A brief guide to Personal Insolvency and the options that are available.

In April we saw the official launch of the Insolvency Service of Ireland which included the new website www.isi.gov.ie

The ISI will help restore people who are insolvent to solvency in a fair, transparent and equitable way using one of three mechanisms.

Summary of mechanisms:

Arrangement	Type of debt covered	Value	Duration	Apply through
Debt Relief Notice (DRN)	Unsecured (and secured in certain cases)	Up to €20,000	3 years	Approved Intermediary (AI)
Debt Settlement Arrangement (DSA)	Unsecured	No limit	5 years (+1)	Personal Insolvency Practitioner (PIP)
Personal Insolvency Arrangement (PIA)	Unsecured and secured	No limit on unsecured up to €3m secured (though cap can increase if agreed)	6 years (+1)	Personal Insolvency Practitioner (PIP)

Each of the new debt resolution mechanisms has its own rules and procedures but the following main rules apply to all of them:

Limits on usage

You can be involved in only one of the new mechanisms (DRN, DSA or PIA) or in the bankruptcy process at any one time. If you use one of these 4 processes, you will generally have to wait some years before applying to use another.

You may use each of the new mechanisms only once in your lifetime. (There is no such limit on bankruptcy but it would be rare for anyone to go bankrupt twice.)

Provision of information

You will have to complete a Prescribed Financial Statement, giving full and honest information about your financial circumstances. You will have to sign a Statutory Declaration to this effect. You must act in good faith and co-operate fully with the process.

You will have to give your written consent to the accessing of certain personal data held by banks and other financial institutions so that your financial situation can be verified. Government Departments and agencies will have the power to release certain information about you.

Public registers

If you use any of these new mechanisms, your name and details will be published on a register that will be accessible to the public. The success or failure of the process will also be recorded.

Reasonable Living Expenses

The ISI have published a guideline on this.  Lorcan O’Connor the Director of ISI stated at the launch –

‘A reasonable standard of living does not mean that a person should live at a luxury level but nor does it mean that people should be punished and live only at a subsistence level.  These guidelines are meant to be flexible.  They are a baseline for negotiations and discussions’

Click here to view the Guide to Reasonable Living Expenses

Click here to view the Debts Solutions Scenario Pack

When?

The ISI have indicated that Debtors will be able to apply for any of these arrangements in early July. Applications for the DSA and the PIA must be done through a Personal Insolvency Practitioner (a PIP). It is likely that MABS offices will be responsible for preparing DRN’s.

For further information or any questions on the above please contact me. 

Regards,

Mark Ryan

Mark is a Director at Quintas

“The views expressed in this article are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Business Start Up “I’m going out on my own with another fella”

As an Accountant I’ve heard some great stories over the years from the diverse range of characters I’ve met. Possibly my favourite saying is the rather peculiar “I’m going out on my own with another fella” although you’d also hear the less kosher saying “I am taking on a fella next week he’s been working with me the past two months”. Both of these would be used by people to explain that they were getting into business with a partner or a colleague or in the latter case expanding and employing staff.

Unfortunately in the current environment the sayings or the sentiment they express are used far less often as few people are tempted to take the leap of faith and set up their own business or expand and employ more staff. Yet ironically there’s possibly never been a better time to do so when one looks at the varied forms of assistance that is available. Anyone who is thinking of setting up or expanding a business should take the time to study the different options available for assistance.

A very brief description of the most popular forms of assistance are as follows:

• Seed Capital Scheme – being able to claim back up to €100k of the income tax you paid over the past 6 years to invest in a start-up company.
• Three Year Corporate Tax Exemption – Being able to make up to €320k tax free in the first three years of trading and not pay corporation tax on same.
• Employers Job (PRSI) Incentive Scheme – No Employers PRSI for 18 months on taking someone off the live register and creating a new job. Also note the Action for Jobs initiative launched in Budget 2013.
• MicroFinance Fund – Small businesses can avail of a loan of €25k for a viable proposal that the banks won’t lend to, due to the risk criteria.
• Credit Guarantee Scheme – The Government may partially guarantee a loan to a business that the banks refuse to lend to if the business can demonstrate an ability to repay the loan.
• Innovation vouchers – Free access or links for small businesses to Ireland’s public knowledge providers to the value of €5,000 to afford the opportunity to explore innovative ideas.
• JobBridge – An internship scheme whereby businesses can employ a college graduate at no cost to the business for a period of 9 months. The graduate gets paid by the State.

There’s also several Grant Schemes with Enterprise Ireland and the County Enterprise Boards, Research & Development Tax Credits, Double Tax Reliefs, and the very attractive Employment & Investment Incentive (EII).

With all these schemes the devil is in the detail and you should research same very carefully and seek professional advice if indeed you are “going out on your own with another fella”.

Regards,

Fachtna O’Mahony

Fachtna is a Partner at Quintas.

“The views expressed in this article are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material

The Property Tax – time to face facts

The much talked about Property tax is on the way and there is no hiding from it.

The first two weeks in March will tell a lot. Every house owner in Ireland will receive a letter from Revenue outlining the details of the Local Property Tax. For the Celtic Tiger generation this letter will contain the painful details of what Revenue believe to be the value of your home. Thus for many, this will be the first time they have come face to face with just how much debt they are in. However negative equity is a whole other issue which we will not get into here.

 However fair or unfair you consider this new property tax to be, it has arrived and it is here to stay. The government had great difficulties in implementing this tax so there is little chance that it is going to go away anytime soon.

The Revenue Commissioners have been given the job of collecting the tax and this is bad news for any of those who consider ignoring such levies. Revenue powers and resources are greatly superior to the city and town councils who were collecting the household charge in 2012. Revenue can collect the tax directly from your payroll, bank accounts and even from your welfare payments. You also have the option of paying online or by Direct Debit. It appears the Government have learned from their previous mistakes with regard to collecting the Household Charge. It is also worth mentioning that anyone who has not paid the household charge in 2012 will now have to pay double (€200) as well as the property tax. Revenue will also be collecting this €200 so it’s going to be difficult to avoid.

Some basic facts about the tax. It will be paid annually. However In 2013 we only have to pay half of it. Was this a ploy by the Government to gently ease us into the tax? Or was it a case that this was the earliest point in time in which they could organise it? A bit of both I would suspect.

The rate of tax is .18% of the value of your house and .25% if over €1,000,000. The house values are broken down into bands. As an example one band is between €150,000 and €200,000. If the value of your property comes between these amounts then you will pay tax of .18% on the mid point of this band, i.e. €175,000. Therefore the annual tax would be €315.  I would expect the majority of homes to fall into this band, which again highlights just how far the property market has fallen.

Revenue will attempt to value each house in Ireland. This is slightly ambitious considering they have never even seen your house, the neighbours house or the grass on the green that has never been cut and probably never will unless you do it yourself. In fairness Revenue do stress that the valuation is just a starting point and is no way meant to be 100% accurate. However if you feel that their valuation is accurate then you should accept it and pay the corresponding tax. This will mean that you will avoid any painful Revenue audits and the tax liability will remain constant until 2016. If you believe the value is lower than what Revenue suggest then it is your right to pay the tax on your own valuation. By doing this Revenue may chose to audit your valuation and if they find that you submitted an incorrect return then they could land you with a fine of up to €3,000.

The Finance Bill has also snuck in a clause that if you are selling your property you will legally be enforced to tell the purchaser how much you valued the house for the property charge. It has already become known as the “snitch clause” as if the buyer disagrees with the valuation they must inform the Revenue of the new valuation and the seller could then be issued with a €500 fine. At least it will make the negotiations slightly more interesting!

The timeline of events also needs to be considered. Revenue will issue letters in early March. This will contain a tax return in which you will need to file before the 7^th of May or if filing online then by the 28^th of May. Revenue will issue an explanatory form with the tax return which should tell us everything we need to know. They will also issue you guidelines for valuing your property. Payment of the tax will begin in July, with the dates depending on how you choose to pay the tax.   

There are of course certain exemptions, mainly applying to first time buyers who purchase new properties and certain houses in ghost estates and a deferral for people who are unable to pay, however the income limits for this are extremely low.

For anyone who feels they may be exempt or if they want to find out more about the tax then the following links should be of benefit:

 Property Valuation Guide and Tax Calculator – This gives an overview of the tax, a guide to valuing the property and an online calculator to help you determine the tax payable. 

List of the estates exempt from the 2012 household charge. This will be updated for the 2013 property tax however this has not been updated as of yet.

 List of the exemptions

Regards,

Dave O’Brien

Dave is Tax Manager at Quintas.

“The views expressed in this article are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Is the Black Economy impacting on your business?

It is accepted that there is a certain amount of Black Economy activity in every country but it is during a recession that it is at its highest.

A recent report (August 2012) compiled by EPS Consulting for Retail Ireland estimated that the Black Economy was costing the Exchequer € 1 billion per annum in lost revenues and taxes. A press release by ISME in November 2009 estimated that the Black Economy was worth € 461m per week and that it was costing the exchequer € 4.8 billion per annum in lost revenues.

I would argue that as a result of the harsh spending cuts and tax increases of the last 5 budgets since the economic crisis started in September 2008 that this figure is probably somewhere in the region of € 3 billion per annum in lost revenue. I would also suggest that this loss to the Exchequer will continue to rise as the austerity measures agreed with the Troika continue being implemented over the next 3 years.

To put this figure in context, the Black Economy (€ 3bn pa) is equivalent to the recent Budget 2013 spending cuts and tax increases of € 3.5 billion introduced by the Ministers of Finance (Michael Noonan) and Public Expenditure & Reform (Brendan Howlin) last December. It is estimated that a further adjustment package (taxes & spending cuts) of €8.6 billion will be required over the forthcoming three-year period if the annual deficit targets (3% of GDP) are to be achieved by 2015. The annual deficit in the Irish exchequer in 2012 was € 15 billion (8% of GDP).

The amount of zeros involved above can sometimes be dizzying and this has led to a sense of helplessness by the general public over the last 5 years as budget after budget took more and more of our hard-earned cash out of our pockets.

There is a way that each of us can assist in Ireland’s recovery, firstly by understanding what is involved in the black economy and secondly by then deciding not to support it. In some cases this may involve having to pay a bit more for certain items but this is a decision that we will all have to make when deciding whether or not to support ‘Team Ireland’.

I have included below some examples of Black Economy activities:

• Under declaration/omission of income – Foxers, Nixers or whatever working ‘for cash’ is called in your part of the country
• Fuel Laundering
• Illegal Tobacco
• Illicit Alcohol
• Counterfeit Products and Piracy
• Counterfeit Medicines
• Digital Piracy
• Shoplifting and Theft
• Social Welfare Fraud i.e. ‘working without paying income tax or social insurance, while simultaneously receiving social welfare payments.

The above are bad value for the consumer (no refund policy/customer care dept. for counterfeit goods and services!) and in some cases (tobacco, alcohol and medicine’s) can lead to serious health risks to individuals.  This was highlighted in a 3 part series last year called ‘Black Market Ireland’ that was produced for TV3, which is definitely worth a watch if you had the time.

Black market activity and criminality also threatens jobs in the Irish Economy as counterfeit sales, contraband goods and smuggling activity are on the rise and the trend is continuing.

It is also leading to the closure of genuine tax compliant businesses who cannot compete with non-tax compliant competitors who don’t  pay taxes on their income earned or return Paye/PRSI to revenue on the wages that they are paying to their ‘off the books’ employees.

Below are some of the ways we as individuals can stamp out black market activity and measures that government could or are introducing to combat this rampant practice:

• A consumer awareness campaign (TV, radio & newspaper ad’s) similar to that which was implemented for insurance fraud over the last number of years i.e. those involved in the Black Market are taking money from your pocket!
• Only use a tax registered and compliant business when purchasing business/personal goods and services
• Always insist on a quote and ensure that a vat invoice is produced before the product/service is delivered and before payment is made
• Rebates by the exchequer in relation to the purchase of diesel for the farming/agri and haulage industries
• Rebates/grants for home improvements and renovations
• Investment of additional resources into detecting cigarette, alcohol, clothing and other smuggling.
• In addition, street markets are a major source of illegally sold goods and they need to be policed by both revenue and the Gardai
• There should be zero tolerance even for the most minor of crimes. In addition, penalties should be more commensurate to the scale of the crime. Penalties and fines could be repaid to the exchequer by reducing an individual’s future tax credits/allowances or social welfare benefits.
• More resources need to be (re)deployed towards enforcement activities.
• Whistle-blowing – Revenue are encouraging tax payers to make telephone calls to their local tax office  in relation to tip offs for illegal activities and they insist that any information will be treated in the strictest confidence and anonymously if that individual does not wish to provide their contact details.

In summary it is up to each individual to make a stand against the Black Economy by making a conscious decision of where they are purchasing their goods and services.

As outlined above for every €1 that is spent in the Black economy the government will take a portion of this amount from each of us on Budget day by increased taxes or reduced public services due to spending cuts this year and every year thereafter.

Are you willing to make a stand?

Regards,

Mark Ryan

Mark is a Director at Quintas

Quintas Quarterly Economic Review (Winter 2013)

Since mid 2008 successive Governments have taken over €28 billion out of the Irish economy in tax rises and spending cuts, the equivalent of well over 15% of national output. The most recent budget removed €3.5 billion. The Governments aim in doing this is to leave the EU/IMF austerity programme and to reduce the budget deficit to below 3% of GDP by 2015, which currently stands at 8.2%, one of the highest in the EU.

The Government is relying on economic growth to meet its budget targets in 2013. It is forecasting 1.5% GDP growth for the year. This growth level could be seen as optimistic given our dependence on an export led recovery to achieve this. Our main export markets continue to experience difficulties, particularly with the eurozone in recession and a weakening British economy.

While bond yields reflect success for the Government in meeting its targets set by the EU/IMF, the sustainability of Ireland’s public debt which is expected to hit 118% of GDP this year is of concern. Almost a third of this debt is accounted for by Government support to the banking sector. This is where much emphasis has been placed by the Government, trying to negotiate a restructuring with the ECB on promissory notes worth €30 billion. A reduction on our debt is important and there is now much emphasis being placed on Ireland having the EU presidency at the start of 2013 as a means of achieving this.

by James McCarthy,

James is an Investment Analyst in Quintas Wealth Management

This article featured in the recent Quintas Quarterly Newsletter Winter 2013

“The views expressed in this article  is not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision

NEW BUSINESS START-UP TIPS

Starting up your own business can be a daunting task for anyone, and unless you are an accountant, the bookkeeping and accounting element of a new start-up can be especially testing. The current environment is posing significant challenges to new, small businesses, therefore getting all of your ducks in a row on start-up is vital. One of the most important “ducks” is your accounts. The following are some useful start-up tips that every individual should consider:-

1. Start Off on the Right Foot

Make your business accounting function a habit. Set aside a regular time period every week to gather your records together, check and file documentation, invoices and bank statements.

2. Separate your Banking Activities

Small business start-ups, especially sole traders, often use their existing private bank accounts to conduct their business activities. By keeping separate bank accounts for your business and personal activities, you will save yourself (or your bookkeeper) hours of work analysing transactions that have nothing to do with your business.

3. Keep it Simple

Do not overcomplicate your structures or records. It will only become confusing and end up distracting you from what’s important.

4. Value Good Advice

Get professional financial advice early in your start-up process. A little money spent early on can save a fortune correcting possible mistakes down the line.

5. Software Packages

There are many very good accounting/bookkeeping packages out there, some of which are very inexpensive, are relatively easy to use straight out of the box, and will do everything a small business would require, including Sales Invoicing, Debtors and Creditors Control, Bank Reconciliation and VAT Returns. Consult your financial advisor as to which package best suits your needs.

6. Don’t forget to get paid

This might seem obvious, but if you are not regularly tracking your invoices and debtor balances, invoices, and by default, payments will be missed. Months of extra credit will be lost to customers. The vast majority of customers will not volunteer payments and will need, at the very least, regular statements and gentle reminders.

7. Sales to family and friends – Value Your Service/Product

Do not be afraid to ask for payment for services or products supplied to family or friends. Offer a discount if you wish, but value the work, service or product that you provide.

Starting your own business presents a significant number of challenges to even the best entrepreneur. Whether it’s Accounting, Marketing, Product Development, Sales, Manufacturing, Banking, etc., early planning and organising will help you face those challenges in a properly prepared manner.

Regards,

Eugene O’Callaghan

Eugene is a Partner at Quintas.

“The views expressed in this article are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Budget 2013 – a lack of positivity and innovation

As predicted the Budget will have a significant impact on all individuals but will effect middle class families in particular. A property tax, reduced child benefit payments, increased excise duties on cigarettes and alcohol and changes to the PRSI system were among the main measures announced. Average low to middle income families will lose up to €1,100 a year as a result of property tax, cut in child benefit and PRSI changes.

The Budget has had limited changes in income tax, namely;

• USC – Eligibility test to pay the lower 4% rate is being amended to introduce an income threshold of €60,000 to those aged 70 years and over
• Maternity Benefit to be taxable
• PRSI – withdrawal of the €127 per week Employee’s PRSI-Free Allowance
• PRSI – extended to unearned income, rental etc

The main form of taxation measures has been through indirect taxation, with

• Property Tax introduced with banded system at 0.18% on residential properties up to €1m and 0.25% applying in excess of €1m
• Excise Duty increases of €0.10 for beer, cider and spirits and cigarettes and an increase of €1 on a 75cl bottle of wine
• Motor Tax increases

The CGT, CAT and DIRT rates all increased from 30% to 33%.  This increase to 33% on DIRT rate is applicable to ordinary deposit accounts and from 33% to 36% on long-term deposit accounts.

The tax relief on pensions will continue at the marginal rate of 41% but will be restricted to pension schemes that deliver a pension of €60,000 per year.

There were some positive measures introduced for business, namely;

• Hauliers Diesel Rebate
• Increase in cash receipts threshold for VAT to €1.25m
• Enhancement of the start up company exemption
• Extension of Film and EII Tax Reliefs to 2020

However, it is unfortunate that the Government did not take the opportunity to bring in more targeted measures rather than the generic nature of the SME 10 Point Tax Reform Plan. The Budget lacked any real form of positivity and it is a pity that nothing was introduced to assist the construction sector where unemployment levels are highest.

As always there will be further changes in the Finance Bill itself.

Regards,

Sean McSweeney

Sean is Tax Director at Quintas.

“The views expressed in this article are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Budget 2013 Predictions and Positive changes that can make a difference.

The only certainty in the upcoming budget on the 5th December is that in 2013 there will be further taxes increases (direct and indirect) and public spending cuts of approximately € 3.5bn to € 4bn. This will leave the budgeted deficit of the exchequer in 2013 of circa € 10.5 bn.

We have compiled below some of our predictions of the likely tax changes in the budget and some of our suggestions that we feel would assist the economy and in turn businesses recover in 2013.

Predictions

1. Capital Gains Tax – Retirement relief and the tax free threshold of € 750,000 may be reduced.
2. Capital Acquisitions Tax – for Business and Agricultural relief it is likely that both of these maybe reduced or restricted (current relief at 90%).
3. Pension Fund limit – the current ceiling of € 2.3m will be reduced and there maybe a reduction in the current 25% tax free lump sum that can be taken on retirement.
4. Higher Income Earners – given the governments commitment not to increase income tax rates,  there could be further increases in the USC for incomes above € 100,000/€ 150,000
5. New tax on high value pensions – this could involve an increase in the current pension levy or a tax/surcharge on pensions over a certain value.
6. Capital Gains Tax losses – given the losses incurred on investments over the last few years there maybe a restriction on the carry forward of losses against future capital gains.
7. Property Tax – this will be in place in 2013 with a projected start date of 1st July 2013. There is currently a debate as regards how this will be calculated but it will probably be based on a valuation of the property with bands of approx € 50,000. To view the current value of properties sold in your area click the link to the Residential Property Register website .
8. Old Reliables – increases in excise on alcohol, tobacco, petrol/diesel, carbon tax. Given the continued contraction in the domestic economy in 2012 it would be surprising if the VAT rates were increased but this could be on the table.

Suggestions For Positive Changes

1. Stamp Duty exemption – on commercial property transactions where this involves the transfer of a personal property to a limited company as part of a debt re-structure.
2. Property Tax exemption – for purchasers of new residential property for three  years. Given that a large portion of the sales proceeds of each house sale goes to the exchequer this would be an incentive for the property sector.
3. House extension grants/tax credits – provide a grant/additional tax credits for house extensions/home improvements. This would involve pre approval of the grants and include all original documentation for the renovation before the grant is paid. This would reduce the level of loss to the exchequer due to the black economy.
4. EII – Employment Incentive Investment – the inclusion of relief under the EIIS in the list of “specified reliefs” for the High Earners’ Restriction may be counter-productive. The EII scheme provides much needed funding to the economy which allows businesses to expand, export and employ the additional staff necessary to grow their business.
   It maybe advisable to follow the UK model that has decided not to include business reliefs in their new cap on income tax reliefs, on the basis that business reliefs are already capped and further limitations simply prevent investors from taking business risks. The three year investment term is also felt to be to short a timeframe for the company to build reserves to repay the EII investment.
5. Job Creation Grants – this would be an annual grant for a new employee currently on the live register that will be paid on a monthly basis over 12 months. This will reduce the Social Welfare bill and also incentivise businesses to expand and employ new staff in 2013.
6. Retain/reduce Employers PRSI at 10.75%.
7. Merge the new Property Tax with the current NPPR charge – they are basically the same charge on property.
8. Temporary Pension fund withdrawals – Consider allowing a once off drawdown from an individual’s pension fund. Both of these pension fund drawdowns will be subject to tax, PRSI and USC.
9. VAT Cash receipts basis – increase the current threshold from € 1m to € 2m.
10. Tax relief on investment in SME’s – allow tax relief for individuals providing an investment loan to a business.
11. Entrepreneurial Tax – introduce a reduced rate of Capital Gains Tax (10%) for gains on entrepreneurship to incentivise business start-ups and job creation.
12. SME Lending – this is an area that needs significant assistance as the level of lending is not sufficient and it is having a direct impact on the sustainability of businesses that need working capital during a period of significant change.
13. Apply the current Capital Gains Tax rate to dividends from trading Limited companies. This would hopefully release funds into the economy that is currently tied up in Limited companies.

Regards,

Sean McSweeney

Sean is Tax Director at Quintas.

This post first appeared on the Sage blog as part of a series of Business advisory articles by Sage Ireland.

“The views expressed in this article  are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Personal Insolvency Bill Explained

The Draft Personal Insolvency Bill amends outdated bankruptcy laws in Ireland as well as introducing a scheme for out of court settlement arrangements between debtors and banks or creditors.

 There are three strands to the out of court settlement procedures –

1. DEBT RELIEF NOTICE (DRN) – This strand will permit the write-off of qualifying debts up to a maximum of €20,000.  You will be eligible for this if you have virtually no income, no assets, and have no realistic prospect of being able to pay your debts within the next three years.  A DRN can last for up to three years, and if there is no change in circumstances the debts will then be written off. 

2. DEBT SETTLEMENT ARRANGEMENT (DSA) – This strand relates to persons with unsecured debts in excess of €20,000. This is an agreement prepared by a Personal Insolvency Practitioner (PIP) between debtors and creditors to repay an amount of unsecured debt over a period of five years.    Where a debtor performs all of his/her obligations specified in the DSA for the five years, s/he shall stand discharged from the remainder of the debts covered by the DSA.

3. PERSONAL INSOLVENCY ARRANGEMENT (PIA) – This final strand applies to all debt secured or unsecured over €20,000 and less than €3,000,000 (or more in certain instances). A PIP will be appointed to assess the payment capacity of the debtor. This practitioner will then propose a PIA to repay an amount over a period of six years to the creditors.  If the PIA is successfully completed, all the unsecured debt is discharged and the secured debt is discharged only to the extent specified in the arrangement.

 Importantly a PIA will in general not require you to sell your family home as required under bankruptcy (now a 3 year timeframe). However all debtors availing of any of the above arrangements will be published on a publicly accessible register.

 Small Businesses need to be wary as personal insolvency is not just bank debt, it is for all debt and there is a train of thought that some individuals that did not have the wherewithal to become “bankruptcy tourists” in the UK  have been preparing to take advantage of the new legislation here. In particular businesses that advance credit need to look hard at their debtors and ramp up their credit policies if necessary before the legislation is enacted which could be as soon as four weeks.

 On the other side, over stretched borrowers should be meeting with an insolvency practitioner to tease out the pros and cons of a Personal Insolvency Arrangement versus Bankruptcy so they can make a decision and finally move on with their lives.

 In summary this new personal insolvency law will strengthen the hand of over stretched debtors to negotiate with their creditors but there will be no easy way out!

 Regards,

Yvonne Barry

Partner & Insolvency Practitioner 

“The information as outlined above on the Personal Insolvency Bill is correct at the time of writing and subject to change”.

“The views expressed in this article are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Revenue Attachments and the impact on your business

The recent publicity regarding the collapse of the transport company Target Express highlighted the impact the placing of an attachment order by Revenue can have on a business. In the case of Target it led to the collapse of the business with the loss of 400 jobs.

It took just 7 days from the date the attachment order was enforced (Friday 24th August) to the day the liquidator agreed a deal to sell the assets of the company to one of its main competitors (Friday 31st August).

Are Revenue to blame?

The debate in the news and online blamed the draconian measures employed by revenue as the main reason behind the collapse of the business. Although revenue will not discuss specific cases the publicity was so focused on them that they took the unusual step of releasing a statement defending the actions that they had taken.

Revenue stated that in general ‘”it only pursues enforcement options after specific engagement with the business. Enforcement options like liquidation, bankruptcy and attachment are only used as a last resort in cases where the debt problem is serious and intractable”.

Hopelessly Insolvent

A later quote from the liquidator that was appointed to Target noted that the company was ‘hopelessly insolvent’ which may explain why revenue took the extreme step of gaining access to the companies bank accounts and advising Targets customers to pay the amounts that they owed directly to revenue. This move unfortunately lead to staff not being paid, suppliers rushing to secure their goods/assets and customers seeking to source a new supplier given the uncertainty hanging over the company.

Unfortunately attachment orders are a common practice by revenue and they are most likely on the increase given the continued credit squeeze and the deterioration in the economy. Revenues main focus is to collect tax and there is a process in which they go about their business of gathering cash on behalf of the exchequer.

In 2010 they issued 4,228 attachments which rose to 4,463 in 2011 and which they used to collect over € 30m in taxes last year. In the 1st 7 months of 2012 revenue have issued 2,519 attachments.

I have outlined below some of the issues that need to be taken into account to avoid this action being taken against your business.

The Power of Attachment

Please click here for a detailed article on the Powers of Attachment which featured in the CPA Ireland Accountancy Plus Magazine in March 2012. The article was written by Gerry Harrahill who is the Collector General at Revenue.

REAP (Risk Evaluation, Analysis and Profiling)

This is revenues software system which it uses to profile each tax payer and business in the state. This is the main tool that revenue use when selecting businesses for a revenue audit. In most cases 5% of audits are random with the remainder being based on sectoral analysis, specific tax risks and on some of the criteria outlined further below. This has proven to be a very successful information tool for revenue and it is important to understand how this system works.

Compliance

It is a basic requirement of all tax payers (individuals and companies) to ensure that they are aware of the relevant tax deadlines and ensuring that they are meeting the compliance deadlines for the relevant taxes that they are registered. With the implementation of Revenues Online Service (ROS) the interaction between the tax payer and revenue has improved considerably and it is important that both your tax agent and your business are registered for ROS. This will allow you to view your deadlines, liabilities and tax history in realtime and also allow you to receive important notifications from Revenue.

Communicate

If you are falling behind in the submission of your returns or if you are struggling to pay the tax liabilities as they fall due, it is important to contact revenue to explain your situation and agree a timeframe for getting everything up to date. In the main revenue are happy to work through problems with tax payers and approaching revenue is not something that should be feared. If you are not confident to deal directly with revenue then your tax agent or accountant will be able to help in this regard.

If you have outsourced your revenue compliance it is important to ensure that you get regular updates on the discussions with revenue as ultimately the responsibility for compliance and prompt payment to revenue rests with the tax payer.

Negotiate

Although revenue will not negotiate on the amount of tax that is due they are very much aware that businesses are under cashflow pressure due to the current economic climate. They are willing to negotiate installment arrangements but they will not at any stage take on the role of funding a business that is having cashflow problems.

There is a formal process called a Phased Payment Arrangement form that needs to be completed and submitted with some financial information to support the installment proposal. It is extremely important that you do not make a payment committment that you will not be able to repay on time over the agreed period. It is important to complete a full cashflow review of your business for a minimum of 12 months as one of the main conditions of an arrangement is that all future returns are submitted on time and paid in full as they fall due.

Review and Update

It is important to review your revenue position on a monthly basis to ensure that there are sufficient funds in place to meet the businesses short-term commitments. It would be advisable to set up separate tax bank accounts to provide for future tax liabilities i.e. Vat, Paye/Prsi, Income tax or Corporation tax.

It may also be advisable to avail of revenues monthly direct debit system which will reduce the frequency of Vat and Paye/Prsi returns to one per annum and which if used properly will allow the business to manage its cashflow more effectively. If you are using the direct debit payment scheme it is important to review the actual liability to the monthly payment being made to ensure that no large liability or refund builds up during the year.

Revenue Correspondence & Attachment Orders

Do not ignore correspondence from revenue as a lack of communication or a delayed response from a tax payer to a demand or warning letter can have dire consequences for the business. In the case of a demand letter revenue give a 7 day notice of actions that they will take that are in the main irreversible once they are set in motion.

In the case of an attachment order revenue have special powers under tax law that does not require them to get a court order to freeze a bank account and/or to contact a companies customers to demand direct payment of the liabilities due. The attachment order remains in place until such time as the full liability has been paid.

As can be seen in the case of Target this can have a detrimental effect on a business’s reputation and in some cases it can be the final straw for a company that has been under cashflow pressure for some time.

Cold Audit Overview

It maybe advisable to have someone complete a ‘cold audit overview’ of where your business stands today and to complete a statement of the assets and liabilities of the company. This review should be able to project problems that may come down the road if the business was to experience some short-term cashflow problems due to a fall in income for a couple of months or for some other unforeseen event.

This would allow the business owner to approach each of their creditors (banks, revenue and key suppliers) to set out a plan that will hopefully head off any problems before they arise. If you feel that you have lost  control on your finances and you are unsure  how much you owe to revenue I would suggest that you complete this review as soon as possible to avoid your business running into trouble which it may not have sufficient funding in place to survive. As with all negotiations it is easier to have these discussions from a position of strength rather than as a last resort when it maybe too late.

It’s good to talk

Having dealt with revenue on numerous occasions over the years I have found that in the main they are approachable, reasonable and willing to help out within the parameters that the tax legislation allows. The problems arise where they feel they are being ignored or where they become concerned that there is the possibility that they will not be paid tax that the business is effectively collecting on behalf of the government.

Given the current pressures on the exchequer and the current circa € 15bn shortfall in tax receipts versus expenditure it is almost certain that revenue will chase down anyone they feel will be a threat to their collection of taxes.

If I had one last piece of advice it would be to treat revenue like you would any other creditor and try to have open and honest communication with them at all times.

Regards,

Mark Ryan

Mark is a Director at Quintas

“The views expressed in this article are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.