New Income Levy Backdated :(

nialo

Looks like the new levys just applied will be backdated. Can they do that?

ejmaztec

Where does it say that the levy is going to be back-dated?

This is from the Revenue site:

http://www.revenue.ie/en/press/budget/2009/supplementary/income-levy.html

Changes as a result of supplementary Budget 2009.
Q. What changes are taking place in the income levy ?
The rates effective from 1 May 2009 are being doubled.
New rates are :-

• 2% on first €75,036,
• 4% on next €99,944,
• 6% on balance

The exemption limit for persons under 65 years is being reduced to €15,028 from €18,304 with effect from 1 May 2009.
Q. How will the changes impact for payroll or employees ?
The new rates will apply to all payments made on or after 1 May 2009. Instructions will issue shortly to employers and Payroll operators on how to implement the changes.
Q. How will the changes in rates impact for the self-employed who will pay income levy with preliminary tax?
New composite annualised rates will apply for the self-employed.
They are :-

• 1.67% on first €75,036,
• 3% on next €25,064,
• 3.33% on next €74,880,
• 4.67% on next €75,140,
• 5% on balance

Q. How is the exemption limit for persons under 65 years affected ?
With effect from 1 May 2009 the exemption of €18,304 is reduced to €15,028.
The revised legislation provides that where someone has utilised a proportion of the original exemption in the period up to 30 April 2009, then in applying the new lower limit to the income for the year of assessment, any underpayment of levy arising in the period to 30 April 2009 as a result of that higher exemption for that short period will be disregarded.

nialo

Article in the sunday times. in the business section. Saying that it would be back dated to catch anyone that basically took money out of there business to avoid the increases that were coming in may.

ninty9er

That's different to backdating for PAYE purposes.

nialo

How so?

jimmycrackcorm

nialo wrote: »

How so?

It means that in a revenue audit they will look specifically for people who took out a large payment prior to May that would indicate it was done to avoid paying the extra levy. It's not for PAYE.

is_that_so

Quite probably because self-employed have to do File and Pay and make a preliminary tax return in October for the year in question. You are allowed to draw income or drawings from a business but for tax declaration purposes you are required to deduct the appropriate tax from that sum before including it as part of your calculations/returns. So it would certainly be beneficial to take much larger drawings in advance of May 1 and less after.

ejmaztec

nialo wrote: »

How so?

Obviously to catch those up to a bit of jiggery-pokery i.e. those involved in moves to get all or most of their 2009 earnings in before 1st May.

I presume that it's mainly to do with company directors' PAYE, because if you're self-employed, whatever money you take out makes no difference to the tax situation as you only get taxed on the chargeable profit at the end of each year.

I'll have to see if I can find the info.

is_that_so

ejmaztec wrote: »

Obviously to catch those up to a bit of jiggery-pokery i.e. those involved in moves to get all or most of their 2009 earnings in before 1st May.

I presume that it's mainly to do with company directors' PAYE, because if you're self-employed, whatever money you take out makes no difference to the tax situation as you only get taxed on the chargeable profit at the end of each year.

I'll have to see if I can find the info.

You can offset drawings (usually income/salary/any other purpose) against your tax bill. You are supposed to apply the appropriate tax to any money you've taken out. This I suspect is why the backdating has been mentioned.

ejmaztec

is_that_so wrote: »

You can offset drawings (usually income/salary/any other purpose) against your tax bill. You are supposed to apply the appropriate tax to any money you've taken out. This I suspect is why the backdating has been mentioned.

If you're self-employed, you pay tax on the chargeable profits - drawings don't come into it.

is_that_so

ejmaztec wrote: »

If you're self-employed, you pay tax on the chargeable profits - drawings don't come into it.

They still need to be adjusted for pension and appropriate tax, stated quite clearly on Page 5 of the Form 11e( Item 137).

common_parlance

This is worrying. As a self-employed person, I've been carefully setting aside the estimated amount of levy, PRSI, healthy levy and income tax as cheques came in. Will I now have to retroactively apply the new higher rate to everything I have earned already in the first half of my trading year, or is the levy pro-rated?

is_that_so

No changes to Revenue Preliminary Tax rules to reflect the changes , although quite possible your liability may well go up to match the levies. Might be best to assume that levies will be applied for the whole of 2009. I certainly am.

jimmycrackcorm

common_parlance wrote: »

This is worrying. As a self-employed person, I've been carefully setting aside the estimated amount of levy, PRSI, healthy levy and income tax as cheques came in. Will I now have to retroactively apply the new higher rate to everything I have earned already in the first half of my trading year, or is the levy pro-rated?

It's no different in principle to anything else that you apply accounting rules to. For example private vs work milage of a company car. If you can clearly demonstrate that income is fairly drawn prior to May 1st then that will be pre-levy increase. Like expense or other claims, a revenue audit officer may judge you to be making an incorrect claim if the evidence supports it.

ejmaztec

is_that_so wrote: »

They still need to be adjusted for pension and appropriate tax, stated quite clearly on Page 5 of the Form 11e( Item 137).

No they don't, that purely relates to the capital account on the balance sheet. If you look at the P&L account you can see how that leads to the chargeable profit/allowable loss for taxation purposes.

The drawings figure gives the Revenue a guide as to how much you've lived on over the year. If they think that it doesn't look enough, then they will probably carry out an audit to see whether or not you've been up to no good, under-declaring sales etc.

When they say net of tax and pension contributions, it means that they don't want those two figures included in the total.

brianwalshcork

Newstalk Radio were reporting that the income levy would be backdated on the radio this morning. They didn't mention that it would only be the self employed.

If this is correct is everyone looking at a hit in May's take home?

They didn't mention a source though, so maybe they were just picking up the sunday newspaper story.

dubmick

Government backdating new income levy rates to start of year

DOMINIC COYLE
Thu, Apr 16, 2009
THE GOVERNMENT is backdating the new, higher income levy rates to the start of 2009, despite earlier indications that the rates would only come into force on May 1st.
Anyone who received a lump sum payment in the first four months of the year – such as a bonuses, which are traditionally paid in the first quarter or dividends – may be affected by the move.
It will also catch business owners and other company directors, many of whom were urged by their tax advisers to “front load” their 2009 income ahead of the emergency Budget to avoid the higher levies, which had been widely leaked ahead of Budget day.
However, people on PAYE whose income is spread evenly throughout the year will not face any clawback.
Among those affected may be people who took redundancy in the first four months of the year. Figures from the Department of Enterprise, Trade and Employment state that almost 21,000 people had been made redundant in the first quarter of 2009. That figure is likely to exceed 27,000 by the end of April.
While statutory redundancy payments are not subject to the income levy, as are certain ex gratia payments, many of those taking voluntary redundancy pay the levy on part of their lump sum. They will now be paying more than the 1 per cent levy they initially assumed to be their maximum exposure under the levy.
In his Budget speech, Minister for Finance Brian Lenihan gave no indication that the income levy would be backdated, stating specifically that “all of these measures [on income tax, the health levy and PRSI] will take effect from 1st May, 2009”.
However, the financial resolution passed through the Dáil on Budget day implementing the amended income levy made provision for a “composite blended” rate over the whole of 2009, which has the effect of catching any exceptional payments made before May 1st.
Under the old system, a person earning less than €100,100 paid the income levy at 1 per cent. Although the rate jumped to 2 per cent on income up to€75,036 and 4 per cent above that in the emergency Budget, it was assumed all income taken before Budget day would certainly come under the old regime. Now it appears they will pay extra tax – 1.67 per cent on the first €75,036 and 3 per cent on the balance.
An explanatory note on the Revenue website confirms that self-employed people will be charged the composite rates.
In a note to clients yesterday, KPMG partner John Bradley said: “Individuals who received income such as bonuses or dividends in the first four months of 2009 would have expected the income to be liable to the levies at the old rates. However, the income will be liable to the levies at new composite rates.”
Mr Bradley, who heads KPMG’s international executive services unit, said a lot of people in a position to manage their affairs, such as business owners, were advised to draw down as much of their 2009 income before the Budget for tax planning purposes. He raised the prospect that a similar backdating exercise may also take place with the health levies.
© 2009 The Irish Times

brianwalshcork

Could they possibly make a bigger mess of this?

If a PAYE worker gets a bonus, is it just the additional bonus amount that is subject to the levy, or is the full "normal" paye income + the bonus amount subject to the levy?

What constitutes a bonus?

If a PAYE employee had a salary negotiation put off until march while his employer took a wait and see approach, then got a rise backdated to January first, is the increased payment in April considered a Bonus because it's not a spread evenly?

What about employees in sales, who receive a basic salary + comission? These also won't be spread evenly over the year.

Cue Chaos.

hallelujajordan

brianwalshcork wrote: »

Could they possibly make a bigger mess of this?

If a PAYE worker gets a bonus, is it just the additional bonus amount that is subject to the levy, or is the full "normal" paye income + the bonus amount subject to the levy?

What constitutes a bonus?

If a PAYE employee had a salary negotiation put off until march while his employer took a wait and see approach, then got a rise backdated to January first, is the increased payment in April considered a Bonus because it's not a spread evenly?

What about employees in sales, who receive a basic salary + comission? These also won't be spread evenly over the year.

Cue Chaos.

Agree, its a complete mess . . most bonuses are based on performance in the previous calendar year so if it happens that it is paid in your January paycheck, do you take a hit ?

ejmaztec

hallelujajordan wrote: »

Agree, its a complete mess . . most bonuses are based on performance in the previous calendar year so if it happens that it is paid in your January paycheck, do you take a hit ?

I would surmise that if a particular firm paid the bonuses at the same time each year, in this case January, the Revenue would leave it alone at the pre 1st May rate. I think that they would be looking at firms that are moving the goal-posts and are actually changing the timing of payments to avail of the lower rate.

If there's commission each month on top of basic pay, then I think that those would be treated as normal, so that any paid prior to 1st May would be left at the pre 1st May rate.

The Revenue may request a report from the employer along with the annual P35, showing the payroll split between pre 1st May and post 1st May, so that they can compare the totals paid to each employee. They may take it on trust and only do spot checks on some employers pay records.

Who really knows what goes on in the government's single brain cell?

BroomBurner

Just heard on the radio that this will effect anyone who has received a redundancy package this year.

ixoy

BroomBurner wrote: »

Just heard on the radio that this will effect anyone who has received a redundancy package this year.

If that is indeed correct, that's absolutely disgusting. It's utterly indefensible and a right punch in the mouth to those who've been hit with the misfortune to lose their job.

BroomBurner

ixoy wrote: »

If that is indeed correct, that's absolutely disgusting. It's utterly indefensible and a right punch in the mouth to those who've been hit with the misfortune to lose their job.

Yeah, it would be a complete disgrace. It was reported as "this will affect anyone that received bonuses, or lump sum payments from January 1st until May 1st and will include those that received redundancy payments during that time", or something to that effect.

I'm hoping it wasn't true, then again, you just never know what this crowd are going to do next.

ixoy

BroomBurner wrote: »

I'm hoping it wasn't true, then again, you just never know what this crowd are going to do next.

Well if it makes you feel any better the levy on the redundancy lump sum could be used to pay for fuel for the government jet There ya go!

Chong

Jesus, I am bloody broke enough now they are going to rape my little bit of cash I have for my redundancy. Basically I was made to take involuntary redundancy, and received circa 10k, is this going to affect me?

Anyone?

Things are depressing enough, not being able to get work, go on the dole, now this.

gnxx

Yes. You should have pushed your employer to pay it in 2008 or before your P60 was issued. It should have been taxed at 2008 figures.

What is now worse, is that you are likely to take a double hit ( IE the new levy from 1st Jan and the second levy from the 1st May ).

hallelujajordan wrote: »

Agree, its a complete mess . . most bonuses are based on performance in the previous calendar year so if it happens that it is paid in your January paycheck, do you take a hit ?