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GAZETTE
JULY-AUGUST
1
TAX CHANGES IN THE
FINANCE ACT, 1978
WILLIAM O'DEA, LL.M., Barrister-at-Law, Assistant Lecturer in Law, U.C.D.
The following are the main changes in Tax Law
brought about by the Finance Act, 1978:
Personal Taxation
Personal allowances are increased as follows:
1977/78
Increase
1978/79
Single
£645.00
£200
£865.00
Married
£1100.00
£630
£1730.00
Widow
£735.00
£200
£735.00
Age allowance:
Single or widowed
£45.00
£35
£80.00
Married
£145.00
£35
£180.00
There is no change in the Rates of Tax and there is no
increase in the Child Allowance, which remains at the
present level of £240.00.
Section 2 of the Act amends the provisions which
govern the allocation of personal allowances, where a
claim is made for separate assessments by husband and
wife. The Act provides that the Married Allowance and
the Child Allowance (and the benefit of the lower Rates of
Tax) are to be divided equally between husband and wife.
Up to now the division has been in proportion to their
respective incomes.
Life Assurance
Only half of the premium will now be allowable as a
deduction for Tax purposes, whether the Insurance
Company is foreign or Irish. Heretofore two-thirds of the
premium was allowable where the company was Irish.
Retirement Annuities for the Self-Employed
The limitation of £2,000.00 per annum on allowable
premiums is abolished. The restriction to 15% of relevant
earnings remains. The cash limit in respect of an annuity
for a spouse or dependent (£650.00) was also abolished
but the income limit in this case (8%) also remains.
Inflation had made the existing cash limits unrealistic.
Benefits in Kind — Cars
The provisions of the Finance Act, 1976 which
imposed a minimum charge of £300.00 (or 15% of the
cost of the car, if more than £300.00) on employees or
directors in respect of the benefit in kind arising from the
private use of cars provided by employers is repealed with
effect from 6th April, 1978. Benefits in kind on cars for
1978/79 and subsequent years will be computed on the
pre-1976 basis.
Allowable Interest
Surprisingly, perhaps, the allowable Interest limit of
£2,000.00 is not changed in the Finance Act. There is
one modification of the present position, however. Section
7 of the Finance Act provides that unrestricted Interest
will be allowed to
individuals
acquiring shares in a private
trading company. This will apply even where the 5%
shareholding requirement is absent and where the
individual is only employed on a part-time basis.
Company Taxation
Small Companies threshold.
The threshold in respect of profits earned after January
1st, 1977 is increased as follows:—
Rate of Corporation Tax
35% Varying 35%/45%
Previous profit limit
Up to £10,000, £10.000/£ 15,000
New Profit Limit
Up to £25,000, £25,000/£35,000
Manufacturing Relief
A 25% rate of Corporation Tax was introduced in the
1977 Finance Act for manufacturing companies on a
three year basis, where certain employment and
production targets were met. The only target to be met for
1978 and 1979 is the employment target of 3% per
annum (S19FA. 1978). However, Section 27 of the
Finance Act 1978 provides that the normal Tax credit
applicable to a distribution made on or after 6th April,
1978 will be 30/70ths instead of 35/65ths of the
distribution. It has been argued that this charge will
render the reduction in the rate of Corparation Tax in the
1977 Finance Act (from 50% to 45%) (and the new
generous reliefs for small companies) nugatory because it
will increase the tax payable by shareholders in respect of
distributions from companies.
Capital Allowances
The 100% Free Depreciation allowance for new plant
and machinery which was due to expire on 31 March,
1979, is continued on a permanent basis. Capital
allowances on new industrial buildings are increased from
50% to 100% in respect of expenditure incurred after 1
February, 1978. Section 25 of the Act provides that
where a taxpayer (for the purposes of his trade) makes a
contribution to a local authority on a scheme of effluent
control, the taxpayer will be entitled to allowances for
that contribution as if he had spent the money himself.
The effluent control scheme is one which must be
approved by the Minister for the Environment.
Stocks Releif
Section 26 provides that stock relief is to continue for
one more year. It has been argued that because of the fall
in the inflation rate it would cost very little to extend this
relief to all forms of activity. There is no indication that
this might be done. In fact, stock relief will automatically
lapse at the end of the 1978/79 financial year unless it is
specifically continued in next year's Finance Act.
Farming Profits
The farming tax section of the 1978 Finance Act
contains amendments of the existing scheme for taxing
farming profits. The main alterations are concerned
with:—
(a) The reduction of the threshold for liability to income
tax from £75 to £60 p.l.v.
(b) The giving of a credit for rates against income tax.
(c) Continuation of the national basis of assessment with
the multiplier increased to 90.
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