We’ll have a look at some of the Revenue Focus Areas for 2024. Some of the usuals continue to appear and it doesn’t take a genius to know why. There are a few new target areas too. You may know some of these. Revenue have so much information on us that they could do a pretty accurate tax return for most of us! Let’s take a closer look at
- Rental Sector
- Company Director and company
- Share options
- Corporation Tax
- Other
Rental Sector
The rental sector is always a focus area for Revenue. I’ve been working in tax since 1996. It was a focus area back then too. Why is that? Because Revenue know
- How many properties you have
- The rent you are getting, in most cases
- Properties you buy and sell
- LPT you pay and tenancies you register
The main issues are
- No tax returns
- Under declaring income
- Over declaring expenses
- Poor records – round sum income and expenses
- Claiming things you can’t claim
No Tax Returns
If you have an Irish property you need to do a tax return here. Even if you are non-resident. We had a few non-resident cases earlier this year. In two instances there were no tax returns filed. These two are living in the UK and returning the income in their UK returns. Both wanted to sell their Irish properties for different reasons
One wanted to avail of the 4/7 year CGT exemption. To get that relief the income from the property must be subject to Irish Tax. The other couldn’t sell the property as the LPT wasn’t up to date. It would be typical for non-residents to have a letting agent here. The letting agent submits an annual return to Revenue on Form 8-3. If you are a bit bored someday, take a look at that form and the amount of information Revenue get.
Income & Expenses
Think of it. Paul is up to his tonsils at work and Fred the accountant is onto him to send in his tax stuff. It’s the 14th of November and the pressure is on. Paul writes down the numbers in an e-mail.
| Rental income | €20,000 |
| Interest | €5,000 |
| Repairs | €4,000 |
| Insurance | €500 |
| Profit | €10,500 |
Fred looks at the numbers and wishes he became a postman. What’s wrong? All round sum numbers. Any backup for those numbers Paul? Oh, I have them in the back of the van somewhere. I’ll root them out later. Later never comes and Fred, or some person from Fred’s office, calls and e-mails Paul looking for the backup. They get some of it but not it all and there’s a choice then.
Does Fred submit the round-sum numbers that Paul gave him, or does he submit figures that they have the backup for? That choice is Pauls and not Freds. Paul decides his numbers are not far off and signs the tax return. Roll on 4 weeks and a letter comes from Revenue looking for the backup for repairs. “Oh, I gave that fella €2500 for cash. It’s hard to get lads you know”.
You can see where this ends. More tax to pay, plus a penalty and even interest. And sure, let’s have a look at your prior tax returns while we are at it!
You can’t claim
Local property tax payments. Mileage and subsistence, in most cases. Expenses you incur before you first let the property. But there are exceptions. You can’t claim for mortgage repayments, but you can claim the mortgage interest. Provided you register the tenancy with the RTB.
You shouldn’t claim expenses that you don’t have backup for, and this is where a lot of people fall down. Backup would be an invoice, a delivery docket, or proof of payment like a bank statement or a credit card. The onus is on you, the taxpayer, to keep proper books and records.
Company Director & Company
The interaction between the company director & the company is of interest to Revenue. Specific areas would include
- Wages to directors and family
- Expense payments
- Director’s loans
- BIK on cars, vans, medical insurance, and other benefits
- Dividends
Wages
Wages, salary, bonus, or whatever you want to call it. Is the family member genuinely working in the business? If so, is the salary normal for the type of work they are doing? Are they on €100 an hour for washing dishes whereas another person would get €13 an hour, or less depending on age? Revenue have won some tax cases in this area which will embolden them to go after non-genuine cases.
Expense payments
I wrote about the new Enhanced Reporting Requirements[ERR] last week. I can tell you now that Revenue expect to make money off of this. It’s in their budgets for 2024. This will happen on the 1st of January as the Minister signed it into law yesterday. And lads, this is only phase 1.
When paying expenses to yourself from your company two things have to be right.
- Are you correctly claiming the expenses in line with Revenue guidance and
- Do you have the right paperwork signed off to support the claim
If you don’t, you’ll be writing a cheque to the Collector General!
Director’s Loans
This is where you owe money to your company. The two main tax issues here are paying Income Tax to Revenue and BIK on the loan.
| Directors Loan | €10,000 |
| Gross up at 20% [/8*10] | €12,500 |
| Income Tax 20% | €2,500 |
If you don’t repay the loan by the tax return filing date for the company the company pays the Income Tax. When you repay the loan, the company can get the tax back.
Benefit in Kind [BIK] would also apply to the loan. The rate is 4% if you use the money to buy your home. In all other cases, the rate is 13.5%.
BIK Car or Van
BIK applies to the original market value of the car or van and not to the price the company bought it for. While a vehicle might be taxed as commercial it doesn’t mean it’s not a car for BIK purposes. If it has seats in the back, it’s a car and the higher BIK rates apply. Revenue won a recent tax appeals case where a Land Rover was liable for the higher BIK rate as a car.
There can be no BIK on a van provided the company prohibits personal use. If a director or employee is using it for any personal use, then 8% of the original market value is the BIK amount. This is liable to Income Tax, PRSI, and USC.
Dividends
Again, the paperwork needs to be there and right. These include the various dividend withholding tax returns and payments. Plus, the exemption forms if you are paying to a non-resident company or individual. Dividends are a way for the company to avoid paying a close company or professional services surcharge. Your company pays the dividend to you. As a follow up you include that dividend income in your Income Tax return.
Likewise, if paying a dividend to a holding company, there are certain elections to make. This depends on how you want to treat the dividend in the top company.
Share Options
If you got share options and didn’t declare them, you need to sort that. Revenue have your information and will be in touch if they haven’t been already. This is shooting fish in a barrel for them. Your employer has returned the details to Revenue in an annual return with your name and PPS number. Your role is to pay the Tax, USC, and PRSI within 30 days of exercising the options. The form is an RTSO1.
Plus, for 2023 and prior years you must file a tax return Form 11. You are a chargeable person if you exercise share options. Thankfully, for 2024 and onwards, the taxes will fall under the PAYE system. That puts an end to paying the taxes within 30 days and having to file a tax return. Lucky them will get the taxes straight away from your pay!
Corporation Tax
There are so many things you wonder if there’s any area that’s not under scrutiny. Areas to watch out for are
- Cash extraction schemes
- Share buyback
- Close company surcharges
Cash extraction scheme
A typical cash extraction scheme would be a trade and employee transfer to a new company. You appoint a liquidator to the old company and extract the cash. The payments from the liquidator are liable to Capital Gains Tax. Unless the scheme falls foul of anti-avoidance rules. These rules can kick in if the same owners carry on the same business in the new company.
In that case, Revenue will look to apply Income Tax to the payments you got from the liquidator. Nasty and expensive. The scheme may not fall on its sword if there are bona-fide commercial reasons for the transaction.
Share Buyback
A share buyback is where a company purchases shares off a Director and cancels them. This can be to exit the company. As a result, the remaining shareholders increase their stake in the company. It would be typical for the company to pay the shareholder for the shares sold. These payments are liable to income tax.
However, the payment can be liable to CGT if the purpose of the payment is to benefit the trade. There are lots of rules about what benefits the trade so Revenue will be scrutinising the rules. The details of the transaction will be on the CT1. Plus, they will be on the CGT section of the Income Tax return of the shareholder.
Other
Other Revenue focus areas for 2024 are
- Social media influencers. The value of gifts is income.
- Airbnb income. They report income of over €3,810 to Revenue.
- CGT losses. Evidence.
- Subcontractor v employee. A recent “Domino’s Pizza” Supreme Court decision was a big win for Revenue.
- VAT refund claims. Postponed accounting not operating correctly.
- Shadow economy. Focus on the outdoor economy, street traders, etc.
It pays to be tax compliant as the Revenue sources of information are never-ending.
Want to make sure you and your company are looked after? If so, Start here
