such enterprise to be maintained for the benefit of the community in which the relevant employment is located. It is important both for the court and, indeed, for examiners, to keep in mind that such is the focus of the legislation".

 It is a process unique to Ireland and it allows firms to avail of the stewardship of an independent examiner (usually an accountant) to negotiate and reorganize itself so that it can continue to operate into the future.

At the moment the process is extremely expensive both in terms of the legal costs because of the fact the High Court is the court involved and also because of the costs of the examiner who because he is appointed by the High Court is also under a duty of care and responsibility that can only lead to high costs. Also the highly complicated and detailed work involved makes it costly.

However there are proposals that the proposed new Companies Act will provide provisions for the process to be availed of by smaller companies. The usual criteria of meeting two of the following will likely apply

(1)   Turnover is less than 8.8million per annum

(2)   A balance sheet value of less than 4.4 Million

(3)   Fewer than 50 Employees

This new process will allow applications for examinership of a certain size to go to the Circuit court. Hopefully this will help to reduce the costs involved and to allow more companies to avail of it.

A lot of companies that fail do so because they can not meet their debts as they fall due at a particular point in time. However this liquidity failure does not mean the business couldn’t be made viable by reducing its cost base and intelligent restructuring of its systems and processes.

Hopefully the Minister can recognize this and implement a scheme that will allow for the successful protection of firms and the employment they provide.

By Frank McGivney BA ACMA CGMA 30 July 2013

Thought of the day 20 June 2013

There is of course a silver lining in every cloud and from every person or situation there is a lesson to be learned. Sometimes the silver lining is hard to recognise and sometimes the lesson is hard learned. Also sometimes the lesson to be learned is simply not to listen to the advice of someone in the first place, especially if not experienced or trained in the area that they are talking about.
In the areas of law and taxation people form opinions and have knowledge based on either their own experiences or from the media or google etc. The problem is that every person and every situation is different and you need to know the full extent of the legislation relating to taxation and accountancy in order to be confident that you are correct in your opinions about any matter. Hence the need for accountants and tax advisors.
Often times people come in and tell me that their friend Tom down the road told them (usually at some social function after consuming copious amounts of alcohol) that he earned a huge amount of money last year and paid no tax hardly on it at all. Or they relate stories of a similar nature. The problem is Mr SO and SO is not them. His circumstances are invariably different and also he may not have received good advice in the first place. So the message of the day is to proceed with caution when taking advice you hear and at least check it with your accountant before acting on it (or check with your solicitor as the case may be).
I have a Volvo that I love driving, its big and old and my good wife is allergic to it. But I love driving it and refuse to change it on the basis that it was built for me in mind. However if by some unusual circumstance it breaks down I have this policy of bringing it to a mechanic to be fixed instead of the next door neighbour. Whom by the way has a keen interest in automobiles and has acquired what could only be referred to as a substantial amount of tools which he proudly displays in his garage.
I presume they are related to the repair of cars and vans as I personally have no ideawhatsoever of their function. The same Ipropose should be your feelings in relation to your financial affairs. If you want tax advice ring an accountant and preferably me or Niamh on 0469283891

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

Observations from a tax seminar

I was at a tax seminar yesterday and I was talking to an older accountant at it. We were discussing the secure email arrangement that the revenue have where you can address technical issues and he was saying that it was great because you could depend then on what they emailed back to you. But I made the point that it was good but only to the extent that you agreed fully with what they said. If after due diligence researching their point of view I had a different interpretation of tax law or I had what I felt was a valid basis to dispute their opinion or decisions then  I could still use the appeals procedure etc to try and get the best outcome for a client. The look he gave me was nothing short of disgust.
Anyway it goes to show the difference between accountants willing to settle on behalf of their clients and those willing to go the extra mile to get the up most best for clients.
There was several interesting tax planning arrangements which in the main apply to high value individuals willing to go abroad for prolonged periods of time. Which is I feel a reflection of how tight the Finance acts are now.
 However one very interesting point came to light about appealing the asset values assigned to inherited assets received during in the height of the boom period in relation to Capital Acquisitions tax (gift and inheritance)
If anyone has a Inheritance or gift liability based on property or assets inherited or gifted during the boom when asset values were high then give me a ring and I have what I feel is a very strong approach that can be taken to get it reduced significantly. page contents

Very good Article from Chartered Global Management Accountants Magazine about the world economy

Finding your pace in the three-speed world economy 

By Sabine Vollmer 

April 22 2013

The slow recovery in the US and the euro-zone crisis dampened economic growth worldwide last year and prompted the International Monetary Fund to lower its global economic growth projections for 2013. Europe’s economy is expected to contract yet again this year, but the US and particularly economies in Asia, sub-Saharan Africa and Latin America are beginning to see higher growth, the IMF projected in its spring 2013 world economic outlook.
The IMF estimated that the global economy will expand by 3.3% this year, revised down from a 3.6% estimate six months ago. The revised expansion is expected to be driven largely by an accelerated growth in emerging market and developing economies. Supported by resilient domestic consumption and functioning labour markets, this expansion in global output is projected to steadily rise to 4% and 5.7% in emerging market and developing economies in 2014.
IMF Managing Director Christine Lagarde (at left) has said the three-speed recovery isn’t good enough for an increasingly interconnected global economy and urged policymakers worldwide to take customised action that would allow the global economy a “full-speed recovery”.
The euro zone must press ahead with its banking union, Lagarde said. In the US, leaders need to fix the pace of fiscal adjustment. And fast-growing emerging markets need to strengthen financial regulation and invest in infrastructure.
With inflation largely under control thanks to lower food and energy prices, “emerging market economies are doing well,” the IMF outlook stated. “The main macroeconomic challenge in emerging market and developing economies is to recalibrate policy settings to avoid overstimulation and rebuild macroeconomic policy buffers.”
Risks that could derail the accelerated growth and affect world output include rapid credit growth, such as in China’s shadow banking system, an unexpected slowdown in key emerging markets or investment cutbacks, especially in Brazil, Russia, India, China and South Africa, a group also known as the BRICS.
Asia. Projections suggest the region is starting to recover after economic growth dipped to 6.6% in 2012 from 8.1% in 2011. Asia’s GDP growth is projected to reach 7.1% in 2013 and 7.3% in 2014.
Robust domestic consumption and investment and increased external demand, especially as the US economy improves, are projected to boost economic growth in China to 8% this year and 8.2% in 2014.   A remaining risk that is attracting more attention is China’s shadow banking system. Unregulated lenders are responsible for about half of the nation’s borrowing.
The purchase power of a growing class of consumers, a better monsoon season and a switch to pro-growth policies, including proposed reforms to clarify tax laws and stabilise the tax regime, are expected to raise GDP growth in India to 5.7% in 2013 and 6.2% in 2014. Economic growth dropped to 4% in 2012 from 7.7% the previous year.
Structural challenges, such as supply and labour bottlenecks, and an elevated inflation will keep India’s GDP growth from accelerating faster.
The group of ASEAN-5 countries (Indonesia, Thailand, Malaysia, the Philippines and Vietnam) is projected to see economic growth of 5.9% in 2013 and 5.5% in 2014. Indonesia leads the group, followed by the Philippines.
Latin America and the Caribbean. Strong domestic demand – supported by easy financing conditions and high commodity prices – is projected to help raise GDP growth in the region to 3.4% in 2013 and 3.9% in 2014. In the past two years, economic growth dropped to 3% from 4.6% in 2011.
Brazil’s economy, especially, is expected to do better. Economic growth in Brazil slowed to less than 1% last year, but new policies targeted at boosting private investment should start taking effect this year.
Mexico and most other Central American economies are projected to expand in line with potential, or about 3.5% to 4.5%.
Africa. Exports and domestic consumption and investment contributed to 4.8% economic growth in sub-Saharan Africa last year, down slightly from 5.3% in 2011 due partly to civil conflict in Mali and Guinea-Bissau and the interruption of oil exports from South Sudan. Growth projections for the region are 5.6% in 2013 and 6.1% in 2014.
Investments in infrastructure and production are expected to help boost economic growth in Nigeria to 7.2% this year and 7% in 2014, up from 6.3% in 2012.
Increased oil production is helping the Angolan economy expand a projected 6.2% in 2013 and 7.3% in 2014. Cote d’Ivoire’s economy is rebounding following election-related disruptions two years ago and expected to grow 8% per year in 2013 and 2014.
South Africa, which saw labour stoppages last year, is projected to generate economic growth of 2.8% in 2013 and 3.3% in 2014. That’s up from 2.5% in 2012.
Central and eastern Europe and Russia. The euro-zone crisis spilled over into emerging economies in central and eastern European such as Romania, Bulgaria, Serbia, Hungary and Turkey. But economic growth in emerging Europe is projected to reach 2.2% in 2013 and 2.8% in 2014, up from 1.6% in 2012.  Growth in Turkey is expected to accelerate, to 3.4% in 2013 and 3.7% in 2014.
Oil and gas exports are projected to help Russia’s economy generate about 3.5% of growth annually in 2013 and 2014, about the same as in 2012. Energy exports are also expected to boost economic growth above 5% per year in Turkmenistan, Uzbekistan, Azerbaijan and Kazakhstan.
Middle East and North Africa. Political instability has affected several countries in the region, particularly oil importers such as Egypt, Sudan, Jordan, Syria and Lebanon. But several of the oil exporting countries are seeing robust economic growth despite a scaling back of oil production. Qatar is projected to generate GDP growth of 5.2% in 2013 and 5% in 2014. Saudi Arabia’s economy is projected to expand 4.4% in 2013 and 4.2% in 2014.
The entire region is projected to see economic growth of 3.1% in 2013 and 3.7% in 2014, down from 4.8% in 2012.
Related CGMA Magazine content
“Top Five Emerging Markets Capture Foreign Investors’ Attention”: Western Europe and North America are still attractive to foreign investors, but not as attractive as the top five emerging market hot spots. Even lesser-known emerging economies are gaining ground.
“How Corporate Expansion Strategies Can Target Emerging-Growth Powerhouses”: Rather than zeroing in on specific countries as they devise a strategy, companies should focus on cities – in particular the 440 cities in emerging markets projected to grow at double the global economic growth rate by 2025.
“Rapid-Growth Markets Hit a Temporary Lull”: Rising domestic demand will help reverse the slowdown in rapid-growth countries, an Ernst & Young projection suggests. To tap this emerging demand, companies will have to pay attention to the different challenges and opportunities shaping up in specific national and regional markets.
“Emerging Markets Prove Resilient During Global Economic Uncertainties”: The Chinese economic boom is weakening, tensions remain high in the Middle East and inflationary pressures weigh on India, but as a group emerging economies are expected to grow. That growth is likely to change trade patterns and expand middle-class populations.
—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.

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.