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DoesYour Company Qualify for a Tax Credit?

IntroductIon

    Since its introduction in 2004, the research and development (“R&D”) tax credit has been improved and extended. Since 2009, cash refunds of unused R&D credits can be claimed. Finance Act 2012 has further improvements, including rewarding some staff by transferring R&D credits to them to claim income tax relief. A recent survey suggests fewer than 20% of Irish companies have made claims, so many companies must be missing out on this valuable relief. As defined, R&D is much broader than many realise, and covers far more than white- coated technicians in labs. Consider its potential application to your company, particularly if a cash refund is possible.

Expenditure that qualifies

    Certain criteria must be met to be “qualifying activities” for the R&D credit, including the areas of science and technology where work was carried out. In some areas, R&D activity is obvious (e.g. pharmaceuticals) but software development, engineering, food production, health and agriculture are other areas where relief may be available. Companies often underestimate the categories of qualifying R&D expenditure. In addition to direct R&D costs, indirect expenses (support staff wages, rent, and many others) can be included by reasonable apportionment.

General overview

    If it meets the conditions, a company can claim a corporation tax credit equal to 25% of its “incremental” expenditure on qualifying R&D activities over the “base year” spending level. The R&D credit is in addition to the “normal” 12.5% deduction. The incremental qualifying expenditure may be capital (a new building or machine) or revenue (salaries, materials) in nature, with direct and indirect expenditure qualifying. Grant-aided expenditure does not qualify. The activities need not be carried out in Ireland. Though aimed mainly at in-house R&D activity, sub-contracted work can qualify, subject to monetary limits.

Method of claiming credit

    The claim is included in the corporation tax return, Form CT1. While no supporting documentation is needed on making a claim, it should be in place as Revenue often audit R&D claims, particularly where cash refunds of unused R&D credits arise.

Time limit for claims

    Claims must be made within one year of the end of the accounting period in which the R&D expenditure was incurred. Any R&D tax credit not claimed by then is lost.

Upcoming Tax Filing Dates

The following is a summary of upcoming pay and file dates:

    Income Tax

      Filing date of 2011 return of income (self-assessed individuals)31 October 2012

    Pay preliminary income tax for 2012 (self-assessed individuals) 31 October 2012

On-Line pay and file date for 2011 return of income 15 November 2012

    Capital Gains Tax

Payment of Capital Gains Tax for the disposal of assets made from 01 January 2012 to 30 November 2012 15 December 2012

    Corporation Tax

      Filing date for Corporation Tax returns for accounting periods ending in December 2011 21 September 2012

    Payment of Corporation Tax balance for accounting periods ending in December 2011 21 September 2012

If you require any assistance in meeting these deadlines, contact Anthony Casey to discuss your requirements.

Extension of Mandatory Online Filing

From 1 June 2012 the following categories of tax payers are obliged to file their returns electronically:
• All VAT registered tax payers • Self assessed individuals claiming certain income tax exemptions (Artists Exemption, Woodlands Exemption etc) • Self assessed individuals claiming certain income retirement reliefs (RAC payments, Relief for PRSA contributions etc) • Self assessed individuals claiming certain income tax reliefs (BES relief, EII relief, Seed Capital relief , Film relief etc)
Where a taxpayer is obliged to file and pay on ROS, the penalty for failing to do so is €1,520 each time a taxpayer fails either to pay or file on-line. Where there is a genuine difficulty with filing and paying on-line, taxpayers may on application to Revenue be excluded from electronic filing.
TAX TIP: If you think you may be in a tax refund in respect of 2011, why not send in your return early and obtain your refund now!!!

Repayment of Taxes

Finance Act 2012 included an update on the rules surrounding the repayment of taxes outside a four year period. Previously claims for repayments of taxes outside a four year period, while not refundable by Revenue, would be available for offset against other tax liabilities. However Finance Act 2012 states that where a claim is lodged outside of the relevant time limit, offset against any other tax liabilities of the person is now prohibited. The only exception to this rule is in the event that Revenue applies to assess or recover tax in a period that is four years or more after the end of the year or period involved. In such a case, tax which cannot be repaid because of the application of the four year time limit but which relates to the same accounting period that is being assessed by Revenue retrospectively, will be available for offset against that liability. Taxpayers should ensure that any repayments of taxes due are claimed and received from Revenue within the relevant time limit.

Personal Insolvency Bill

The Minister for Justice has published the long-awaited Personal Insolvency Bill aimed at reforming insolvency laws, some of which have been in place for over a century. Debt arrangements reached between borrowers and banks will be subject to court approval under the Personal Insolvency Bill. The Bill proposes the establishment of an independent body to be known as the Insolvency Service that will oversee the non-judicial personal insolvency system.
The Bill includes a number of new non-judicial debt resolution processes. To avail of one of these processes an individual will have to be insolvent-i.e unable to pay debts as they fall due. The proposals will have to be made through a Personal Insolvency Practitioner and can only be applied for once in a lifetime in relation to each procedure.
Debt Relief Notice (DRN)
A DRN will allow for the write-off of qualifying debt up to €20,000, subject to a three year supervision period; the terms to qualify are strict and the debtor will have to have a monthly disposable income of €60 or less after the provision of “reasonable” living expenses. They must hold assets of €400 or less, with the exemption of certain household appliances or tools needed for employment and one motor vehicle up to the value of €1,200. Debts that will qualify for a DRN would include Personal Loans, Bank Overdrafts, Credits cards etc. Debts that will not qualify for inclusion in a DRN include, Court Fines, Family Maintenance payments , Taxes and service charge arrears.
Debt Settlement Arrangement (DSA)
A DSA is available only in respect of unsecured debt and cannot be utilised to affect the rights of the holders of secured assets. A Personal Insolvency Practitioner must advise the debtor as to their options in regard to the insolvency processes, and assist in the preparation of the necessary Prescribed Financial Statement . Upon registration of a Protective Certificate there is a standstill period of 70 days ( which can be extended by another 40) during which creditors may not take action against the debtor. The DSA is then put to the creditors for agreement and requires the approval of 65% in value. If approved and no objection within 10 days there will be formal registration with the Insolvency Service and with subsequent court approval thereafter the DSA will come into effect. The Personal Insolvency Practitioner will then administer the DSA for its duration over a period of 5 years
Personal Insolvency Arrangement (PIA)
A PIA is available in respect of secure debt up to € 3 million (this limit can be waived by all creditors) and all unsecured debt. The debtor must owe a debt to at least one secured creditor. The debtor must apply for a Protective Certificate and upon registration there is a standstill period of 70 days (which can be extended by another 40). A PIA must be supported by at least 65% of creditors in value of actual votes cast and at least 50% of secured creditors and 50% of unsecured creditors in terms of value. When agreed it is binding on all creditors. The Personal Insolvency Practitioner will then administer the PIA for its duration over a period of 6 years.
Bankruptcy
The Bill also provides for a number of amendments to the Bankruptcy Act 1988 The main new provisions are as follows: • The new minimum amount for a creditor to petition for bankruptcy is €20,000.
• The automatic discharge from bankruptcy after 3 years from the date of adjudication (reduced from the current 12 years).
• Bankruptcies existing for 3 years or more at the time of commencement of the Act will be automatically discharged after a further six months have elapsed.
• The Official Assignee or a creditor may apply to the court to object to the discharge of a person from bankruptcy. The grounds for such an objection are that the debtor has failed to co-operate with the Official Assignee or has hidden or failed to disclose income or assets. The court may suspend the discharge pending further investigation or extend the period before discharge of the bankrupt up to a maximum of 8 years from the date of adjudication.
• Provision for a court to make a payment order requiring the discharged bankrupt to make certain payments in favour of creditors, allowing for reasonable living expenses for a period of up to five years.
• An extended timeframe of 3 years prior to petition from bankruptcy in regard to certain fraudulent transfers or settlements of assets or voluntary settlements of property.

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