Business Taxes

Chapter 14Administration of Corporation Tax

AIM

The aim of this chapter is to outline the main return filing and the payment obligations of companies.

LEARNING OUTCOMES

On completion of this chapter you will be able to:

14.1 Describe the self assessment system as it applies to companies 351
14.2 Outline the corporation tax exemption for Start-Up Companies 354
14.3 Interpret legislation to outline a company’s obligations under the pay and file system 357
14.4 Use legislation to outline what reliefs can be denied to companies who fail to meet their pay and file obligations 364
14.5 Describe when an error or mistake claim may be made and the reasons for so doing 365
14.6 Describe when an expression of doubt may be made and the benefits of so doing 366
14.7 Explain company secretaries’ liability to pay certain penalties 367
14.8 Assess the pay and file obligations of a company and prepare a corporate tax return 368
14.9 Understand the mandatory requirement to file accounts and computations in iXBRL format 386

MAIN LEGISLATIVE PROVISIONS

Sections 23A, Part 37, Part 41 and Part 47 of TCA 1997

RELEVANT PAST EXAM QUESTIONS

2015, Summer, Question 2(b)

2016, Autumn, Question 2(c)

2017, Autumn, Question 4(b)

14.1.Describe the self assessment system as it applies to companies

You will recall that a self assessment system operates for income tax purposes. A similar system (although with different compliance dates) also operates for corporation tax.

Broadly speaking, the system places the onus on a company to determine what its corporation tax liability is for an accounting period, to pay the correct amount of tax on time and to file its tax returns by the due date. In addition it also requires companies to make returns of third party payments for services on an automatic basis.

Additional penalties apply for companies (as opposed to individuals) that fail to file their tax returns on time. These aspects of the self assessment system will be dealt with in the following sections.

14.1.1.Registration for corporation tax (Section 882 TCA 1997)

A company is obliged to register for corporation tax within 30 days of commencing to trade. To do so it must either register online via ROS (mandatory for most Irish companies) or complete a paper form TR2 (which is available from the Revenue website and is generally for non-resident companies) which provides Revenue with the information required under s.882 TCA 1997.

Task 14.1

Read Section 882 TCA 1997.

14.1.2.Third party returns

Chapter 3 of Part 38 TCA 1997 sets out details of various third party returns to be made by companies (and individuals). The most common of these is the automatic obligation to make a return of certain payments to third parties set out in Section 894 TCA 1997. This requirement operates on a self assessment basis and the relevant form (Form 46G) must be returned within 9 months of the end of the company’s accounting period.

Example 14.1

If a company has a year ended 31 December 2018, then Form 46G must be completed and submitted to the Inspector on or before 30 September 2019.

A copy of Form 46G is available on the Revenue website. You will note that it requires details of services provided to the company by service providers (whether companies, individuals, or partnerships). It requires disclosure of the name, address and tax registration number of the supplier. In addition, disclosure must be made of the type of services provided and also the total amount paid by the company to the service provider in the accounting period.

The Revenue has issued a statement of practice (SP–IT-1-92) on the completion of this form.

Payments for services which need not be included in a return:

Services, in which the value of any goods provided as part of the service exceeds two-thirds of the total charge.

Payments from which income tax has been deducted (e.g., fees paid subject to deduction of withholding tax, payments from which RCT has been deducted).

Payments for services etc. made to any person in the period covered by the return, which do not total more than €6,000 in aggregate.

Failure to file this return attracts separate penalties than those that arise for failure to file a corporation tax return. These are covered in section 14.3.

Task 14.2

ABC Limited made its accounts up to 31 December 2018 (an 8 month period). When should it file its Form 46G?

14.1.3.Other reporting obligations

As noted above, Chapter 3 of Part 38 TCA 1997 contains other reporting obligations for companies including the obligation to lodge a corporation tax return under Section 884 TCA 1997.

The other reporting obligations concerning companies are mainly included in Section 888 to Section 897B TCA 1997, although other sections may be relevant (e.g. Section 128 TCA 1997 share options reporting, Section 172K TCA 1997 dividend withholding tax returns).

These include returns giving details of:

Rent collected by letting agents (Section 888 TCA 1997)

Services incurred by the company above a certain limit (Section 889 TCA 1997) e.g. certain professional services

Income received by the company on behalf of a third party (Section 890 TCA 1997)

Foreign bank accounts opened by the company and of any intermediaries who opened foreign bank accounts on behalf of the company (Section 895 TCA 1997)

Employee earnings and taxation deducted for a tax year; i.e. the annual P35 (Section 897 TCA 1997)

Awards of shares to directors and employees (Section 897B TCA 1997)

14.1.4.Development land filing requirements

As previously discussed companies do not pay corporation tax on chargeable gains if the gain arises on the sale of development land. Such gains are liable to capital gains tax (current rate 33%).

The payment dates for CGT are as follows:

1. Disposal between 1 January and 30 November – pay 100% of the CGT liability by 15 December of the same year (Section 959AQ(1)(a) TCA 1997)

2. Disposal between 1 December and 31 December – pay 100% of the CGT liability by 31 January of the following year (Section 959AQ(1)(b) TCA 1997).

The CGT return can be either included with the CT1 return covering the year in which the disposal took place or included in a separate Capital Gains Tax return (based on the tax year).

14.1.5.Non-resident companies disposing of specified assets

As covered in chapter 7, the treatment of a non-resident company’s sale of specified assets depends on their status in Ireland.

1. Non-resident company has a trade in Ireland – liable to corporation tax on chargeable gains (except in relation to disposals of development land) and details of disposals are included in its corporation tax return, similar to a resident company.

2. Non-resident company with no trade in Ireland – not liable to corporation tax. The company pays capital gains tax on the disposal with the same payment and filing requirements as that of a development land disposal outlined above.

14.2.Outline the corporation tax exemption for Start-Up Companies

In an attempt to encourage business activity and to maintain the economic recovery this exemption is from certain taxes for new start-up companies. Ireland has always had a very high proportion of small businesses and it is hoped that this incentive can encourage further activity in this sector.

If the corporation tax of the company in any one year is equal to or lower than €40,000 and the trade is a qualifying trade, the company is exempt from corporation tax in that year.

The legislation is contained in s486C TCA 97.

The exemption operates as follows:

1. The company must be incorporated within the EEA and can only have been in existence from 14 October 2008.

2. The trade can only have commenced on or after 1 January 2009 and before 31 December 2018. Any relief will apply for the three years from the date of commencement.

3. The relief is available for income of a qualifying trade and gains on the sale of trade assets from that qualifying trade. A qualifying trade is a trade which is not one of the following:

A. A trade that was carried on previously by another person (this rules out sole traders incorporating their trade into a limited company).

B. An existing trade (this rules out forming a new company and acquiring a new trade).

C. An excepted trade

D. A trade which would come within the s441 TCA 97 close company surcharge, i.e., a service company

4. In order to qualify for the relief, the company’s total corporation tax for the period must be equal to or lower than €40,000. Total Corporation Tax is defined as all corporation tax that is chargeable for the period but excluding income tax. Therefore it would include corporation tax on passive income and the close company surcharge but exclude income tax withheld, for example from a patent royalty payable under s239 TCA 97.

The relief is linked to employers PRSI paid in the period. The total tax relief is the lower of €40,000 or the employers PRSI paid by the company for all employees, subject to a maximum PRSI payment of €5,000 per employee.

5. If the company transfers part of its qualifying trade to another connected company the relief will be unavailable to both companies. This anti-avoidance legislation prevents companies sharing income to avail of the €40,000 limit in group situations, where there has not been a genuine company incorporation to commence a new trade.

6. To quantify the relief available the company must firstly calculate its ‘Relevant Corporation Tax’. Relevant Corporation Tax is a company’s total corporation tax as calculated above, less the following:

A. Tax on income at the 25% corporation tax rate

B. Close company surcharges

C. Tax on chargeable gains

7. The legislation requires that amounts which can be set against total profits (typically expenses of management and non-relevant trading charges) must be set against income in priority to chargeable gains. Whilst this would be the most common approach in an ordinary situation, the taxpayer does have the option of offsetting against a chargeable gain in priority to income; however this option is now unavailable if a claim is being made under this legislation.

8. The Relevant Corporation Tax is then applied to the qualifying trade income over total income (defined as total income excluding income charged at the 25% corporation tax rate - essentially trade income). This will then give the amount to be deducted from the corporation tax charge.

9. Unutilised relief from the first three years of trading (the period the relief applies for) can be carried forward. The unutilised relief will be the employer PRSI paid during the first three years less any corporation tax sheltered in that same period. This can be carried forward to the fourth and subsequent years and set against future corporation tax of the qualifying trade. This relief applies to accounting periods ending on or after 1 January 2013.

Example 14.2

New Co Ltd commenced trading on 1st January 2018. Mr. A. incorporated his architectural practice which had been trading for many years and opened a new café. The company’s total employer PRSI charge for the year was €15,000 for all employees.

Calculation of Corporation Tax Liability:

Case I – Café 50,000
Trade Charges (5,000)
Case II – Architect 40,000
Case V – Rent 10,000
Income: 95,000
Chargeable gain on shares 15,000
Non-Trade Charges (7,000)
Profits 103,000
Case I: €50,000 – €5,000 @ 12.5% 5,625
Case II: €40,000 @ 12.5% 5,000
Gain €15,000 @ 12.5% 1,875
Passive €10,000 – €7,000 @ 25% 750
S.239 TCA 97 €5,000 @ 20% (income tax) 1,000
Tax Payable 14,250
Relief (Note 1) (5,625)
Relief (Note 2) (0)
8,625

Does the company qualify for relief?

Total Corporation Tax = €14,250 – €1,000 = €13,250. As total corporation tax is less than €40,000, relief is available.

Note 1: Calculation of Relief:

Relevant Corporation Tax = Total corporation tax, less tax @ 25%, less tax on chargeable gains = €13,250 – €750 – €1,875 = €10,625, (equivalent to corporation tax on net trading income, i.e., €85,000 × €12.5%).

Relief = Relevant Corporation Tax × Qualifying trade income/Total trade income

€10,625 × (€50,000 – €5,000)/(€50,000 + €40,000 – €5,000) = €5,625

Note 2: Calculation of Relief for corporation tax on chargeable gains

Relief = Corporation Tax on chargeable gains × Gains on qualifying assets/Total chargeable gains

€1,875 × (€0)/(€15,000) = €0

As the employers PRSI is greater than €5,625 this relief is allowable in full.

The company can carry forward the unutilised relief of €9,375 (€15,000 employer PRSI paid less the €5,625 relief claimed) and set it against corporation tax payable on the qualifying trade from 1 January 2021 (after the three year exemption period has expired).

14.3.Interpret legislation to outline a company’s obligations under the pay and file system

14.3.1.Filing the return

As in the case of income tax, the filing of a company’s tax return is the corner stone of the self assessment system for companies. In general, a company is obliged to file its tax return (in the prescribed form) within 9 months of the end of its accounting period, but no later than the 23rd day of the 9th month (Section 959K TCA 1997 for the obligation to make a return and the definition of “specified return date for the chargeable period” in Section 959A TCA 1997). Online filing of the CT1 return is mandatory for companies unless they have received an exemption and are allowed to paper file, in those limited cases the deadline is the 21st of the month. Exemptions are granted when there is an inability to file online due mainly to either technological issues (broadband access) or the age etc of the filer.

This form is known as Form CT1 and is included in section 14.7.

Example 14.3

XYZ Limited made its accounts up to 31 May 2018. It will be obliged to file its tax return by 23 February 2019.

Example 14.4

ABC limited made accounts for an 18 month accounting period ended 31 December 2018. It will be obliged to file 2 tax returns – one for the year ended 30 June 2018 to be filed by 23 March 2019 and the second for the period ended 31 December 2019, to be filed by 23 September 2019.

14.3.2.Payment of tax

The obligations in relation to the payment of corporation tax are set out in Sections 959AR and 959AS TCA1997.

A company is obliged to make a preliminary payment of its corporation tax liability. The rules for calculating preliminary tax differ depending on whether a company is considered to be a “small company” (Section 959AR – Companies other than with relevant accounting periods) or a “non-small company” (Section 959AS – Companies with relevant accounting periods).

1. Small companies

A “small company” is defined in Section 959AM(4) TCA 1997 as one whose corporation tax liability in the preceding accounting period does not exceed the “relevant limit” in relation to that accounting period. The “relevant limit” is defined as €200,000 for a 12 month accounting period.

Preliminary tax

Similar to preliminary income tax, small companies are entitled to base their preliminary corporation tax payments on the final tax liability (including items such as income tax due under Section 239 TCA 1997) for the previous year.

If either period is less than twelve months the following formulae must be used:

Current period less than twelve months – calculate relevant period limit:

Prior period less than twelve months – calculate corresponding corporation tax:

Example 14.5

ABC Limited makes a 12 month set of accounts up to 31 December 2018. The corporation tax liability for the preceding accounting period of 6 months to 31 December 2017 was €24,000. Therefore, ABC Limited qualifies as a “small company” as the annual liability would be €48,000.

Example 14.6

Blue Ltd’s corporation tax liability for the 12 month accounting period ended 30 November 2017 was €165,000. Blue Ltd will be treated as a small company for the purposes of determining its preliminary tax obligations for the accounting period ended 30 November 2018.

The small company payment rules do not apply to a company whose accounting period is seven months or less due to the nature of the payment dates – as the non-small and small company dates would fall on the small day there is no administrative reason to grant small company status.

Once a company has been classified as small it then has the option of paying, one month before the end of is accounting period (but no later than the 23rd day of the month), its preliminary corporation tax based on the lower of:

1. 90% of its current year final tax liability; or

2. 100% of the corresponding corporation tax liability of the previous period (including tax withheld under Section 239 TCA 1997)

Please refer to Section 959AR(1)(a) and Section 959AR(3) TCA 1997.

Balance of tax

Any balance of tax outstanding must be paid on or before the company’s specified tax return filing date (Section 959AR(2)(a)) TCA 1997.

2. Non-small companies

A “non-small company” is not a statutory term but is used to refer to any company that is not a small company.

Preliminary tax

Under these arrangements, preliminary tax (PT) is due in two instalments.

The first instalment (“PT1”) is due six months from the start of the accounting period but no later than the 23rd day of the month (Section 959AS(2)(a) TCA 1997). The provisions of Section 959AS(4)(b) TCA 1997 mean that the payment must be a minimum of:

50% of the previous year’s final corporation tax liability or

45% of the current year’s final corporation tax liability

in order to avoid interest on late payment and the acceleration of the amount due to be paid at various dates.

The second instalment (“PT2”) is due one month before the accounting period ends but no later than the 21st day of the month (Section 959AS(2)(b) TCA 1997). This must bring the total preliminary tax payment up to at least 90% of the final liability for the accounting period.

A non-small company will not be required to make two instalments of preliminary tax for an accounting period where, due to the length of that period, the second instalment would be due on or before the date of the first instalment (Section 959AM(2) TCA 1997).

The payment date is therefore directly related to the company’s accounting period. Where a company makes its payments electronically via ROS, the payment date is extended to no later than the 23rd day of the month (Section 959AR(1)(a)(ii) TCA 1997).

Balance of tax

Any balance of tax outstanding must be paid on or before the company’s specified tax return filing date (Section 959AR(2)(a) (small companies), 959AS(3)(a) (all other companies) TCA 1997.

Example 14.7

DEF Ltd had a tax liability of €100,000 for 2018. DEF paid €90,000 of its liability for the year ended 31 December 2018 on 23 November 2018. In order to avoid interest and penalties the balance of the tax of €10,000 must be paid on or before 23 September 2019.

Example 14.8

Orange Ltd’s corporation tax liability for the year ended 31 December 2017 was €450,000. In May 2018, the company estimates that its final corporation tax liability for the year ended 31 December 2018 will be €400,000. Orange Ltd must make its first instalment of preliminary tax on or before 23 June 2018. The amount must be at least 50% of the prior year liability (i.e. €225,000) or 45% of the final current year liability (i.e. €180,000 based on best estimates). As the current year liability is an estimate, Orange Ltd will most likely base its first instalment of preliminary tax on the prior year and pay €225,000.

In October 2018, Orange Ltd revises its estimate of its final corporation tax liability for the period to €700,000. It must make a payment on or before 23 November 2018 to bring the total preliminary tax paid up to at least 90% of its final corporation tax liability for the period. Based on the revised estimate, this would result in an additional payment of €405,000 (i.e. €700,000 × 90% less €225,000 paid in June 2018). Most large companies will pay a slightly higher amount to ensure that the 90% test is met when the final results of the period are known.

Orange Ltd finalises its corporation tax return for the year ended 31 December 2018 in August 2019. At that time, the final corporation tax liability is determined to be €680,000. As Orange Ltd has paid €630,000 in preliminary tax, the balance of tax due is €50,000 and this must be paid on or before 23 September 2019 (the company’s corporation tax return filing date).

Top up payments

Because preliminary tax has to be paid before the end of the accounting period, special provisions in Section 959AR(4), Section 959AS(6) and Section 959AS(7) TCA 1997 apply to cater for the situation where additional liabilities, in the form of chargeable gains on disposals, arise after the due dates for the payment of preliminary tax but before the end of the accounting period.

Where a chargeable gain arises after the PT1 is paid but before PT2 is paid and where PT1 would be 45% of the current years final liability but for that chargeable gain and PT1 and PT2 combined give 90% of the years tax liability, then PT1 obligations will be deemed to have been met (section 959AS(6) TCA 1997). Many companies choose to base their PT1 on their prior year liability given the uncertainty surrounding predicting the final tax liability so early in the financial year.

Where a chargeable gain arises after the second instalment of preliminary tax is paid, a company is permitted to make a further payment of PT, a “top-up payment”. Where such a company correctly pays its PT on time disregarding the gains in the final month, and makes a top up payment one month after the end of the accounting period to bring the total paid up to 90% of the final liability for that year, the company will be regarded as having met its PT obligations.

Key Point

A company can only be small if the last period’s total corporation tax liability was less than €200,000.

Task 14.3

DEF prepared its accounts for the year ended 31 March 2018 which showed a tax liability of €160,000. (assume prior year liability < €200,000)

i. What are the due dates for payment of its tax liability?

ii. What are the consequences if it paid its tax in full on 10 January 2019?

14.3.3.Assessments

The position with regard to the issue of assessments is identical for individuals and for companies.

For accounting periods beginning on or after 1 January 2013 Revenue no longer issue a notice of assessment. The company will submit its return and self assess the tax due (Section 959R TCA 1997). Revenue will only issue a notice of assessment if they disagree with the company’s calculation.

Example 14.9

PQR Limited filed its return for the year ended 31 December 2018 on 23 September 2019. In its tax computation it took a deduction in error for depreciation instead of treating it as a non-deductible expense.

The Inspector has a four year time limit within which to make any amendments on the basis that this is an error and not negligently or fraudulently prepared (Section 959Z(3) TCA 1997).

14.3.4.Penalties for non-compliance with Pay & File obligations Surcharge (Section 1084 TCA 1997)

The company is liable to a surcharge of 5% of its corporation tax liability where its return is filed within 2 months of the due date or 10% of its liability where the return is filed after this extended period. The maximum liability is €12,695 where the return is filed within 2 months of the due date and €63,485 where the return is filed after 2 months. This is the same penalty which applies to individuals.

This penalty applies even if the company has discharged its tax liability in full and does not take account of any tax already paid.

When a company files it return late the due date is deemed to be the 21st of the month and not the 23rd (the extension for electronic filing), Section 959A TCA 1997.

Example 14.10

Max Limited had a corporation tax liability of €100,000 for the year ended 31 December 2018. It paid preliminary tax of €90,000 on 23 November 2018. It failed to file its tax return until 5 December 2019.

It will be liable to a surcharge of €10,000 (10% * €100,000).

If Max Limited had filed its return on 1 November it would have a surcharge liability of €5,000 (5% * €100,000).

Interest (Sections 959AR and 959AS TCA 1997)

If a small company fails to meet its preliminary tax obligations then its total tax liability for the period is deemed to have been due on the preliminary tax payment date, under Section 959AR(3) TCA 1997 and interest applies from that date.

If a non small company fails to meet its preliminary tax obligations – either through not paying enough tax at either instalment or in total, or failing to make any of the payments by the due dates – then the total tax liability for the period is deemed to have been due as follows, under Section 959AS(4) TCA 1997:

45% on the PT1 payment date

The balance on the PT2 payment date.

This exposes a company to interest penalties.

The interest rate applicable is 0.0219% per day.

The surcharge for late filing of a return is considered to be part of a company’s corporation tax liability for the accounting period. Therefore, if the company filed its return late (and so was subject to a surcharge) and paid insufficient preliminary tax then the interest penalties that apply for underpaying preliminary tax apply to the actual tax liability plus the surcharge.

Example 14.11

BCD Limited had a tax liability for the year ended 30 June 2018 of €50,000. It paid its preliminary tax by the due date (i.e. €45,000 on 23 May 2018, assuming it was a small company in the previous year). However, it did not file its tax return until 5 July 2019. The following are the consequences for failing to meet its return filing obligations:

Surcharge

BCD Limited should have filed its tax return on 23 March 2019 but instead filed it on 5 July 2019, which is greater than 2 months late. It will therefore be liable for a surcharge of €5,000 (10% * €50,000).

Interest

The surcharge is deemed to be part of its corporation tax liability for the accounting period. Its total liability for the period is €55,000 (being the €50,000 + €5,000 surcharge) meaning its preliminary tax payment should have been €49,500 (90% of €55,000). As BCD Limited only paid €45,000 it failed to pay the appropriate amounts of preliminary tax. Accordingly, it will be exposed to interest penalties.

Assuming that the tax is paid on 10 July 2019 it will have an interest penalty running from 23 May 2018, as follows:

Total liability 55,000
Interest calculation:
Amount deemed to be payable 55,000
Amount paid 45,000
Outstanding 10,000
Interest
€10,000 * 0.0219% * 414 days = €906.66

14.3.5.Typical Compliance Cycle

Obligation for a company for accounting year ended 31 December 2018.

Date Obligation
23 June 2018 Preliminary Tax for non-small companies (at least 50% of liability for preceding period or 45% of expected liability for current period)
23 November 2018 Preliminary Tax for non-small companies (the balance to bring PT payments up to at least 90% of the expected liability for the current period) and for small companies at least 90% of current period liability or 100% of prior period final liability
23 September 2019 Submit Corporation Tax Return and pay balance of tax

14.4.Use legislation to outline what reliefs can be denied to companies who fail to meet their pay and file obligations

14.4.1.Restriction of loss relief

Many reliefs that companies could avail of are partly denied if it fails to file its tax return by the due date. As previously discussed, Section 1085 TCA 1997 restricts loss relief claims under Section 396(2), 396A, 396B, 308(4) and 399 TCA 1997.

Under Section 1085 TCA 1997, where a company has claimed such reliefs but has failed to submit its return on time the reliefs will be restricted as follows:

Where the return is filed within 2 months of the due date, the relief is restricted to 75% of the relief otherwise available. However, the maximum restriction is €31,745.

Where the return is filed more than 2 months after the due date, the relief is restricted to 50% of the relief otherwise available. This is subject to a maximum restriction of €158,720.

It is important to note that the relief is only restricted in terms of its immediate use; it is not lost by the company. Any reliefs not granted are carried forward against future income under the normal rules. For example, any Section 396A or 396B TCA 1997 claim restricted by these provisions results in the loss not utilised being carried forward under Section 396(1) TCA 1997. There is no restriction on the use of losses carried forward.

14.5.Describe when an error or mistake claim may be made and the reasons for so doing

Where a company, who has paid tax charged under an assessment to corporation tax made for any year, claims that the assessment was excessive by reason of either an error or mistake in the corporation tax return or other statement made, the company may within 4 years after the end of the year of assessment to which the claim refers, make an application in writing to the Revenue Commissioners for a repayment of tax (Section 865 TCA 1997).

The Revenue Commissioners will only consider the application if they are of the opinion that a ‘valid claim’ has been made.

To be a valid claim it must contain all the information the Revenue could reasonably expect necessary for them to consider the facts. Assuming it is a valid claim, the Revenue Commissioners will enquire into the matter and will give relief as is reasonable and just by way of repayment. The section covers errors or mistakes arising from a failure to understand the law and arithmetical errors. If Revenue are satisfied with the validity of the claim they will amend the original notice of assessment, and issue a tax refund, if applicable.

It does not cover a failure on the part of the company to appeal against an assessment.

Nor does it apply where the return was made on the basis of or in accordance with the practice generally prevailing at the time when the return or statement was made.

Examples of some areas which may give rise to requesting an original notice of assessment to be revised:

1. Loss claim not originally made, the company may have intended to carry a trade loss forward and have now decided to carry the loss back.

2. Research and development claim made incorrectly.

3. Capital allowances calculated incorrectly, for example a motor vehicle purchased by the company may have been category A but the full specified amount was not claimed.

4. Credit not claimed for tax withheld from the company’s income. For example, tax withheld on professional services for which credit for the PSWT withheld was not claimed at the time.

Careful consideration should be given to the claim time frames as there may be specific legislation with shorter time frames within which claims for reliefs must first be made (such as losses and research and development claims). In these cases, the shorter time period in which claims must first be made will apply to the making of the claim and the 4 year period provided for in Section 865 TCA will apply to any error or mistake made in making the original claim (Section 865(5) TCA 1997).

Under the Part 41A self-assessment rules any claims to amend previously filed returns must be made by amending the original return, via ROS.

14.6.Describe when an expression of doubt may be made and the benefits of so doing

If the company is in doubt as to the correct treatment of any matter for tax purposes or the application of tax law to any matter, it may submit a return using its best judgment and belief but also including a ‘Letter of Expression of Doubt’ with the return so as to draw the Inspector’s attention to the matter (Section 959P TCA 1997).

By indicating that there is a genuine expression of doubt in relation to the return, the company avoids the potential surcharge, interest and penalty charges if it subsequently transpires that the eventual liability exceeds that submitted by the company (Section 959P(5) TCA 1997). This is only the case if Revenue accept the expression as being on a matter which is not genuinely free from doubt (Section 959P(6) TCA 1997). Revenue will review existing guidelines and the supporting documentation received and will then decide on the validity of the expression. The company can appeal against Revenue’s rejection (Section 959P(8) TCA 1997).

In submitting the letter of expression of doubt the company must supply the following information (Section 959P(1) TCA 1997):

1. Full details of the facts and circumstances of the matter in question.

2. Specify the doubt, the basis for the doubt and law giving rise to the doubt.

3. Quantify the amount of tax involved and the period.

4. All supporting documentation as relevant.

In order to ensure that the letter of expression of doubt is accepted in the first instance, the corporation tax return for the period must be filed on time and the letter of expression of doubt (and supporting documentation) must be forwarded to the company’s Inspector of Taxes at that same time (Section 959P(3) TCA 1997).

Examples of some areas which may give rise to indicating an expression of doubt on the corporation tax return:

1. Whether a building in use by the company qualifies as an industrial building

2. Whether a research and development or intellectual property claim is valid

3. Whether an item charged to repairs in the company’s Statement of Comprehensive Income could be classified as capital

Revenue also have a facility where the company can apply for an advance ruling on the taxation aspects of a particular transaction without waiting to enter it in the tax return as an expression of doubt.

14.7.Explain company secretaries’ liability to pay certain penalties

Company secretary’s liability to pay certain penalties (Including under Section 1071(1)(b), Section 1071(2A), Section 1073(2)(a), Section 1074(b), Section 1075(3)(b) and Section 1075(4)(b) TCA 1997)

The secretary of a company can be held liable to pay certain penalties imposed on a company if the company fails to deliver a return by its due date and/or to pay penalties arising from the failure of the company to comply with its tax obligations within a certain time after the penalty was imposed on the company. The secretary is entitled to recover any amounts that they pay that should have been paid by the company from the company. Please note that he/she cannot recover his/her own penalties from the company.

Definition of “secretary”

Section 1076(1) TCA 1997 includes as a secretary, in any case where the secretary of a company is not an individual who is resident in the State, a director of the company who is resident in the State. This permits any penalty which would otherwise be chargeable on or payable by the non-resident individual secretary to be imposed on a resident director.

If the secretary is not resident is the State, then the penalties can be recovered from any director of the company.

14.8.Assess the pay and file obligations of a company and prepare a corporate tax return

Example 14.12

A Limited’s accounting year end is 31 December. Its corporation tax liability for the year ended 31 December 2017 was €500,000.

In June 2018 it is estimated that its corporation tax for the year ended 31 December 2018 will be €750,000.

It makes two chargeable gains in the subsequent months giving rise to tax liabilities of €50,000 on a July 2018 gain and €80,000 on a December 2018 gain.

Therefore its total tax liability for the year ended 31 December 2018 is €880,000.

A Limited’s pay and file requirements are as follows:

23.06.18 Either €750,000 × 45% or €500,000 × 50% = €250,000

23.11.18 (€750,000 + €50,000) × 90% – €250,000 = €470,000

31.01.19 (€750,000 + €50,000 + €80,000) × 90% – €250,000 – €470,000 = €72,000

At this stage A Limited has now paid 90% (€792,000) of its overall liability

23.09.19 Lodge CT1 corporation tax return and pay €880,000 × 10% = €88,000

At this stage A Limited has now paid its total corporation tax liability of €880,000 in four instalments.

Example 14.13

X Ltd has a year end to 31 August 2017 and a tax liability of €30,000.

This is then followed by a ten month period to 30 June 2018 and a tax liability of €300,000.

To help with cash flow × Ltd wants to base its 2018 preliminary liability on its 2017 accounts.

As both periods are not twelve months we must utilise the formula:

As the relevant limit is higher than the corresponding corporation tax the company qualifies as a small company. The company will base its preliminary payment on €24,986.

The preliminary payment on 23rd May 2018 for the period ended 30 June 2018 will be €24,986.

When it lodges the return on 23rd March 2019 it will pay €275,014 (€300,000 – €24,986).

Completion of Form CT1

This section shows the CT1 return from Chapter 1, part 1.7 together with a description of the information required to complete it and a reference to the relevant chapter from where that information should be obtained. The 2018 version of the CT1 has been included here.

Notes on ROS CT1 Entries:

Company Details:

This section requires the corporation tax number and company name to be inserted along with the accounting period and any changes in fixed details from the previous period, for example address, etc.

If the company is a close company shareholder details are entered.

Any amendments to prior periods, for example section 396A TCA 1997 prior year loss claims are entered here, chapter 5.

Any expression of doubt claims for the period are entered in the relevant box, in this chapter. A covering letter with supporting documentation must also be forward to the company’s Inspector of Taxes by post or through MyEnquiries.

Any director loans in the period are also required, these will show opening balances, movement in the period and closing balances. This information will be obtained from schedules prepared for the company’s financial statements.

Details of all director emoluments are also required, as with the directors loan, this information will be available in the accounting schedules.

Trading Results:

In this section the Case I/II income calculated for the period as per chapter 2 is entered along with any capital allowances and industrial building allowances, Specific claims under section 285A TCA 1997 (chapter 2) and section 291A TCA 1997 (chapter 6) are also entered here.

Also required are details of any losses brought forward under section 396(1) TCA 1997, current year losses under section 396A TCA 1997 and carry forward of losses (chapter 5) as well as relevant trade charges under section 243A TCA 1997 (chapter 4).

The section also requires details of excepted trades under section 21A TCA 1997 (chapter 1), section 452 TCA 1997 (chapter 3) and qualifying donations under section 848A TCA 1997 (chapter 2).

Extracts from Accounts:

In this section, the company either indicates that it will be forwarding its accounts in iXBRL, see 14.9 or will be completing the extracts from accounts section.

If it is not filing in iXBRL extracts from the company’s financial statements are entered, including items such as turnover, director’s emoluments, travel costs and various statement of financial position items such as tax creditors, directors loans etc. This information will be obtained from the accounts schedules.

Irish Rental Income:

Irish rental losses brought forward, income or losses of the period and losses carried forward under section 399 TCA 1997 are entered in this section (chapter 5). Any claims under section 308(4) TCA 1997 are also entered.

Irish Investment and Other Irish Income:

All other Irish non-trading or rental income is included in this section, such as interest under Case III or IV (chapter 1), Franked Investment Income, patent royalty income etc.

Foreign Income:

Foreign income is entered in this section including specific section 21B TCA 1997 dividends (chapter 1).

Exempt Profits:

Any exempt income for the period is entered here (except for Franked Investment Income which is included in Section 4).

Capital Gains:

Details of capital gains in the period are entered here, including total consideration, disposal and acquisition costs, details of losses brought forward and carried forward and the capital gains tax rate at 33%, chapter 7. The net gains are not regrossed until the total corporation tax is calculated.

Chargeable Assets:

Totals of all chargeable assets acquired in the period are entered in this section.

Deductions, Reliefs and Credits:

Deductions such as section 83 TCA 1997 management expenses and section 247 TCA 1997 non-relevant trading charges (chapter 4) are entered here.

Losses (chapter 5) and charges (chapter 4) on a value basis under sections 396B and 243B TCA 1997 are entered in this section.

Claims for income tax suffered under PSWT, DIRT, etc are also entered here (chapter 9).

Research & Development Credits:

The total current claim for the period under section 766 and 766A TCA 1997 is entered here along with details of the amount transferred to qualifying key employees. Details of claims from any earlier accounting periods are noted (chapter 6).

The claims are then split under the first, second and third instalments.

The total amount paid to subcontractors in the period and the 2003 base year (only applicable to periods beginning on or before 31 December 2014) is noted, as are any credits surrendered to employees.

Film Corporation Tax Credit:

Not on syllabus.

Capital Gains Development Land:

Details of disposals of development land are entered here together with the split between gains in the period January to November or gains in the month of December (chapter 7).

Close Company Surcharge:

Details of the surcharges due under sections 440 and 441 TCA 1997 are entered here.

Recovery of Income Tax:

All taxes owed under section 239 TCA 1997 (chapter 9) are entered here with a specific box for tax owed under health insurance TRS (chapter 2).

Dividend Withholding Tax:

In this section details of each distribution made during the period are entered together with the total DWT deducted (chapter 8).

Calculate

This section shows the ROS computation

Property Based Incentives:

Not on syllabus.

CT Self Assessment:

This section shows the amount of tax as calculated by ROS and if agreed, is accepted by the company. If the company disagrees with the ROS calculation it can enter its own figures and a note on the difference. Revenue will then issue a full notice of assessment. If applicable the company will engage in correspondence with Revenue.

The company must self assess its corporation tax liability and include surcharges for late filing and non-compliance with Local Property Tax legislation (if the company owns residential property in Ireland). It must also allow for the impact on losses if the return is filed late under section 1085 TCA 1997 (chapter 5) as well as preliminary tax payments made during the year.

14.9.Understand the mandatory requirement to file accounts and computations in iXBRL format

Introduction

As can be seen from the sample ROS CT1 noted above, companies are not required to manually submit a copy of their full financial statements to Revenue with their CT1 return. Instead, the company enter certain details from their accounts into the ROS extract boxes. Revenue can then use these extracts for their risk profiling in terms of possible interventions by means of audit and verification requests.

In recent years a new software facility has become available which allows both ourselves and computers to read the same data set. This software is known as XBRL, Extensible Business Reporting Language. This means that we can read the company’s full financial statements and at the same time a computer can also read it as the accounts have been “tagged”.

Each piece of data in the financial statements is given a code known as a tag. The tags are all from approved taxonomies which act as dictionaries and give each item in the accounts a code that a computer can understand. For example, the Irish GAAP term for corporation tax paid is ie-gaap:ROICorporationTaxPaid. In this instance a reader of the financial statements can read the term Corporation Tax Paid and a computer with XBRL installed will also be able to read it. The advantage of this to Revenue, is that rather than receiving numerous accounts extracts contained in CT1 returns it will instead receive the full financial statements and will easily be able to make comparisons across different sectors etc.

Revenue accept a number of taxonomies and these cover both FRS 102 and IFRS prepared financial statements.

The most recent version of XBRL is iXBRL. The i stands for inline and allows the financial statements to be presented in a normal document with the tags also embedded in the document.

For a company to tag its financial statements to comply with iXBRL it either has to outsource the procedure to a specialist firm (for example an accounting firm) or purchase/upgrade its own software to ensure that it has iXBRL capability.

When a company files in iXBRL it is not required to complete the ROS extracts in the CT1 but it must still file a CT1 return, as there is no facility for submitting a tax computation in iXBRL.

Mandatory Filing

S.884 TCA 1997 gives Revenue power to compel every company that is required to prepare accounts under the Companies Act to submit their accounts using iXBRL, as well as non-resident companies trading in Ireland.

Revenue have been accepting iXBRL accounts since 23 November 2012 from voluntary filers. However it is phasing in mandatory filing as follows:

Phase 1 - 1 October 2013 – from this date all companies within LCD (Large Cases Division) and certain special purpose companies must file in iXBRL.

Phase 2 - 1 October 2014 – from this date all companies that cannot avail of audit exemption must file in iXBRL. The audit exemption criteria that must be met are as follows:

1. Statement of Financial Position (Balance Sheet Total) value of the company must be less than €4,400,000 (note 1)

2. Turnover must not exceed €8,800,000

3. Average number of employees must not exceed 50.

Note 1 – Balance sheet total generally means fixed assets, investments and current assets with no reduction for liabilities,

Phase 3 – The commencement date for audit exempt companies has not yet been issued.

Exemptions are available for certain inactive companies or companies in liquidation, however permission to not file in iXBRL must be obtained from the local Inspector of Taxes.

A company preparing its return and using iXBRL must file the accounts within 3 months of filing the CT1 return.

Task Answers

Task 14.2

30 September 2019.

Task 14.3

(i) Preliminary tax of €144,000 on/before 23 February 2018.

Balance of €16,000 within 8 months and 23 days of the year end i.e. by 23 December 2018 (paid when tax return filed).

(ii) It would be subject to interest penalties.

100% deemed due 21 February 2018

€160,000 * 0.0219% * 323 days = €11,317.92

(21/2/18 to 10/1/19 inclusive)