Budget 2008 - What's in it for you?
Irish Motor Management - January/February 2008
For most of those involved in the motor trade, the focus on the recent Budget speech from the Minister for Finance was mainly on the provisions relating to ‘environment-friendly’ taxation. As was widely expected, the Minister has introduced a system which directly relates how much VRT and annual road tax a motorist must pay to the CO2 emissions of the vehicle in question.
It will be some time before the effects of the new system are fully known but it appears that the buying behaviour of many will be influenced strongly by the system. The details and potential impact of the new system are dealt with elsewhere in this magazine.
The general consensus is that the Budget was designed to steady the economy in uncertain times and there were therefore very few bold or surprising measures proposed. That said, there were a number of provisions contained within the Minister’s speech which certainly warrant consideration. Those in the trade would do well to assess whether any of these provisions might significantly affect their business, their employees and even themselves personally.
Some of the key points of the budget include:
- Increase in preliminary tax threshold for companies
- Changes to capital allowances on certain vehicles
- VAT Issues
- Increases in personal tax credits and standard rate bands
- Stamp duty changes
The remainder of this article is a brief summary of these measures and why they may be of relevance to those in the motor trade.
BUSINESS TAXATION
Payment of Preliminary Corporation Tax
“Small Companies” have the option of paying preliminary tax at the lower of 90% of the final liability or 100% of the liability of the previous period. The corporation tax liability threshold defining a small company is increased from €150,000 to €200,000 from 5 December 2007. New or start up companies with a first year liability of €200,000 or less are not required to pay preliminary tax in respect of their first accounting period.
These changes may have significant cash-flow benefits for a company which is regarded as ‘small’ as it allows the initial tax payment to be based on the previous period (which may be significantly less than the current year)
Capital Allowances and expenses for business cars
A revised scheme for claiming capital allowances on the purchase and leasing of new cars (used for business purposes) is to be introduced.
The capital allowances will be linked to the CO2 emission levels of the vehicles. Cars with low emission levels will benefit from capital allowances at the current car value threshold of €24,000, regardless of the cost of the car. Cars at medium CO2 emission levels will receive allowances at 50% of the threshold, with cars at the highest level not qualifying for any capital allowances. This scheme will apply to expenditure incurred on or after 1 July 2008.
This will naturally impact the taxable profits of all companies who lease and buy news cars for the use of their employees and owners. It may also result in companies purchasing new cars with higher CO2 emissions before 1 July 2008 in order to avail of the old rate of capital allowances.
Anyone who has ‘commercial’ customers needs to understand what their customers require and how these new rules may impact upon buying behavior.
VAT ISSUES
The VAT registration thresholds are being increased from €35,000 to €37,500 in the case of services, and from €70,000 to €75,000 in the case of goods from 1 May 2008. Although this particular change will not affect many motor dealers, if any, it could affect those who operate additional but smaller business activities (separate from their companies).
The Minister confirmed that a new system for applying VAT to property transactions will be introduced from 1 July 2008. Further details will be included in the Finance Bill. These changes to VAT should be kept in mind by those who plan to buy or lease properties such as showrooms or offices. The greatest impact will be for those involved in commercial property transactions. Suitable advice should be sought in relation to these transactions in order to ensure the correct VAT treatment has been applied.
PERSONAL TAX
Standard rate bands and personal credits
The standard rate cut-offs have been widened from:
- €34,000 to €35,400 for single people
- €43,000 to €44,400 for married couples with one income
- €68,000 to €70,800 for married couples with two incomes
The single person’s tax credit has increased from €1,760 to €1,830; whereas the married couple’s credit has increased from €3,520 to €3,660. The PAYE credit for employees has increased by €70 to €1,830.
Employers should generally be aware how an employee may have benefited from such increase as it can impact upon end of year appraisals and discussions concerning pay etc.
Increase in Specified Rates for Preferential Home Loans and Other Loans
Where an employee is in receipt of a preferential loan, the specified rate used to calculate BIK is being increased to 5.5% for home loans and to 13% for all other loans, from 1 January 2008. Although not common in the motor trade, employers should be aware of the significant tax implications of giving loans to employees.
STAMP DUTY
Site to child relief
The threshold limit for relief from Stamp Duty on the transfer of a site to a child has been increased from €254,000 to €500,000; this increase also applies for Capital Gains Tax. This may be of interest to those with land which may be suitable for transferring to a child for the purposes of constructing the child’s principal private residence.
SECTORAL REVIEW & AUDITS
While not covered in the Budget speech, Revenue has recently confirmed that they will continue to apply a sectoral approach to Revenue audits for the foreseeable future. Given the recent publicity concerning anti-competitive practices as well as the specific focus on VRT in recent times, it is likely that some members will be selected for audit during 2008.
It may therefore be an opportune time to review the overall tax compliance of the business.
Finbarr O'Connell
VAT Manager
Grant Thornton
T +353 (0)1 6805 805