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GAZETTE
JULY-AUGUST 1978
SOCIETY OF YOUNG SOLICITORS SECTION
Solicitors Personal Taxation
Diarmuid Murray, B.L. A.C.A.
This paper delivered at the Society's recent Seminar in
Killamey by Diarmuid Murray was very informative and
should assist not only the recently qualified solicitor
but also those who are now senior partners in the larger
firms. It is impossible to summarise the paper in such a
small space and it is recommended that it be read by
those interested in how to avoid paying more tax than is
necessary.
The paper deals with both Schedule D. Case 11. and
Schedule E. Income Tax Payers and points out that
expenses deductible from Schedule D Case 11 income are
those incurred wholly and exclusively for the purpose of
the business. This applies to all expenses other than
entertainment which is subjected to the same test as that
applied to Schedule E. expenses namely that it must be
incurred wholly
necessarily
and exclusively for the
purposes of the business.
"Benefits-in-kind", which are taxable, such as
Company Cars (the position of Company Cars has been
altered by the recent Budget provided the car costs less
than £3,500) are also discussed in some detail and the
basis of assessment is explained. The value of the benefit
to the individual employee is computed by reference to the
actual expense borne by the employer.
Income Tax is payable by a practice on an earning's
basis (fees billed during the year less expenses incurred
plus increase in work-in-progress during the year) or a
cash basis (fee actually received during the year less
expenses paid and/or incurred during the year). The
Revenue appear to accept either basis but during the first
three years of a practice they will insist on the earnings
basis being used and then subject to satisfactory
undertaking to collect fees regularly and frequently a
change to the cash basis may be made.
Mr. Murray suggested that in order to avoid paying
unnecessary tax more use might be made of
(a) Life Assurance Relief whereby insurance is
purchased and relief from Income Tax is given for the
premiums paid. Mention was made of Life Assurance
based endowments funds, guaranteed income bonds,
borrow-all endowment policies and pensions.
(b) Interest Relief whereby at present relief is available
for interest not exceeding £2,000.00 per annum with two
exceptions where further relief is available:
(i) there is no restriction on interest on money
borrowed to acquire an interest in a partnership.
(ii) An additional relief of up to £2,000 is
available for bridging loans.
In relation to borrow-all endowment policies we
were informed that after two years premiums have been
paid the life office must be prepared to hand to the insured
up to 70% of the surrender value of the policy. After
paying the second premium approaches are made to the
life office to borrow on the security of the policy a sum
equal to the net after tax premium. Combined with Tax
Relief on the gross premium the result is that the tax
payer bears no expense and the borrowing is repeated
annually.
It was suggested that policies of insurance for future
liabilities such as school fees are well worth while as they
ensure that inevitable liabilities can be met out of tax free
rather than after tax income and the cost of providing that
income is tax deductible.
In relation to pensions an individual may deduct from
his taxable income in a year of assessment any
qualifying premiums paid by him under an annuity
contract with a person carrying on life annuity business in
the State but the contract must preclude
(1) any payment to the individual other than an
annuity commencing between the ages of 60 to 70;
(2) any payment after his death other than an annuity
to his/her spouse or if no annuity becomes payable a
return of premiums plus interest.
The Pension Scheme must be approved by the
Revenue. At present there is a limit of 15%of net relevant
earnings which the Revenue permit to be deducted.
It was recommended that insurance be effected to
prevent a penal tax burden being created on the death of a
partner. The most usual method would be for each
partner to take out a policy on his or her own life which
for consideration is assigned to the other partners. Other
schemes dealt with in outline in the paper are
(1) Interest free loans to employees. It is argued that
such loans would be a benefit in kind (and taxable) but the
Revenue have not sought to tax that benefit.
(2) It is settled case law that a payment for success in
examinations is not taxable.
(3) Seven year covenants provide tax relief on the full
amount of the covenant for the donor but the recipient of
course is taxed on the amount received.
(4) The Income Tax Acts Schedule 2. states any holder
of an office or employment who incurs expense in keeping
and maintaining a house to enable him to perform his
duties, the expense may be deducted from his income.
Does this apply to cars also?
Did you know that
(i) It was not until 1872 that the first moves were made
to have a minimum age limit imposed on persons drinking
in public houses.
(ii) It was with the idea of weaning the nation from
spirits to beer and at the same time giving a boost to
agriculture that the Beer Act of 1830 was passed which
gave the right to sell beer to anyone who paid an excise
fee of two guineas and which subsequently caused the
Rev. Sydney Smith who had supported the free sale of
beer to say "Everybody is drunk. Those who are not
singing are sprawling. The sovereign people are in a
beastly state".
(iii) Under a statute of James I severe penalties were
imposed for drunkenness and rowdiness in public places
unless occasioned by an over indulgence in claret or
champagne.
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