Welcome to our Spring’19 Newsletter.

We have had an exciting start to the year with the firms service expansion, some very interesting and exciting staff news, new graduates joining our team, lots of TY students coming in for their weeks experience and our rebrand program.

With the great professional advice and patience from our very valued client and brand advisor Raven Design we have just completed a six-month project of a refresh of the Quintas brand. This involved introducing new taglines, redeveloping our website and changes to our signage and stationery. Thank you, John and Billie at Raven design, Megan O'Brien and Rob Carpenter at Granite our web designers, Frank Kelly at Lettertec and Kingsign for all the hard work in getting this done.

We have embarked on a monthly client survey in the last number of months. I would like to thank our clients for their timely and honest feedback which helps us provide a better service which is something that we continue to explore and strive for.

We have included a couple of articles on Brexit below.  If you are concerned at any stage on how Brexit may impact your business please feel free to contact us and we will assist you set out an action plan.

I hope you enjoy the content of our newsletter and please feel free to contact me at any time.

Regards

Tim

“Goin' to the chapel and we're gonna get married” – Marriage is more than just a song - Reap the financial benefits!

When the Dixie Cups performed the “Chapel of Love” song and when Bruno Mars performed and co-wrote the song “Marry You”, I think the furthest thing from their mind were the financial benefits of getting married, and rightfully so. You would need to have been raised under a rock to never have heard these songs which exude romance and make hearts melt. However, I do work in an accountancy firm so I will be focusing on the financial benefits of marriage, rather than focusing on butterfly’s, song birds and all that romantic stuff – down with that sort of thing!

I chose to write on this topic as I have a particular interest in it - I got married less than 3 months ago. I was always quite cynical about marriage, and more particularly the day itself, not even a day! I always believed it was nonsensical the amount of money people paid for just 1 day and was uninspired by the predictability of the time – tabled fashion in which it is generally held. My opinion was formed from having seven older siblings, from being bridesmaids on a number of occasions for family and friends and from attending a lot of weddings. Don’t get me wrong. I had a fantastic time at all of those weddings and was honoured to get wedding invites, but just could not get it, as in, I could not get why a couple would spend a ridiculous amount of money on 1 day. Not to mention tv shows such as Bridezilla and Don’t tell the Bride which to me highlights that the purity and true importance of getting married is so often lost in the immaterial and frivolous detail.

Then on the 4^th of January 2019, my wedding day, I got it…...I completely got it. Money did not exist in my mind on the day. Every cent that went on the wedding was so worth it. It was the most amazing day of my life. Although it felt like I was abducted by aliens for a couple of hours on the day as time was simply erased and was stolen from me as I wandered through the reception bursting with blissful happiness in a haze of joy. The day commenced with doing the robot dance with my two bridesmaids whilst waiting for an early morning breakfast at a trendy café in Cork City in my deliriously emotional and ecstatic state to saying “I do”, skipping through to the meal, to dancing to our first song, to doing a further duet with my husband in the early hours and then it was sadly over. But the feelings and the emotions that I experienced on the day were truly better than winning any lotto for me and they are something that I will cherish for a lifetime.

Anyway back to business on the financial benefits of marriage, before you potentially reach for the bucket or before I bore you to tears.

Tax on Income

With marriage brings greater flexibility in that you can elect to be taxed in the way that will yield the best possible tax advantage given your personal circumstances. The options open to you are:

• Joint assessment - This means that you will be taxed as one unit and allowed some tax concessions not used by one spouse to be transferred to the other.
• Separate assessment - This is very like joint assessment except that all the available allowances are split evenly between you and your spouse.
• Single assessment - This is where you and your spouse decide to be treated as if you were two single people for tax purposes.

The benefit of joint assessment is the ability to transfer tax bands and credits between husband and wife. This means you can reduce the amount of tax you have to pay at the higher rate, which could be a significant saving.

The standard cut-off point for married couples in 2019 is €44,300. This amount is taxed at 20% and the balance is taxed at 40%. Where both spouses have income, this standard rate cut-off point can be increased by the lower of the following:

• €26,300 in 2019 or
• The amount of income of the spouse with the smaller income.

Therefore a married couple can earn up to €70,600p.a, paying tax at 20%, before the higher tax rate of 40% kicks in.

This is particularly beneficial in the case of a two-income couple where one spouse earns more than the other. Under normal circumstances, the Revenue Commissioners will assume that you wish to be taxed under joint assessment, and will calculate your tax liability accordingly. However, take advantage of all the allowances and tax credits open to you and choose the option that produces the best return for you.

Many couples can make a saving however a lot of married couples are no better off tax wise. It all comes down to how much a couple earns. You can potentially make a saving in certain circumstances such as:

• Both spouses are working but only one spouse pays tax at the higher rate (40%);
• Both spouses are working and one spouse has unused credits;
• Only one spouse is working;
• One spouse cares for children in the home;
• You are disposing of assets or making investments.

In the year you are married, both you and your spouse will continue to be treated as single people for tax purposes. However, if the tax you pay as two single people is greater than the tax payable if you were taxed as a married couple, you can claim the difference as a tax refund. Only tax deducted in the months after marriage can qualify for a tax refund, and refunds are typically granted the following year. So if you get married in 2019, like me, for example, your refund will be calculated after 31^st December 2019 which represents the Revenue Commissioners belated wedding present to the happy couple.

Home Carer Tax Credit

This tax credit is given to married couples who are jointly assessed for tax, where one spouse or civil partner works in the home caring for a dependent person. It could be an older relative or even the children of the couple. It is worth €1,500 for 2019 if the stay-at-home earns less than €7,200 p.a. You cannot claim both the increased Standard Rate Cut-Off Point for dual income couples and the Home Carer Tax Credit. 

Capital Gains Tax (CGT)

Gains made on profits from selling an asset, for example a house, are currently taxed at 33%. If you are married assets can be transferred between husband and wife without being subject to CGT. Also any capital losses made by one spouse may be used by the other spouse to reduce a capital gains tax bill.

Capital Acquisitions Tax (CAT)

Any gifts or inheritance given by one spouse to another are free from CAT which is currently at 33%. For cohabiting couples your partner is effectively treated like a stranger for CAT purposes as you are not blood relatives and not married. This means that the most that a partner in a cohabiting relationship may inherit from the other tax-free is currently €16,250 with the balance of the inheritance subject to tax at 33%. In this scenario if, for example, the property you lived in with your deceased partner is owned solely by your partner, you could find yourself in a situation where you have to sell the family home to settle the inheritance tax bill.

Stamp Duty

If you are married you do not have to pay stamp duty when you transfer assets to your spouse.

Succession Rights

Although I am still in my happy honeymoon phase I think we need to include succession rights. Being married can protect your rights to inheritance. If you are married and your spouse dies and there is a valid will, under the Succession Act 1965 you have an automatic right to a 'legal right share' despite what your spouse may have specified in his/her will. The 'legal right share' is:

• One-half of the estate if there are no children;
• One-third of your estate if there are children.

Therefore, if your spouse has bequeathed you less than your 'legal right share' entitlement, you may still claim your right to your minimum 'legal right share'. You do not have to go to court; the executor or administrator is obliged to grant you your share. This 'legal right share' entitlement will apply so long as you have not already renounced or given up your right to the estate and so long as you are not deemed "unworthy to succeed". For example, the surviving spouse has not had committed murder or a serious crime against the deceased or if the spouse had deserted the deceased for at least two years before death. Of course if your husband/wife leaves you everything, you are entitled to everything; so long as your child does not challenge the will arguing that their deceased parent failed in his/her “moral duty” to make proper provision for the child in accordance with his/her means.

If you are married and your spouse dies intestate without leaving a will or a valid will, the rules for the division of property on intestacy are as follows:

• Spouse gets entire estate if there are no children;
• Spouse gets two-thirds, one-third is divided equally between children.

Life Assurance

Although life insurance benefit is paid out as a tax-free lump sum, whoever inherits the money after your death, depending on their relationship to you, may have to pay inheritance tax. The amount of tax they pay depends on how much they inherit; their relationship to you; other gifts and inheritances they may already have received and Revenue rules at the time of your death. There is no tax liability on sums received from spouses. Your life cover benefit will be paid tax free if the beneficiary is your wife/husband.

I was telling my Italian friend Giovanni who lives in Cork about this article that I am writing and Giovanni, being the typical romantic Italian, jokingly said that he needs to marry an Irish lady to potentially increase his annual net salary and to fall in love with too, of course. However, for all of you budding brides to be and grooms to be intending to pop the question or say I do, it is important to remember that deciding to get married is one of the biggest decisions that you will ever make and I’m not suggesting that you get married for the potentially generous financial benefits and tax breaks as the title of this article states. Rest assured that by getting married there are financial benefits to be made whether it’s an increase in your net pay or for CAT or CGT purposes. And if this article is too hopelessly positive and one sided in only focusing on the financial benefits of marriage, well sorry I can’t help it. I’m simply a newly-wed joyfully living in the honeymoon phase of life. Its still butterfly’s and song birds for me. Don’t steal my sunshine; negative thoughts are not on my radar!

At the time this article was initially drafted the UK were expected to have exited the EU. This was then extended to the 12^th of April if no deal was agreed or the 22^nd of May if a deal could be achieved.  In the meantime, Theresa May offered up her resignation, has withstood a party coup and has seen quite a number of indicative votes being lost in parliament. The current talk is that they will request a further, longer extension which would give them time to go to the people and ask for them to vote on the current leave option being proposed by Theresa May. The alternative is a hard Brexit. By the time you are reading this there will undoubtedly by more updates, but I guess the actual position of the British still won’t be any clearer.

There are many issues facing businesses resulting from a hard Brexit and one of those is taxation. The way the legislation is written means that most reliefs and rules relate to Ireland and countries within the EU. By mid-May we can unfortunately assume that the UK will be outside the EU and therefore as the legislation is currently written the tax legislation would make it extremely difficult to do business with the UK.

Last month the government published draft legislation in an attempt to mitigate the effects of a “no deal Brexit”. This bill aims to deal with important items that will be greatly affected by a sudden hard exit of the United Kingdom from the EU. The Bill, which will be fast-tracked through the Oireachtas, is designed to support businesses and jobs impacted by a no-deal and secure ongoing access to essential services and products across the Irish border. The proposed legislation will only become law if the UK leaves on April 12th (or whenever!) without a deal. The bill provides for the modification of Income Tax, Capital Tax, VAT, Corporation Tax and Stamp Duty legislation in order to ensure continuity for businesses with regard to their ability to access certain taxation measures such as reliefs and allowances. In order to maintain this continuity the bill allows for relevant legal conditions that are currently only applicable to EU countries to apply to the UK post Brexit.

One of the key provisions in the bill is the proposal to allow Irish companies importing goods from the UK to delay the payment of the import VAT. Currently when an Irish business imports goods into Ireland from a non -EU country then they must pay VAT on import. This creates a substantial cash flow burden on the Irish business. This cash flow burden will be intensified if they now need to pay VAT on import on UK goods coming in.  The proposed new rules will mean the importer does not pay VAT on import but instead pays over the VAT in their next VAT return. This would apply to all non-EU countries and not just the UK.

This scheme will be provided to all traders for an indefinite period post a “no deal Brexit”, however the Minister of Finance has confirmed that continued qualification for this scheme will be dependent on receiving Revenue authorisation at later date.

Another key provision of the Withdrawal Bill is changing of the conditions necessary to qualify for the VAT 56 Authorisation scheme (this is the old 13b exemption number). Section 56 of the Value-Added Tax Consolidation Act 2010 allows qualifying businesses to receive certain goods and services from Irish suppliers with a zero-rate of VAT applying as well as importing goods free from VAT. Broadly speaking you qualify for this scheme if over 75% of your turnover is received from non-EU countries. Currently qualification for this scheme is based upon projected turnover figures for the coming 12 months. The bill proposes to change qualification to being based on the turnover figures of the prior 12 months. As a result of this, businesses will now have to wait at least 12 months before applying for authorisation. The bill also proposes that the holder of the VAT 56 authorisation must be compliant across all tax heads during the period to which the authorisations pertains to. Revenue are also free to remove this authorisation should they feel that the requirements are no longer being met. By having this authorisation companies who have the majority of their sales with the UK will not have to pay VAT on most of the services/goods they receive in Ireland.

One of the ways in which businesses can prepare themselves for a “no deal Brexit” is by applying for an Economic Operators Registration and Identification (EORI) number. The number which took effect in 2009 serves as a common reference number for any businesses interaction with the Customs Authorities of any Member State. It is an essential requirement for any business planning to import or export goods with countries outside the EU. Applying for this number is free and will save a lot of hassle should the UK leave the customs union. Revenue have said that 2,617 registrations have been made so far this year, compared with a total of 2,976 for all of 2018. A basic step of any businesses Brexit preparations should be obtaining an EROI number as well as ensuring they have the facility to make a customs declaration. Registration can be completed quickly and easily through Revenue's secure online services

From experience I would guess that there are going to be many tax related items that haven’t been accounted for or even thought about by the Government. This is going to be trial by error in many respects and the only guarantee is that it won’t run smoothly. I would encourage speaking with your advisors regularly on this topic once the UK leaves, as tax treatments of even the simplest transactions with the UK will most likely change on a regular basis.

The Employment ( Miscellaneous Provisions) Act 2018  commenced on the 4^th March 2019. Employers will need to review their employment practices in detail to assess the impact of the new Act on their businesses. The new legislation provides that:

• Employers will need to give a written statement within 5 days of a new employee starting work. 
• ‘zero hour’ contracts prohibited (unless there is a genuine requirement for a short-term/casual employee). 
• Allow employees to request to be put in a ‘band of hours’ that reflects the actual hours worked rather than the contracted hours.
• New concept of ‘banded hours’ introduced.
• Provide a new minimum payment to be paid to employees who are expected to be available for work but not required to work on a certain week or who work less than 25% of their weekly contractual hours in a week
• Recognise that casual employees who are employed on a regular and systematic basis are entitled to deemed continuous service between separate periods of employment. Seasonal employees, for instance, who are re-engaged by their employer for a second period of employment will be deemed to have been on lay-off and will accumulate continuous service between contracts

1.  There are 5 core terms to be included in the Written Statement. These are as follows:

• The full name of employer and employee
• The address of the employer
• Where the contract is temporary, the expected duration of the contracts or the date of expiry of a fixed-term contract
• The rate or method of calculating pay and the pay reference period
• What the employer reasonably expects to be the normal length of the employee’s working day and week.

Under the new legislation, failure to comply can give rise to a criminal offence with fines up to €5,000 and imprisonment of up to 12 months.  Liability falls to anyone with responsibility in the company

Zero-Hours Contract

A zero-hours contract of employment applies where you (the employee) are available for work but your hours of work are not specified under your employment contract. A zero-hours contract requires you to be available for a certain number of hours per week, or when required, or both. These are only available only exceptional circumstances:

• Work of a casual nature
• Work done in emergency situations
• Short-term relief to cover routine absences

For example, where a member of staff in a care facility must accompany a resident to hospital at short notice, an appropriate substitute worker can be called in to cover under a zero-hours contract. Similarly, schools maintain a panel of teachers to provide substitute cover for the unexpected absence of a regular member of the teaching staff.

Minimum payments

You must receive a minimum payment if you are called in to work but sent home without work (except in emergencies, exceptional circumstances or short-term relief, for example). You must get pay for 25% of the possible hours or for 15 hours, whichever is less.

New calculations for these minimum payments are set out in the new legislation.  Your pay should be calculated as either 3 times the national minimum wage or, if applicable, 3 times the minimum hourly rate in an Employment Regulation Order.

An employee under a zero-hours contract who works less than 25% of their potential hours in any week should be compensated. The level of compensation depends on whether you got some work or none at all:

• If you got some work, your compensation should bring you up to 25% of the possible available hours or 15 hours, whichever is less.
• If you got no work, the compensation should be either for 25% of the possible available hours or for 15 hours, whichever is less.

For example, if you are required to be available for 20 hours per week, but you got no work, you would be entitled to be compensated for 15 hours or 25% of the 20 hours (that is, 5 hours), whichever is less. In this case, 5 hours is the lesser amount.

If, on the other hand, you got 3 hours’ work out of the 20, you would be compensated for 2 hours’ pay, to bring you up to 25% of the contract hours.

To calculate the minimum payment in this example, €9.80 per hour is the national minimum wage.  Alternatively, you could substitute the ERO hourly rate if this applies to your job.

You got no work: (€9.80 x 3 times x 5 hours) = €147

You got 3 hours’ work: (€9.80 x 3 times x 2 hours) = €58.80

This minimum payment rate does not apply if you are on call.

Banded hours

Where an employee’s current employment contract does not accurately reflect the average hours per week that they actually work over a 12-month period, the employee is entitled to a banded hours contract. A banded hours contract gives the employee the right to work an average of the hours in your specified band for 12 months. There are 8 bands covering a certain number of hours per week:

Band A: 3 to 6 hours

Band B: 6 to 11 hours

Band C: 11 to 16 hours

Band D: 16 to 21 hours

Band E: 21 to 26 hours

Band F: 26 to 31 hours

Band G: 31 to 36 hours

Band H: Over 36 hours.

An employer has the right to refuse on the grounds of no evidence to support the employees claim such as there have been significant adverse changes to the business or due to exceptional circumstances e.g. emergency or the average hours were affected by a temporary situation.  Any complaints are taken to the Workplace Relations Commissioners.

Minimum Wage

The minimum wage increased from 1^st January 2019 to €9.80 per hour for an experienced adult worker.  Under the new legislation anyone under 18 who is not experienced will receive 70% of the minimum wage, anyone aged 18 who is not experienced will receive 80% of the minimum wage and anyone aged 19 who is not experienced moves to 90% of minimum wage.

Top tips on how to prepare for the changes:

1. Review your current employment contracts

2. Do employee’s hours worked match contractual hours?

3. Do management understand their new obligations?

4. Will you be able to provide contracts within 5 days?

5. Review your zero-hours contracts/practices – are they justified?

Form 46G

The Form 46G is an annual return of information, pertaining to certain payments for services rendered in excess of €6,000 in aggregate per third party in the return period. Revenue has made it compulsory that the Form 46G is filed annually. Failure to file may lead to delays in obtaining tax clearance confirmation, delays in tax refunds being issued and in some instances failure to file Form 46G could lead to a Revenue Audit.

Payments to be returned include:

• Payments for services rendered in connection with trade, profession, business etc. paid directly by you or paid on your behalf by another in the return period.
• Payment for services rendered in connection with the acquisition, formation, development or disposal of a business or trade in the return period.
• Periodical or lump sum payments made in respect of any copyright.

The following entities are required to file Form 46G annually:

• Companies
• Trusts
• Partnerships
• Unincorporated bodies (including charities and statutory bodies)
• Self-employed individuals (including farmers and professionals)
• Professionals and those carrying on a business.

 The following are those services and activities which have been added to the original list in respect of which payments need to be included in  the Form 46G:

• Call Centre/Customer Service
• Childcare
• Fitness, Sport & Leisure Services
• Fleet Management Services
• Health & Safety Services
• HR/Recruitment Services
• Internet & Information Technology related services (including website design or re-design, cloud services etc.)
• Landscaping/Gardening/Horticulture
• Marketing /Business Analysis
• Printing & Publishing

Please note that Quintas are available to assist you with the preparation and submission of your Form 46G to the Revenue, should you require our assistance. In order for us to assist you we would require the following information for each of your service providers:

• Name
• Address
• Tax reference number
• Value of consideration given/payments made during the return period (aggregate of all individual invoices, net of VAT, if applicable)
• Nature of the service

Please click on the following link for the full list of services/activities in respect of which returns of payments are required, https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-38/38-03-12.pdf

While topics relating to death and inheritance may not be top priority around most dinner tables, dealing with these issues early is perhaps one of the wisest financial decisions you can make. Financial matters should not even have to be contemplated during times of bereavement and loss.

One of the more important aspects of this is, creating a Will. While the Succession Act ensures that the next of kin will inherit the assets, a Will speeds up this process and makes it as seamless as possible avoiding unnecessary confrontation and disputes.  Without a Will, a person dies intestate and certain rules come into play pertaining to the division of their assets. This can be a lengthy and drawn out process.

There is also the much detested issue relating to inheritance tax. Ireland’s inheritance tax or Capital Acquisition Tax (CAT) is currently 33%. Following the death of a parent, a child, is entitled to inherit under current CAT thresholds a certain amount (up to € 320,000 in your lifetime) tax-free; after this point, you are taxed 33%. (There are exemptions and reliefs that are available to help reduce the tax liability, including; dwelllng house exemption, business/agricultural reliefs).

However, for example, if you are due to inherit a property worth €500,000 from your deceased parent, you are liable to pay 33% tax on the difference between the €320,000 threshold and what the property is worth: in this case, €59,400. This can be very stressful should you not be in a position to come up with the lumpsum.

The payment for inheritance tax and the filing of returns are subject to the Self-Assessment System and so the obligation to make a return to the Revenue Commissioners rests with the person receiving the inheritance.

The Pay and File date for Capital Acquisitions Tax is 31 October in that year where the valuation date is between 1st January and 31st August, where the valuation date is between the 1st September and the 31st December, the deadline for CAT payment is the 31st October the following year.

So where do the children of deceased parents, for example find the funds to pay this tax bill?

The simplest and more cost-effective solution is to take out a Section 72 life insurance policy that will pay the tax bill for them.

This life assurance benefit does not form part of the estate asset value, as it is specifically written under section 72 of the Capital Acquisition Tax Consolidation Act 2003 to pay inheritance tax.

The policy could be taken out by the parents themselves, or an alternative is if the children themselves, if they can afford to, finance the policy for their parents given that it’s for their long term benefit.

Either way, forward planning can help hugely with inheritance related matters.

Key Features Section 72 Policies

1. The life insurance policy must be a Revenue approved policy.

2. The policy is expressly affected under Section 72 for the purposes of paying inheritance tax on death.

3. The policy can be a single life policy or a joint life second death policy effected by spouses or registered civil partners.

4. The policy must be affected on the life or lives of the disponer(s) who also must pay the premiums.

5. The Section 72 policy must have a ratio of sum assured to annual premium of at least 8:1.

If the policy has a premium loading for medical, occupational or financial reasons, the ratio

must be at least 6:1.

6. Any portion of the proceeds not used to pay off the inheritance tax liability will be liable itself to inheritance tax.

7. A policy can be effected by a disponer as an employee of a company however, if the premiums are paid by the employer they are deemed to be a ‘benefit-in-kind’

  chargeable to income tax in the hands of the insured.

If you would like any additional information in connection to inheritance tax policies, please contact Anne O’Doherty/Lynda McAuliffe, Quintas Wealth Management on 021 4641480.

A Personal Insolvency Practical Guide and Case Study

This would reflect the mood of the people who I have met over the last few years since I became a licensed Personal Insolvency Practitioner (PIP) in August 2013. It still surprises me that following our meeting they almost always tell me how much better they feel after sharing their problems and how they now understand that there are solutions to dealing with their debts. This meeting is the first big step on their journey to returning themselves to solvency. I have to admire the people that I meet as it must be tough opening up to a complete stranger about their problems and then telling the story about how they got to where they now find themselves. I would like to think that after they meet with me that they feel that someone is finally in their corner and that I have their back no matter what happens from there on.

Under the personal insolvency legislation, the PIP effectively steps into the person’s shoes and starts dealing directly with their creditors on their behalf. This means the letters, phone calls and any legal proceedings will stop to allow time (70 days) for the PIP to make a proposal to their creditors to resolve their debts. In most cases this will involve a substantial write down of debt.

One important statistic from the recent report to Q4 2018 which was issued by the Insolvency Service of Ireland (ISI) was that 95% of those who avail of the Personal Insolvency legislation retain their family home whilst also returning to solvency. Although the number of people who have availed of the new personal insolvency legislation is still quite low (just over 5,300 to date) we would estimate that there are a couple of hundred thousand people out there who need help and advice on how to resolve their indebtedness.

There are over 500 PIA arrangements that were rejected by creditors that are currently being appealed to the insolvency courts. The appeals process is very slow but there have been a number of PIA arrangements that were rejected by creditors which have been subsequently approved by courts. I have had a number of successful appeals approved in the last 12 months.

It is important to note that although there are currently over a 100 licensed PIP’s nationwide the ISI confirmed that less than half of these licenced PIPs are active and as such have the relevant experience of how the personal insolvency legislation works. As you only get one shot at availing of the legislation to resolve your debts it is extremely important to choose an advisor carefully, and it is advisable to ask a PIP how many cases they have dealt with and how long they have been operating as a PIP.

The Government launched a debtor’s support scheme in 2016 called ‘Abhaile’. This is a government funded scheme that allows a debtor to meet with a PIP for a ‘free’ consultation to assess their case and provide advice to the debtor in writing on how they can avail of the personal insolvency legislation to resolve their debts. My advice for anyone that is worried about any type of debt is to contact an experienced PIP advisor through the ‘Abhaile’ scheme to get professional advice on how to sort out their problems.

I have set out below a number of questions that I get asked regularly by clients that I meet.

1. How does it work and what is the term for each arrangement?

PIA – Up to a 6-year term for secured and unsecured debts (extendable to 7 years in certain circumstances).

DSA – Up to a 5 year term for unsecured debts only (extendable to 6 years in certain circumstances).

DSN – 3-year term for debts less then € 35,000

Accelerated Arrangement - Under the legislation there is also the option of an accelerated PIA or DSA.

This involves a lump sum payment (for example through family member support) payable normally within 3 to 12 months from the date the arrangement is court approved. For a DSA arrangement to be approved it must have 65% of creditors voting in favour of the proposal at a creditors meeting. For a PIA arrangement to be approved it must have 65% of creditors voting in favour of the proposal at a creditors meeting. In addition, for a PIA to be approved creditors representing more than 50% of the value of the secured debts, participating and voting at the meeting, must vote in favour of the proposal and creditors representing more than 50% of the value of the unsecured debts, participating and voting at the meeting, must vote in favour of the proposal for a PIA.

2. What are Reasonable Living Expenses (RLE’s) and how are they calculated?

They are cost of living expenses for the standard term of the arrangement (5/6 years). They would allow someone to live a basic standard of living but not a normal standard of living. In my experience these allowances would be 30%/40% lower than a person would normally live on outside of a PIA/DSA. These allowances are also used in bankruptcy for the assessment of a 3-year income payments order.

For example: a family of 2 adults and 2 children in secondary school, with a car in the household, would look like this:

Net income (take home pay after taxes)                                € 5,000

RLE’s

1. Total Set Costs                                   € 2,240
2. Childcare                                             €   500
3. Mortgage Payment                             € 1,250
4. Special Circumstances                       €        0

Total RLE allowances                                                             € 3,990

Net Dividend available to creditors (per month)                € 1,010

This is the maximum dividend a debtor can offer to their creditors over the 5/6-year term of the relevant arrangement regardless of whether their debts are € 50,000 or € 50m.

3. How the family home is dealt with in a personal insolvency arrangement?

A core part of the legislation is the protection and retention of the family home.

As stated above 95% of debtors who avail of the legislation retain their family home.

The Principal Private Residence (PPR) loan can be restructured in a number of ways as outlined below. It will give certainty to the debtor as regards their financial position in to the future, once the arrangement has been completed.

In most cases it will involve a write off of the mortgage on the family home.

Below is an analysis of how 128 cases which involved a family home mortgage were resolved under successful PIA applications.

2 - Mortgage to Rent

2 - Permanent Interest Rate Reduction

2 - Reduced Payment

3 - Payment Moratorium

5 - Voluntary Surrender

6 - Temporary Interest Rate Reduction

10 - Unchanged

17 - Interest Only

31 - Arrears Capitalisation

34 - Principal Reduction

49 - Term Extension

59 - Split Mortgage

4. What do you think of Vulture Funds in the context of recent announcements made by the main banks to sell on non-performing loans?

They are a necessary evil and they are not new. They are investment funds that buy ‘bad loans’ from banks at substantial discounts and their goal is then to recover as much as possible from the borrower.

They have a very commercial attitude, but you need a good advisor to assist you with the negotiations. They don’t want a long-term relationship with borrowers unless they must. They will honour contracts they have purchased if they are being complied with or you can show that it’s in their interest to support a long-term restructure. It can get very personal if the debt is a family home.

Based on recent news announcements the main banks are considering selling on a further 25,000 to 30,000 ‘bad loans’ in early 2019.

Borrowers would still be entitled to court protection through the Personal Insolvency legislation and I would strongly recommend that they speak with an active and experienced PIP to understand their options.

5. Split loans have been in the news recently – can you explain what they are?

The easiest way is with an example.

A property was purchased in 2008 for € 500,000 with a 100% mortgage. This property is now worth € 250,000 and the outstanding debt now stands at € 460,000 with arrears. Under the Code of Conduct on Mortgage Arrears, the bank could propose to split this loan as follows:

Loan A:  € 250,000 repaid under an affordable mortgage term and monthly repayment

Loan B:  € 210,000 parked at 0% interest charged on the loan; but it will be repaid from the sale of the property or a lump sum payment at the end of the mortgage term.

This obviously would leave the individuals homeless at one of the most vulnerable times of their lives should they not be in a position to pay the lump sum at the end of the term. It would likely lead to them having to rely on the State to provide them with housing. I would estimate that there are over 100,000 split loans in the country.

Based on recent Central Bank statistics there were over 70,000 loans (10% of the total loans) in arrears at the end of 2017. 48,000 loans were in arrears by more than 90 days.These individuals should consider if the personal insolvency legislation would be suitable for them to resolve their debts.

6. How are Revenue dealt with under the personal insolvency legislation?

Under the legislation Revenue are a Preferential Creditor but they can opt in to an arrangement to be treated as an unsecured creditor. In most cases revenue partially opt in to an arrangement and they are treated partly as a preferential creditor and the balance is treated as an unsecured creditor.

In the case of the preferential debt it is repaid over the 5/6 year term. The unsecured debt portion will allow Revenue to share a dividend pro rata with the other unsecured creditors and the balance of the debt is then written off at the end of the 5/6-year term. No further interest or penalties are applied to the Revenue debt that is included in the arrangement.

This would be in stark contrast to a Phased Payment Arrangement which we as accountants would frequently assist our clients with in dealing with Revenue tax arrears on behalf of our clients. I have set out a case study below that includes Revenue debt and which shows how I would resolve a case using the personal insolvency legislation.

PIA Case Study – Fred and Wilma Flintstone

The scenario below is based on all their assets and debts being held jointly. I have included notes below on how we would deal with the hardcore debts.

Step 1 - Overview

Assets                                    Values                                                    Liabilities               Notes

PPR                                        € 250,000                                              € 400,000              Includes Arrears of € 25,000

Buy – To – Let (BTL)              € 235,000                                              € 475,000              Property is in Receivership

Car                                          €    3,500                                               €           0

Savings                                   €    1,500                                               €           0

Credit Union                         €       2,500                                               €  25,000                               

Credit Card                                       n/a                                                €    7,798

Business Debts                                n/a                                                €   52,500               Loans and Overdraft

Judgment Mortgage                         n/a                                                € 150,000               BTL sold 2 years ago

Personal Overdrafts                         n/a                                                €     7,500                              

Revenue Debts                                n/a                                                €   50,000               I.T., VAT and PAYE/PRSI

Personal Guarantees (PG)              n/a                                                €  250,000              Business PG

Total:                                      € 492,500                                            € 1,417,798

Step 2 – How the debts are treated and restructured in a PIA

Note 1: PPR – It is proposed the PPR loan will be reduced to € 250,000 in line with the CMV. The Tracker Rate will be retained and repayments of € 1,250 p/m over 20 years to clear this restructured debt in full.

Note 2: BTL – This asset will be surrendered, and the residual debt will form part of the unsecured debts.

Note 3: Credit Union – Set off will be applied and the net balance of € 22,500 will be included as an unsecured debt.

Note 4: Judgment Mortgage – This debt has been charged against the PPR and BTL. As there is no equity in either the PPR or BTL this debt will be treated as an unsecured debt.

Note 5: Revenue Debts – Revenue agreed to Opt in to treat 25% of the debt as preferential and the balance of 75% will be treated as an unsecured debt. The preferential debts will be repaid over the 6-year PIA term.

Note 6: The legislation includes an annual review clause whereby if the debtors combined net monthly income (after taxes) increases above € 100 this will be shared on a 50/50 basis with the unsecured creditors.

Step 3 – Resolution of Residual Debts

Assets                                                    Net Residual Debts                             Notes

PPR                                                                         € 150,000                              Residual Debt on PPR loan above CMV

BTL                                                                          € 275,250                              CMV less Costs for Sale of Asset (15%)

Credit Union                                                             €   22,500                              Set off applied     

Credit Card                                                              €    7,798             

Business Debts                                                       €   52,500             

Judgment Mortgage                                                € 150,000                             

Personal Overdrafts                                                 €    7,500                             

Revenue Debts                                                        €  37,500                              Revenue Opt in at 75%

Personal Guarantees                                              € 250,000             

Total:                                                                      € 953,048                                                             

Step 4 – Monthly Dividends available to Creditors in PIA

                                                                                During PIA                                            

                                                                                (6 years)

Net Income                                                              € 5,000                                                 

Total Set Costs                                                       (€ 2,740)                                               

(based on note above)

PPR Loan                                                               (€1,250)

Preferential Debts – Revenue                                 (€   174)                                

PIP Mgt Fees                                                          (€   200)                                

Total Allowances                                                    (€ 4,364)                                               

Net Surplus/Dividend (p/m)                                  €     636                                                 

Step 5 – % Return to Unsecured Creditors in PIA

Net Dividend (72 months)                                    € 45,792

Total Unsecured Creditors                                   € 953,048

% Total Dividend (72 months)                                 4.8%  

Step 6 – Debtors Monthly Financial Circumstances Post PIA (this is for the years after they exit their PIA))

Post PIA                                

Net Income                                                            € 5,000                                                 

RLE’s                                                                    (€ 3,600)               

(Increased post PIA by 30% to reflect

a normal living expense allowance)

PPR Loan repayment                                              (€1,250)

Preferential Debts – Revenue                                (  €      0)

PIP Mgt Fees                                                         (  €      0)

Total Allowances                                                    (€ 4,850)

Net Surplus/(Deficit) (p/m)                                       € 150 

Note:

As can be seen from the above after the 6 year term of the PIA in which the debtors have offered the maximum of their income less allowances and they have fully complied with the terms of the legislation, this effectively returns them to solvency and to what would just be considered a normal standard of living.

Regards

Mark

Note: This article also featured in the recent CPA Accountancy Plus magazine.

As part of the preparations for Brexit the Irish Government have put in place a fund to provide assistance to Irish Businesses that are impacted by the UK's impending exit from the EU.

Although these supports are welcomed it must be advised that there are strict qualifying criteria to avail of these financial supports. 

A summary of the Brexit supports would be as follows:

1. Brexit Loan Scheme:

Loans of between €25,000 and €1,500,000 can be sourced by the SME sector through the brexit loan scheme. The rate of interest would be around 4% and the term of the loan would be between 1 and 3 years.

These loans are for the purpose of working capital management and to fund changes in business activity because of Brexit:

Companies who meet the following criteria can apply:

1. A turnover of €50 million or less;
2. A balance sheet total of €43 million or less;
3. Are independent and not part of a wider group of enterprises;
4. Are established and operating in the Republic of Ireland;
5. Have 250 employees or less.

These loans cannot be used to refinance the businesses in financial difficulties not caused by Brexit

2. Support from Enterprise Ireland through the Agile Innovation Fund:

This allows companies to access funding of up to 50% in support of innovation projects with a total cost of up to €300,000.

The fund is open to eligible Enterprise Ireland client companies.

This can be suitable for companies conducting their first research & development project.

It allows companies to respond to threats and opportunities in new and existing markets following Brexit.

3. Online Retail Scheme:

This fund was set up to assist SME's in the retail sector to increase their customer base and build a more resilient business in the domestic and global market both offline and online. The size of the fund is €125million.

The companies who can apply must:

1. Have an online presence i.e. must be selling through a website or other social media outlet;
2. Must employ at least 20 people;
3. Must derive the majority of Revenue from retail;
4. Must have a plan to achieve at least 10% of international sales.

This scheme is not open to:

1. Retailers to whom the franchisor provides support online;
2. Companies in the hospitality or leisure industries;
3. Projects focused solely on the domestic market.

Successful applicants will be awarded funding to support a maximum of 50% of the project costs. The minimum grant amount payable is €10,000 under this Scheme.

Therefore, applications which do not propose company expenditure on the project of a minimum of €20,000 will be considered ineligible

4. Enterprise Ireland Be Prepared Grant:

This fund of up to €5,000 can be sourced by SME's to identify opportunities in new markets. It can be used to cover travel costs for both domestic and international employees, and consultant fees.

The support might involve:

• Researching opportunities in new markets
• Investing in innovation to differentiate and stay ahead of the competition
• Reviewing and optimising sourcing, transport and logistic arrangements
• Strengthening financial and currency management
• Preparing a worst case scenario plan
• Understanding and training in customs procedures with third countries

5. Market Discovery Fund:

The aim of the Market Discovery Fund is to incentivise companies to undertake market research and develop viable and sustainable market entry strategies in new geographic markets.

It covers internal and external costs of researching new markets for products and services:

The fund is available across three levels:

1. Level 1: Grant up to and including €35,000;
2. Level 2: Grant between €35,000 and €75,000;
3. Level 3: Grant between €75,0000 and €100,000.

Companies that can apply must:

1. Be a manufacturing or eligible internationally traded services company;
2. Not have raised finance in the form of equity in the previous six months;
3. Must be trading for at least five years, with a minimum of 10 employees and a turnover of at least €500,000.

High potential start ups can apply if they meet the following criteria:

1. Have a minimum of 5 full time employees;
2. Have been approved for an Enterprise Ireland Equity Investment;
3. Have drawn down equity investment funding for at least six months prior to the application for the Market Discovery fund.

The fund covers the following costs;

1. Wages and salaries of staff assigned to the project of research up to a maximum of €80,000 per annum per employee exclusive of employers PRSI and bonuses;
2. Overheads up to a maximum of 30% of wages and salaries;
3. Travels costs in relation to the project;
4. Consultancy fees for consultants hired to provide advisory services in relation to the project up to a maximum of €900 per day. Also, costs associated with business experts from Enterprise Ireland with experience, knowledge, and contacts to support the company up to maximum of €1,500 per day;
5. Trade fair costs up to a maximum of €75,000.

6. Brexit: Planning Voucher

InterTradeIreland offers 100% financial support up to £2000/€2250 (inclusive of VAT) towards professional advice in relation to Brexit matters.

This support can help your business get advice on specific issues such as movement of labour, goods, services and currency management.

 Are you eligible?

• Applications must be from an SME (250 employees or less) and Turnover < €50M (￡ equivalent);
• The business must have a satisfactory trading record (we reserve the right to request submission of Financial Accounts for the business);
• The assistance requested must relate to a Brexit issue;
• Companies based in Ireland must submit a valid tax clearance access number along with this application form.

For additional support and advice please note that the 31 Local Enterprise Offices (LEOs) throughout the country provide a range of financial supports designed to assist with the establishment and/or growth of enterprises (limited company, individuals/sole trader, cooperatives and partnerships) employing up to ten people.

Please click on this link to the Department of Foreign Affairs website which has the full details of all of the Brexit supports available from government - click here

Regards

John Nolan