Chap 12 Household Insurance & Taxation

Chap 12 Household Insurance & Taxation

1. The type of insurance households need • Product liability • Employers PRSI • Public liability • Property insurance- (premises, land etc) • Motor Insurance- fully comprehensive - third party cover - third party, fire & theft

Other key insurance terms • Fidelity guarantee • Consequential loss insurance • Key person insurance • Whole Life assurance • Endowment life assurance • Exposure unit • Loadings • No claims bonus • Average clause

3. HOW CAN INSUARNCE BE TAKEN OUT? • Contact insurance company? This can be directly by use on formal over the counter discussion, telephone call, or use of the internet. Insurance Brokers may also be used to act independently of insurance company’s and they give unbiased advice on the best insurance to buy.

IIFilling in of a proposal from This is completed by the person seeking insurance. It includes details such as name, age, address, occupation etc. III Assessing the risk & calculating the premium Insurance company’s calculate the risk and premium. Factors that influence the size of the premium include, value of item being insured, the level of risk involved

IV Policy Issued If proposal is accepted • a cover note is issued • Insurance policy set up • Renewal notice sent out • Days of grace allowed

4. How can a business reduce its premiums • Install burglar alarms and secure entrances to business • Install fire alarms & use fireproof materials in buildings • Spread the valuable stock in different location to spread the risk • Setting up of cameras to counteract shoplifting etc • Promotion of health and safety amongst staff on working of machinery

5. What are the principles of insurance(rules of how insurance works) • Insurable Interest • The person being insured must have a financial interest in the item to be insured, the insured must benefit form its existence and suffer from its loss.

2. Utmost good faith The person seeking insurance must provide all the information the insurer needs. The insured must disclose all material facts to enable the insurer to calculate the premium for the risk involved. If the insured person is found to have withheld any information, the insurance firm can treat the contract as void.

3. Indemnity There must be no element of profit to the policy - holder, nor any element of loss. The objective of insurance is to place the insured part in the same financial position after the loss as they were before the loss occurred.

4. Subrogation • Is related to the principle of indemnity. Once full compensation has been paid for a loss, any remaining property whether intact or partly damaged, becomes the property of the insurance company. • Also once the insured person receives their compensation, any rights to sue a third party for damage caused revert to the insurance company.

5. Contribution Seeks to prevent a person making a profit from insurance by insuring an item with more than one insurance company. In such a situation, the compensation will only be paid once. Each of the companies involved contributing to the loss in proportion to the sums insured with them. Example: Person insured with two companies cannot gain two separate full amounts of compensation. They must agree to pay out only to the amount of the loss suffered.

TYPICAL LC style question Discuss the similarities & differences between managing household and business insurance? To answer Def: Insurance 1/2 lines • discuss in point form 4/5 similarities • discuss in point form 4/5 differences

ANSWER:

HOUSEHOLD & BUSINESS TAX • Def: Tax – is a levy charged by the government on individuals and companies to finance government expenditure.

Themain taxes paid by households • The PAYE system Employers deduct the tax automatically from their employee’s wages and pass it on to the revenue commissioners. This system is progressive, so the more you earn, the greater income tax has to be paid.

VAT - Is a tax paid by consumers on certain goods and services. Goods are bought, VAT is paid. The two main VAT rates are 13 % and 21 ½ %. • Excise dutiesare taxes levied on certain types of goods within the state, e.g. alcohol and tobacco • Motor Tax is a tax on all roadworthy vehicles. The amount of tax varies with the size of the vehicle.

Capital gains tax is a tax paid on the profits made by an individual/family from selling an asset, e.g. selling property. • Capital Acquisition Tax (CAT)- CAT is made up of two parts- gift and inheritance tax. • Gift tax is the tax on the value of goods received by a person from another person who is still alive. • Inheritance tax is a tax on the value of an inheritance received by a person from another person who has died. A certain amount of each gift or inheritance is exempt from this tax. The amount of the exemption depends on the closeness of the relationship between the giver & the recipient.

Gift tax is the tax on the value of goods received by a person from another person who is still alive. • Inheritance tax is a tax on the value of an inheritance received by a person from another person who has died. A certain amount of each gift or inheritance is exempt from this tax. The amount of the exemption depends on the closeness of the relationship between the giver & the recipient.

The main taxes paid by businesses • Corporation Tax This is a tax on company’s profits. The govt. has reached an agreement with the European Commission for the introduction of a 12 ½ % corporate rate on trading income since 1st January 2003. This is seen as quite a low percentage but it is necessary to attract foreign investment in this country. • Capital gains tax is a tax paid on the profits made by a company from selling an asset, e.g. selling property.

Customs dutiesare taxes levied on certain types of goods imported into this country. This does not apply to imports from the other EU member states. This only applies to countries outside this free trade area. • Employers’ PRSI– This is a compulsory insurance payment levied on firms for every employee they have. Money goes towards unemployment payments, pensions, maternity benefits.

The PAYE system. This is the system of tax collection used in Ireland. Businesses do not have to pay this tax but they must register as an employer with the revenue commissioners. Employers deduct the tax automatically from their employee’s wages and pass it on to the revenue commissioners. VAT - Is a tax paid by consumers on certain goods and services. When goods/services are bought, VAT is paid. The two main VAT rates are 13 % and 21 ½ %.

The SELF-ASSESSMENT SYSTEM • Applies to all self-employed people (e.g., accountants, carpenters, electricians, painters, taxi drivers). It makes sure that all self-employed people are responsible for the calculation & payment of tax. In October the collector general sends each self employed person a notice of preliminary tax due.

These taxpayers must submit their estimated tax to the revenue commissioners by 31st October. • Preliminary tax is the estimated of how much taxpayers think they owe during the tax year. • A tax audit is a detailed look at the taxpayer’s financial records by the revenue commissioners.

Key Definitions • Direct tax – is a tax on income or wealth. All the taxes such as DIRT, CGT and CAT is examples of these. • Indirect Tax – is any tax on goods and services. An indirect tax is paid when spending money. Examples of this would be VAT, Customs duties, stamp duties.

TYPICAL LC style question Discuss the similarities & differences between managing household and business tax? To answer Def: TAX 1/2 lines • discuss in point form 4/5 similarities • discuss in point form 4/5 differences

HOW THE PAYE SYSTEM OPERATES All new employees to the PAYE system follow the same procedure. • Form P12A • Notice of Tax Credits • Emergency Tax • Tax Credits • P 35 • P 21 (balancing statement) • P 45 (cessation certificate) • P 60

LC 2007 Q5 (A) Distinguish between the following taxation forms: Form P21 and Form P60. (20 marks) (B) From the following information, calculate the net annual take-home pay of Ms. Joan McCormack. Joan McCormack is an employee of Lynch Printers Ltd and earns a gross annual salary of €84,000. She is allowed the following tax credits: Single Person credit of €1,760 and PAYE credit of €1,760. The income tax rates are: 20% on the first €34,000 (standard rate cut-off point) and 41% on the balance. The employee PRSI rate (including the health levy) is: 6% on the first €48,800 and 2% on the balance. (20 marks) (C) Explain the term TQM and describe how it can be of benefit to an organisation. (20 marks) (60 marks)

LC 2007 Q5 SOLUTION Form P21 Form P21 is known as a ‘balancing statement’. All PAYE taxpayers are entitled to request a Form P21 annually from the Inspector of Taxes. It is an end of year summary of an employee’s tax situation and contains all details of income, allowances and the calculations of the tax payable at the various rates for the year. Form P21 will indicate if an employee has overpaid or unpaid tax for the year. If an employee has overpaid tax, the Inspector of Taxes will issue a tax refund. If an employee has underpaid tax, the Inspector of Taxes will issue a tax demand. Form P60 A P60 is issued by an employer to each of his/her employees at the end of each tax year. It is a certificate which shows details of gross pay, and tax and PRSI deductions made during the year. After 31 December each year, all PAYE taxpayers receive from their employers a Form P60 which has two parts. A PAYE taxpayer has a statutory right to this document and it is used as proof of income for various purposes, e.g. education grants.

B) Take home pay £ 56, 588 C) TQM TQM or Total Quality Management is a long-term focused effort to change all parts of an organisation to produce the best products or services for its customers. There are basically three principles to a TQM approach: • Satisfying customer needs • Providing top quality products and services • Teamwork. TQM of benefit to an organisation (describe): • Quality of products • Reduced costs • Staff motivation • Public image • Customer satisfaction • Productivity.

Chap 12 Household Insurance & Taxation