03 Dec 2017 | 04.09 pm
Interview: John Byrne, Crowe Horwath
Simple mistakes can have a significant cost
03 Dec 2017 | 04.09 pm
Partner John Byrne has been a tax adviser for 23 years, advising Irish and international clients on taxation issues across all tax heads.
In your dealings with business clients, what tax planning or tax resolution issues are of most concern to them?
The common goal is to avoid unnecessary tax costs in their day-to-day business operations by better understanding the tax rules.
Simple mistakes on payroll taxes, VAT or relevant contracts tax can have a significant financial cost as the same mistake can recur over a number of tax years. The tax, interest and penalties arising from even innocent mistakes can erase the commercial profit from a transaction.
A savvy business owner will sit down with their tax adviser at least once a year and review any changes in business operations, markets or customers, overseas operations and most importantly personal plans for the coming year and the next five years.
A recent ITI survey found that of companies availing of the R&D tax credit, almost half found it difficult to prepare and administer. What are the main pitfalls you encounter with clients, and how can your firm help?
I would agree with the findings of the survey.
There is a perception among clients that the administrative burden of maintaining the level of documentation required by Revenue can outweigh the benefit. Small businesses operate on tight margins and will operate with small finance departments. They view the additional staff costs of correctly administering the scheme as too cumbersome.
There is also the perception that if you haven’t claimed it in the past, submitting a claim will invite a Revenue Audit which can lead to expensive adviser fees and take up time from key personnel.
As advisers, we would encourage qualifying taxpayers to claim the relief. We help clients with the practical aspects ensuring they have the documentation required to make and support a valid claim.
We also critically review the costs associated with the carrying out of the R&D activity and this assist our clients to identify and capture the correct costs.
A new CAI book describes VAT as a ‘high risk tax’. In your experience, how common is it for businesses to come unstuck on VAT issues?
VAT applies to every transaction undertaken by a business and simple errors on reclaiming VAT or charging an incorrect VAT rate can create significant issues. Equally, invoices are processed by staff without a clear understanding of the principles of VAT.
This is even more of an issue for businesses operating internationally. We have many examples of businesses incurring unnecessary costs because of a lack of understanding of the VAT rules. With a four-year time limit to amend returns and claim a refund there can be a limited opportunity to rectify any errors.
Where property is concerned, for example leasing out excess space, the VAT issues are complex.
Thankfully we have seen businesses seeking more timely advice on VAT issues.
A business owners five years out from projected retirement – what are the important tax issues to plan for?
What are the plans for the business after retirement, for example:
- Will the business pass to the next generation?
- Will the businesses continue to be operated by key management?
- Will the business be sold?
Each of the above presents its own taxation issues. However, any plan developed should address the likely financial needs of the current owner and their requirement for funds to support them in their retirement.
If the business is going to be carried out by the next generation then it is important to maximise the benefit of tax reliefs aimed at the parent(s) and the successors. This would require a critical review of the balance sheet of the business and an evaluation of the tax cost associated with a transfer.
It is key to involve the next generation in these decisions at an early stage.
Where the business will be operated by management the business owner should consider a tax efficient reward structure for management to encourage them to grow the business. Formal reporting structures, targets and board meeting would be required to protect the retired owner.
If the business is to be sold a strategy should be put in place to identify and remedy weaknesses in the business which could reduce the price a purchaser is willing to pay.
What tax reforms would you like to see to assist business in the upcoming Budget 2018/Finance Act 2017?
- A charter of rights for tax payers put on a legislative basis. Revenue have amassed a huge body of powers set out in tax legislation. Whereas taxpayer rights are set out in a code of practice which is subject to change. This imbalance needs to be corrected.
- Incentives for family businesses aimed at increasing retaining employment in these companies and for retaining businesses in family ownership rather than selling.