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Finance Act 2011

Finance Act 2011. Summary of Measures Introduced. Some of the Basics. Standard Rate Bands reduced by 10% Basic tax credits reduced by 10% Age exemption limits reduced by 10% No changes in actual rates of income tax No changes in actual PRSI rates However, employee ceiling abolished.

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Finance Act 2011

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  1. Finance Act 2011 Summary of Measures Introduced

  2. Some of the Basics • Standard Rate Bands reduced by 10% • Basic tax credits reduced by 10% • Age exemption limits reduced by 10% • No changes in actual rates of income tax • No changes in actual PRSI rates • However, employee ceiling abolished

  3. Universal Social Charge • Income Levy abolished along with Health Levy • Both replaced by Universal Social Charge • Similar but not identical to Income Levy • First €10,036 @ 2% • Next €5,980 @ 4% • Balance @ 7% • New 10% rate for incomes over €100,000 (*)

  4. Universal Social Charge • Applies to: • Gross income including exempt income • Does not apply to social welfare and similar payments • Does not apply to DIRT income, CU dividends and certain other investment income • Calculated after Losses/Cap. All. for Case I/II

  5. Universal Social Charge • Calculated on Case I/II after Capital Allowances • Calculated on Case V before Capital Allowances • Does not apply to Deposit Interest • Does not apply to Tax Free Termination • Does apply to most tax free income (e.g. artist, woodland etc)

  6. Universal Social Charge • No exemption for medical card holders, but reduced rates apply, viz. • Extra rate of 3% applied on incomes over €100,000 – this does not apply to emoluments • Proprietary director is better than sole trader

  7. Universal Social Charge • Paid under self assessment, if using 2010 tax liability for calculating 2011 prelim tax, must be assumed that USC in force in 2010 • Deducted under PAYE • Revenue say that other employment cannot be ignored where more than 1 employment • 3% extra rate does not apply to employment • Overpayment can be recovered • Q&A on revenue.ie for more details

  8. BIK Changes • BIK exemption for payment of professional subs no longer applies • However, Tax Instruction 5.2.9 still applies • Therefore, employer must operate BIK on payment of sub • Employee can get tax relief for sub • Tax credit for Trade Union subs abolished • BIK childcare exemption also removed

  9. Termination Payments • Lifetime Limit of €200,000 introduced • Payments on account of death or disability not subject to cap. • Top slicing still in place • Pre termination bonus for long serving employees may no longer be attractive

  10. Other Items Abolished • Tax free status of patent income both for income itself and dividends from such income • Lifetime limit of €6,350 for subscription for shares in employer • Exemption in relation to approved share options

  11. Interest as a Charge - Individuals • Abolished for new loans or replacement loans effected from 7 December 2010 • Phasing out of relief for interest on existing loans: • 2011 – 75% of interest incurred allowed • 2012 – 50% of interest incurred allowed • 2013 – 25% of interest incurred allowed • 2014 - Abolished

  12. More bad news…. • Relief for 3rd level fees – no relief on first €2k of fees for fulltime or €1k fees for part-time • Phasing out of rental tax credit • Artists exemption limited to €40,000 p.a. • Filing deadline for non self assessed now at 30 September

  13. Relief for Energy Efficiency • Relief at standard rate • Applies to occupied residences only • Installer must have C2/tax clearance • Limit of €10k/€15k for single/married • Does not apply to commercial premises • Landlords (except rent a room landlords) cannot claim credit

  14. Restriction of Property Based Allowances • Subject to commencement order • Economic assessment • If implemented will be effective in year of implementation

  15. Pensions • Maximum amount of Income on which pension can be based is €115,000 • This is effective from 1.1.11 for both 2010 and 2011 • Maximum tax free lump sum on retirement is €200,000 • Next €375,000 taxed at 20%

  16. Pension • Maximum capital value of pension at retirement set at €2.3m (20 x €115,000) • For people starting out on pension they have little chance of achieving this amount • No changes to contribution amounts from company • EE PRSI relief no longer available on direct contributions; ER PRSI relief halved

  17. Pensions • At retirement excess over Standard Fund Threshold liable to tax at 41%, with withdrawals also being liable to tax • Difficult to project forward • Defined benefit pensions capitalised at 20x • For clients whose funds already in excess of €2.3m, they can mark this higher level before 7 June 2011

  18. Pensions • Annuity model can be avoided if guaranteed income > c.€18.5k • AMRF can be converted to ARF once threshold exceeded • Difficulty with early retirement • 3% imputed distribution now increase to 5% - will pension last retirement? • 5% does not apply to PRSA

  19. False Claims/Refund • Incorrect claims for allowances, credits etc now liable to penalty of €3k • Penalty applies to agents who “knowingly or carelessly” assist in such claims • Where refund is made to agent/other person, Revenue can now seek repayment of that refund from agent/other person if found to be paid in error

  20. RCT Changes • Not yet implemented • 3 new bands for RCT • 0% - effectively C2 card holder • 20% - substantially compliant in last three years • 35% - default position, non registered, poor compliance, deductions not sufficient to discharge liabilities

  21. RCT Changes – How will it work • ROS will be an integral feature • New contract details must be filed on-line • Before payment made, notification of intention to pay must be filed with Revenue • Revenue issue deduction authorisation (0%,20%,35%) • Cannot operate another rate when paying subcontractor (to avoid fraud)

  22. RCT Changes – How will it work • Pay and file of returns • Surcharge for late filing • RCT deducted no longer be refunded during year • Refund released once notice of assessment issues • Revenue can still withhold if not satisfied • Regulations awaited

  23. Employment & Investment Incentive Scheme (EISS) • Will replace current BES • Subject to EU approval and commencement order • Much more widespread, exclusions relate to trade (not defined), businesses in taxed based properties, dealing and development and financial services, professional services companies • Approval process set to become more straightforward

  24. EISS • Relief granted at 30%, not 41% • Extra 11% will be granted to investor after 3 years if company has increased employment numbers or R&D spend • Holding period reduced from 5 years to 3 years • Amount that can be raised is €10m from €2m • Amount that can be raised in any 12 month period is €2.5m from €1.5m • Maximum relief is €150,000 p.a. – high earners

  25. Corporation Tax • Some changes to start up companies • Currently no tax if CT liability is less than €40,000 p.a. for first three years and reduced tax for liabilities between €40,000 to €60,000 • Extended to 2011 • Existing/connected trades excluded • Ceiling of €5,000 ER PRSI per employee – but you don’t exclude ER PRSI of non qualifying

  26. Interest on Loans - Companies • New restrictions introduced for intra group acquisition of assets • Some tightening up of rules regarding directorships etc • For most cases, rules remain the same

  27. CAT Thresholds • Group A - €332,084 • Group B - €33,208 • Group C - €16,604 • CAT at 25% • Pay and File Dates now 30 September

  28. Stamp Duty • Stamp duty reliefs for residential property abolished • Transfer of site to child – gone • First time buyers relief – gone • Consanguinity relief – gone for residential element only • New rates – consideration less than €1m – 1% • Consideration in excess of €1m – 2%

  29. VAT • No significant change • Reverse charge procedure implemented for scrap metal industry

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