Finance (No.2) Bill, 2011

The Irish Government published Finance (No.2) Bill on 19 May. The main purpose of the Bill is to legislate for the tax changes made in the Government’s jobs initiative.

 

VAT

The Bill provides for a second reduced rate of VAT of 9%. The 9% rate will be temporary running from 1 July 2011 to 31 December 2013. Unlike the last time we had a rate change this one won’t happen in the middle of a VAT period (unless you qualify for the 4 monthly returns).

The reduced rate will apply mainly to restaurant and catering services, hotel and holiday accommodation, admissions to cinemas, theatres, certain musical performances, museums and art gallery exhibitions, fairground or amusement park services, the use of sporting facilities, hairdressing services, printed matter such as brochures, maps, programmes, leaflets, catalogues, magazines and newspapers.

While the 9% rate is to be welcomed if it can boost the targeted sector (tourist related activities) I have reservations about introducing another rate. It increases the complexity of the VAT system which could result in errors and consequently increased compliance costs. There is also the question of whether the cut will be passed on to the consumer. I heard a representative of the hairdressing sector suggest that it may not be passed on as businesses have experienced increased costs in recent years.

Pension fund levy

The proposed levy on pension funds received wide media coverage. The levy is being introduced by way of amendment to the Stamp Duties Consolidation Act, 2003. The levy will be charged twice a year at a rate of 0.3% of the market value of the scheme’s assets at 1 January each year. Where the scheme prepares financial statements the levy will be charged at the value of the scheme’s assets as reported in the financial statements. One of the criticisms aimed at the new levy was valuation date applicable in 2011. It was initially suggested that the valuation date would be 1 January 2011. However, some commentators claimed this was unfair where a person had retired after 1 January. This would mean that the levy may have been charged on assets the valuation of which had been significantly reduced between the valuation date and the due date for paying the levy. The Government seems to have tried to address this concern by providing for a valuation date for 2011 of 19 May 2011. This initial valuation date does not apply to schemes that prepare financial statements so is therefore quite limited in its scope.

The levy is payable twice a year: 25 March and 25 October. The first payment for 2011 will be due on 25 July 2011. There will be a penalty of €380 per day for each day the duty remains unpaid.

It seems there is some scope for tax planning with the timing of taking retirement benefits.

The levy is temporary and will be in place until 2014. The income levy was also intended to be temporary.

Air travel tax

The Bill provides for the removal of the air travel tax on departures. The section will be subject to a commencement order from the Minister for Finance.

Research & development

Companies undertaking certain research and development activities can claim an additional credit against corporation tax liabilities. Where a company cannot use its tax credit it has the option of receiving a cash payment from Revenue to the value of the unutilised amount. This payment is limited to “payroll liabilities” of the current year. The Bill amends the definition to include the income levy, parking levy and universal social charge. It also extends the amount repayable to include the current and previous years’ payroll liabilities.

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