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Home / 2008 / Feburary 2008 / Finance Bill 2008

At the time of writing, the Finance Bill 2008 is scheduled to be published on 31 January 2008. The purpose of this article is to outline the significant measures introduced in the Budget 2008 and expected to be implemented in Finance Bill 2008. In our next issue we will review any unexpected changes introduced to the budgetary measures, together with other legislative amendments not mentioned in Budget 2008.

Business Taxation While on the face of the Minister’s Budget Speech, there may have been few enough changes affecting business taxation, it is important to consider the detail of the changes.

Business Expansion Scheme After the significant enhancements to the BES last year, there is one change to the BES this year.

The requirement that recycling companies must be grant aided to qualify is being replaced by a requirement that such companies’ business proposals must be certified by an industrial development agency or County Enterprise Board before they avail of the scheme.

Though limited in scope, this move is a welcome departure from the linking of non-traditional manufacturing activities with grant aid in order to qualify for BES. In an era where the EU aggregates State Aids in determining when they may be approved, it makes more sense to decouple BES eligibility and employment grant aid.

Research and Development The base reference year for incremental expenditure on R&D (which qualifies for relief) is confirmed at 2003 for a further four years to 2013.

By confirming the base year as 2003, we have to all intents and purposes an ‘actual expenditure’ regime for any venture undertaking R&D for the first time since that date. This helps Ireland compete for R&D in the international scene.

Preliminary Corporation Tax Last year’s Finance Act permitted companies with prior year CT liabilities of €150,000 or less to base their current year PT on the previous year’s liability. This threshold is being raised to €200,000, effective for preliminary tax payment dates arising after 5 December 2007.

ICAI had argued for the arrangement to be extended to all companies.

Hopefully the Minister will see his way to progressively increasing the threshold each year. The comparable threshold arrangement for startup companies is also being increased to €200,000.

Capital Allowances While the standard fabric of business capital allowances is apparently unchanged, the capital allowances regime for cars goes green, with allowances now to be defined not only by reference to the capital cost but also by their emissions ratings.

Allowances will be defined under the same rules as are proposed for Vehicle Registration Tax. Leasing expenses are similarly curtailed. The revised scheme will come into effect in respect of cars purchased or leased on or after 1 July 2008.

Stamp Duty Residential Property Changes The elimination of the old ‘step’ system of Stamp Duties was well overdue, irrespective of the current shape of the housing market. The main point to note is that the Stamp Duty reform deals only with residential property – commercial property arrangements remain unchanged.

Essentially the existing sequence of bands and rates is being replaced with two progressive rates – 7% and 9%.

The first €125,000 will be exempt. The next €875,000 will attract a rate of 7%, and the balance will be charged at 9%.

There will be a general exemption for properties with a value of less than €127,000. Current exemptions in relation to first time buyers and buyers of new homes will continue to apply.

This change will take effect in respect of instruments which are required to be presented to the Revenue Commissioners for stamping no later than 5 December 2007. Instruments which were executed in the 30 days prior to 5 December 2007 should therefore benefit from this change.

Claw-back There were claw-back arrangements for owner occupiers who had availed of Stamp Duty reliefs where they cease to reside in the property within five years. The claw-back period is being reduced from five to two years for deeds of transfer executed on, or after, 5 December 2007.

For deeds of transfer executed before 5 December 2007, to the extent that a dwelling house or apartment is rented out on, or after, 5 December 2007, it will not involve a claw-back of relief where this happens in the third, fourth or fifth year of ownership. This measure could give an immediate boost to the supply of rented residential accommodation.

Indirect Taxation There were a number of VAT measures announced in the Budget, mainly relating to the proposed changes to the VAT on property regime and to small businesses.

Changes to Rules on VAT on Property The detailed provisions enacting the new system for applying VAT to property transactions will be contained in the Finance Bill 2008.

In summary, the main provisions are expected to include: -The supply of buildings – whether by the sale of the freehold or via a very long lease (a ‘freehold equivalent’) will be taxable only while the building is considered ‘new’. A ‘new’ building is one which is less than 5 years old, or is sold within two years of its first occupation. -The supply of ‘old’ buildings will be exempt from VAT, but there will be an option to tax such supplies. -The supply of ‘building land’ will be taxed in the same way as it is taxed currently. The VAT treatment of undeveloped land (e.g. farm land) will not be affected. Land that is sold in connection with a contract to develop it will continue to be taxable. -Most leases will be exempt from VAT but leases that represent effective ownership will be treated in the same way as supplies of the freehold. -There will be an option to tax rents on commercial buildings where the landlord and tenant are not connected persons.

In addition, a Capital Goods Scheme (CGS) will be introduced for property transactions, so that the VAT deductible will be proportionate to the business use of a property over a twenty-year period. Transitional measures have also been considered.

According to the Budget documents, the new system will take effect from 1 July 2008. VAT measures for Small Business -The VAT registration thresholds for small businesses are being further increased in this year’s Budget from €35,000 to €37,500 in the case of services, and from €70,000 to €75,000 in the case of goods. These increases will take effect from 1 May 2008. -The VAT rate on the supply of elephant grass rhizomes, seeds, bulbs, roots and similar supplies used for the agricultural production of bio-fuels will be reduced from 21% to 13.5% with effect from 1 March 2008.

Other VAT announcements A reverse charge mechanism for VAT on supplies made by a subcontractor to a principal contractor in the construction sector is being introduced with effect from 1 September 2008.

This measure will be the subject of consultation with the construction sector and the details will be outlined in the Finance Bill 2008.

The concluding part of this article on Finance Bill 2008 will consider unexpected changes to the Budgetary measures, together with other legislative changes not announced in the Budget.

Mary O’Brien, ACA, is Senior Manager at the Taxation Department of the Institute of Chartered Accountants in Ireland.

i have a small business hairdressing am i eligible for vat with a income of 36000 per year sales what do i pay pse

i read in your chief points in your explanation to the new changes in the new regime to charging vat under the 2008 finance bill where you state that vat will be charged on buildings only that are considered new but I read the explanatory memorandum of the bill and I think this relates to only commercial property only and vat will be charged as usual on residentil property old and new. I am aware that vat will not be charged on commercial buildings over 5 years old or is occupied more than 2 years old but there will be an option to charge vat but this option is not available for residential property. I would be obliged if you could reply to my query as I would like to be sure of these new changes and clarity on the matter. Sincere thanks. Yours sincerely John Mc Carthy