Chap 10. Household and business taxation

• Direct Tax


  A tax levied on the income earned and paid directly to the government
• Direct Tax


  • Income tax
  • Corporation tax
• Indirect Tax

  A tax levied on what people spend rather than earnings
• Indirect Tax


  • VAT
  • Import Duties
• Reasons for Taxation

  • Government Revenue
  • Redistribution of Wealth
  • Discouraging Consumption
• Government Revenue


  The government needs to raise money through taxation to fund the running of the country e.g. paying for healthcare
• Redistribution of Wealth


  Taxation takes money from higher earners through the PAYE system and redistributes it among the less well off in society using the social welfare system. This lessens the gap between the rich and the poor with the aim of making the country a fairer place to live in.
• Discouraging Consumption


  The government places higher taxes on products that are unhealthy. This makes them more expensive to purchase and discourages citizens from buying these items e.g. excise duty on tobacco products and alcohol, sugar tax etc.
• Types of tax to be looked at in detail

  • The PAYE system (Income Tax)
  • Corporation Tax
  • Capital Taxes
  • Value Added Tax (VAT)
• PAYE System (Income Tax)


  Pay As You Earn tax is the greatest source of tax revenue in Ireland, paid on the income earned by employees
• How the PAYE Income Tax System Works

  1. Tax year starts on 1st January

  2. Every employee must pay tax on wages/salary

  3. Tax amount calculated by employer

  4. Deducted from pay along with PRSI

  5. Government gives tax credits
• Tax Credits


  Reduce tax liability calculated on gross pay, depend on personal circumstances. They can change from year to year eg marriage.
• Tax Rates


  • Standard rate (20%)
  • Higher rate (40%)
• Standard rate cut off point


  Amount of income taxed at standard rate (20%), income over this point taxed at higher rate (40%)
• PAYE Modernisation


  1. Commencing Employment

  2. During Employment

  3. Ending Employment
• Commencing Employment


  1. Individual registers with the Revenue Commissioners using their PPSN (personal Public Service Number)

  2. They create an online account and enter details about their employer

  3. The Revenue Commissioners then assigns the individual the correct tax bands and tax credits (known as the Revenue Payroll Notification -NPR)

  4. The information in the NPR is used by the employer to ensure that the employee pays the correct rates of tax and receives the correct tax credits
• Emergency Tax


  If an employer does not have the RPN or PPSN they must impose emergency tax on the employee's income. All income is taxed at the higher rate of PAYE income tax i.c. 40%.
• During Employment


  1. An employee can log on to their account with the Revenue Commissioners and obtain up-to-date information on the amount of taxes that they have paid

  2. They can make sure the correct tax rates and tax credits have been applied to their income

  3. An end of year statement will be available for employees via their online account with the Revenue Commissioners. It will include details of their pay and tax deductions from all employments for that tax year
• Ending Employment


  1. When an employee ceases employment the employer communicates the end date with the Revenue system

  2. This information is available to the new employer so that they can apply the tax bands and tax credits of the new employee

  3. This information is available to the local social welfare office so that the individual can access the relevant social welfare payments e.g. Jobseekers Benefit
• Benefits of PAYE Modernisation for Employers


  • Saves time as information on employees can be exchanged automatically
  • Minimises costs as less forms are required to be filled out than ever before
• Benefits of PAYE Modernisation for Employees


  • Employees can access information on their tax credits and tax bands through their online account with Revenue
  • Automatic review of review the tax paid and money will be refunded if tax is overpaid
• Self-Assessment System


  Taxpayer calculates their own tax bill, Inspector of Taxes does a preliminary calculation and sends notice to taxpayer in October, taxpayer can replace this with their own calculation and pay by 31st October, preliminary tax must be paid by 31st October
• Self-Assessment tax returns are liable to random audits to ensure that the returns made and amount paid are honest and correct
• Deposit Interest Retention Tax (DIRT)


  Tax charged on interest earned on savings accounts, bank must calculate and deduct DIRT at 33% before paying interest to the saver, tax is sent directly from the bank to the tax office twice yearly, charities are exempt from DIRT
• Corporation Tax


  Calculated on a company's profits, rate in Ireland is 12.5%, low rate has been a major factor in attracting Foreign Direct Investment, money paid to buy fixed assets can reduce the corporation tax bill through capital allowances
• Capital Gains Tax (CGT)

  Tax must be paid if a profit is made from selling an asset, current rate is 33%, exemptions apply e.g. gains from selling a main residence
• Capital Acquisitions Tax (CAT)


  Tax payable on gifts and inheritances, exemptions and different rates apply, the closer the blood relationship the greater the amount that can be received without having to pay, all charitable donations are exempt
• Value Added Tax (VAT)


  An indirect tax charged on the sale of most goods and services. Businesses are required to act as tax collectors.
• VAT rates


  • Several different rates depending on the type of goods or services involved
  • Some goods and services are exempt from VAT e.g. educational or medical services
• VAT collection and payment


  1. The VAT collected by a business must be sent to the Revenue Commissioners every two months

  2. The VAT paid by a business is the difference between the VAT collected on sales and the VAT paid for purchases
• Local Property Tax(H)


  Paid by owners of residential property, based on the value of the property
• Universal Social Charge (USC)(H)


  Paid by all employees and self-employed people that earn over €12,000
• Commercial Rates(B)


  A tax levied by local authorities on property used for commercial purposes to help finance local government services (e.g. roads lighting etc.). The amount paid is based on the value of the property.
• Customs Duties/Import Taxes(B and H)


  Tax levied on goods imported to Ireland from countries outside the European Union. This makes the imported goods more expensive and encourages citizens to purchase more goods produced in the E.U.
• Carbon Tax(B and H)


  A tax levied on products that emit carbon into the atmosphere e.g. heating oil, diesel etc. This discourages use and helps to pay for climate change programmes.
• Excise Duties(B and H)


  A tax added to the price of certain types of goods to try and limit their consumption e.g. alcohol, petrol and tobacco.
• Motor Tax(B and H)


  The amount of tax paid depends on CO2 emissions or engine size.
• Pay Related Social Insurance (PRSI)(B and H)


  An insurance scheme to provide benefits for employees. The employer must pay PRSI as well as the employee. Employers see this as an additional tax on them which increases the cost of employing staff.
• Deposit Interest Retention Tax (DIRT)(B and H)


  DIRT is automatically deducted from all interest paid and passed to the Revenue Commissioners.
• Tax Implications for Business


  • The collecting, recording and paying of taxes is an administrative cost for all business
  • Business receives tax concessions to locate in Ireland and even in certain districts within the country. eg apple
  • The purchase of certain equipment can be written off against tax.
  • If taxes are high, business may be discouraged from investing in a country and jobs will not be created. On the other hand, low taxes stimulate investment, profits and growth.