Elizabeth Moles

The Concept of Residence and Domicile

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Article re-produced with the kind permission of Taxworld. (www.taxworld.ie)

In relation to income tax, the concept of residence can be important. If you are not resident, you may not be liable to tax!!

Resident individuals

If you are resident and domiciled in the Republic of Ireland (ROI), you are liable to Irish income tax on your total income from all sources, i.e., your worldwide income.
You are regarded as ROI resident if you have spent:
(a) 183 days or more in ROI, in a tax year, or
(b) an aggregate of 280 days in ROI, in the current and preceding tax year.

Presence of not more than 30 days in a tax year is ignored for the purposes of the 280 day test (s 819). You are present for a day if you are present at any time during the day.

You are regarded as ordinarily resident in the ROI for a tax year if you were resident in each of the three immediately preceding tax years. You cease to be ordinarily resident when you have become non-resident for the three immediately preceding tax years (s 820).

Non-domiciled individuals

If you are resident but non-ROI-domiciled (for example, a foreign national living in Ireland), you are only taxed on foreign income to the extent that it is remitted to Ireland (s 71). This “remittance basis” extends to UK source income (since 1 January 2008).

Non-Irish-resident individuals

If you are non-Irish-resident, you are taxed on Irish source income, i.e., income arising in the ROI. If you are non-Irish-resident but ordinarily resident in the ROI, you are liable to Irish tax on foreign investment income in excess of €3,810 in the tax year. You are not liable in respect of income from an employment or trade carried on abroad (s 821).

If you are a resident of a country that has a tax treaty with the ROI, you may be exempt, or due a credit, in relation to tax on Irish source income if that income is also taxed in the treaty country (see Double Taxation).
If you are an Irish citizen and Irish domiciled, but resident abroad, you may be liable to the domicile levy (€200,000 per annum) if:
(a) your world-wide income exceeds €1m,
(b) your Irish located property is worth more than €5m, and
(c) your Irish income tax liability is lower than €200,000.

Employing family members in your business

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You’ll probably find that your spouse is nearly always involved in some shape or form in the running of your business so there should be no difficulty in justifying a salary payment for income tax purposes. For PRSI purposes a person who is directly employed by their spouse is not considered to be in insurable employment so no Employers PRSI payments are due. By putting these salary payments through as expenses on your business, this can help reduce the overall tax due on the business profits and at the same time retaining the same income with less tax payable within the family.

Employing your spouse in your business would give them an income, which of course is taxable. However, a spouse can earn income up to €23,800 and only pay tax thereon at the 20% tax rate. If you pay Income Tax/PRSI/USC at the top rates this will yield an annual tax saving of approximately €5,500 for the year.

Some businesses lend themselves better than others to employing young children of the owner in carrying out genuine work for the business e.g. small supermarket stacking shelves, shops etc. In other cases it is not unusual to find that children are more technologically advanced than their parents and will often provide assistance to parents who work from home in dealing with computers, emails, typing etc!

Once a child performs a genuine task for the business and is paid a normal salary then that salary cost qualifies as a normal tax deductible expense for the parents business. No PRSI charges are due if the child is under 16 years of age or if over 16 carries out the work at home where the business is carried on. The childs salary will be liable for the USC charge but at the lower rates.

Most of us pay our children pocket-money in some shape or other, so just think – you can now get value for this money. Also if the children are working alongside you, then you are able to keep an eye on them while getting on with your business!

A WIN-WIN situation all round!!

Preparing your books for your Accountant

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Small Business

The more work you can do before handing your books over to your accountant, the less donkey work they have to before getting down to the important work of saving you money on
your taxes:

  • If your accountant is doing your monthly book-keeping you should try to make sure you are handing them over records that are well organised
  • Ask them to give you a checklist of all the records they will need each month – that way you know what is expected of you
    • Have all your bank statements together in order
    • List out all cheque payments and make sure all lodgements into your business account are easily identified – REMEMBER – the person preparing your accounts can’t read your mind.
    • Make sure you have all your supplier invoices and receipts as orderly as possible – if you can get your suppliers to give you regular statements even better
    • Have clear records of your sales. If your sales are mostly cash-sales your records will need to be impecable. If your sales are credit sales, you should supply all your sales invoices and details of payments received.
  • If you are doing your monthly book-keeping yourself and just handing over your accounts at the end of the year, then how you keep your records is really up to you
  • Your record keeping will depend on a number of considerations:
    • How methodical you are at keeping your book-keeping up to date
    • How complicated your business transactions are
    • If your business is a straight forward cash in / cash out (or as most businesses … Cash out / Cash out); then spreadsheet records are enough.
    • Whether you can afford to buy accounting software to help keep your purchases and sales records
    • Do some research to find the best software to suit your time and abilities –some are designed especially for small business owners with limited time.

Appointing your Accountant

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  • Don’t choose based on price alone – there won’t be a huge difference between firms charge rates these days
  • A lot of firms now have set-fee pricing structures – this way you know exactly how much you are going to pay for the job – they also quite often allow clients to pay the bills on a monthly basis making your cashflow easier to keep on top of
  • Look for referrals from fellow businesspeople you trust – if they are happy with their accountant, chances are you will be too. Their opinion will save you lots of legwork
  • Meet a few different accountants and choose the accountant you feel comfortable with, someone who speaks to you in a language you can understand without making you feel like a fool
  • If you feel they have your interests at heart, you’ll be onto a winner

How You Can Avoid Costly Unfair Dismissal Cases in Your Business

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Unfair Dismissal

A successful unfair dismissal case against a business can cost the employer up to two years’ remuneration in compensation.

A successful equality case can have a compensation award made against an employer for up to two years’ salary and, in certain gender discrimination cases – particularly involving maternity issues – awards have also tended to be quite high.

Review Your Contracts

When providing an employee with a written contract, make sure that, in addition to salary and the usual package items, it includes a grievance procedure and a disciplinary process that fit your business. Don’t just copy a standard contract from the internet thinking the disciplinary process looks good, but it may not be appropriate. You must follow your own procedures and policy to the letter.

Employment Tribunals and Equality Tribunals are often more focused on the process the employer has in place to deal with disciplinary matters and whether that process was followed by the employer. A surprisingly low amount of emphasis is often placed on any employee wrongdoing.

It’s important to note that many employers lose unfair dismissals cases not because the employee’s conduct did not merit dismissal but because the employer did not have in place, or did not follow, a proper process in dealing with the matter.

Don’t Act in the Heat of the Moment

As an employer, you should never fire a person in the heat of the moment. Take time away from the incident and calm yourself before taking any further action. Always call your legal or employment law adviser first. Even where the misconduct at issue may be obvious, there will almost always be a need to investigate the matter before taking further disciplinary action.
The employee in question has the right to know the case against him or her, the right to reply to the allegations, the right of due consideration, the right to representation by a colleague, and the right to an appeal against the decision. The employer should set out the allegations clearly and in writing at the beginning of the process and carefully document each stage of the process.

Know Your Notice Periods

To avail of the protections afforded by the unfair dismissal legislation, an employee generally needs 12 months’ service but this includes their notice period. Therefore, as an employer, don’t leave an evaluation of the employee’s suitability for the role until month 11 as, with one month’s notice, employees may then have their 12 months and the protection of the legislation. An employee does not need any minimum period of service to bring an equality claim. There have been cases of companies sued for discrimination in their interview process and an award being made against them in respect of a person who was never even engaged as an employee.

Protect Your Business

If your client lists and intellectual property are important to your business, get your legal team or HR consultant to help you get appropriate restrictive covenants drafted into the employment contract so that when your employee leaves, part of the value of your business does not leave with them.

SCAM ALERT

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There is a spam email doing the rounds allegedly from the “Irish Tax Authorities” telling the recipient that they have a small refund and they need to click into the link to claim it.Image courtesy of Stuart Miles at FreeDigitalPhotos.net

You will be able to identify its a scam by the following:

  • No PPS number included
  • No harp on the email
  • The Irish tax authorities are “Revenue Commissioners” and never refer to themselves as the Irish Tax Authorities
  • The email says that Revenue have calculated your refund – Revenue NEVER calculate your taxes

It might sound obvious to some that it is a scam, but if for example you were expecting a small refund from the Revenue, it could appear to be legitimate.

Be very careful with any such correspondence and if in doubt, double check either with your accountant or Revenue if you receive any emails you’re not sure of.