Budget 2013 - Philanthropy

Our budget coverage continues this week with a focus on philanthropy.

In 2012, the Department of Finance launched a consultation process on proposed changes to the system of tax relief available on donations to charities and other approved bodies.  As a result of that process, the Minister has decided that charitable donations will be subject to a “new, simplified tax relief regime”.

The old regime distinguished between PAYE donors and self-assessed donors. The tax relief on donations made by PAYE individuals to a charity could be claimed by the charity providing that the donors and the charity complete various forms each year. 

If, for example, a PAYE donor made a gift of €250 to their children’s school and completed the CHY2 form, the school could reclaim €173, being taxed at the marginal rate, from Revenue.  On the other hand, if the same gift was made by a self-assessed taxpayer, the tax relief went to the taxpayer and not the school.

This distinction was abolished for all donations made after 1^st January 2013. Henceforth, tax relief on all donations, whether by PAYE or self-assessed donors, is available for reclaim by the charity only.

Unfortunately, charities will not be able to claim relief at 41%, but at a “blended” rate of 31%.  So, in the above basic example, the amount claimable by the charity is €112, to give a total gift of €362, compared to the old €423.

Perhaps the most important point, though, is that the system for reclaiming the relief has being considerably simplified to reduce the administrative burden on charities. For example, charities are now able to use “enduring” declarations from donors that could last up to five years.  This is very much to be welcomed, but it is incumbent on the charitable sector to hammer home the need for smaller charities in particular to make the effort to reclaim the relief as significant sums are currently not being claimed and charities are losing out.

Interestingly, this section of the Minister’s speech was entitled “Philanthropy”, which is perhaps a recognition of its increasing importance in an era when government spending is being severely cut back and more reliance than ever is being placed on private giving.

Of course, given the Budget, the resources available for private giving from Irish residents has dwindled. This was perhaps obliquely recognised by the Minister in his reference to philanthropists outside Ireland who, he said, “would be interested in making significant donations to initiatives that would aid Ireland’s economic recovery, if our tax system were changed to ensure suitable recognition of such donations”.  He has referred this issue to the Joint Oireachtas Committee on Finance and Public Expenditure Reform for examination and to revert with its recommendations.  While there is no indication as yet what proposals may result, it does seem a shame that consideration is being given to recognising gifts made by people from abroad at the same time as such recognition is being withdrawn from self-assessed taxpayers at home.

Jeremy Mitchell

Director

ITC Consulting

Employing your spouse...what to keep in mind.

The idea of employing your spouse in your business can give rise to many advantages, but care needs to be taken in relation to how this is set up. There are many advantages to employing your spouse in your business; the greatest one is usually flexibility in terms of working hours! The fact that there is a direct personal and financial interest in the success of the business has a huge impact, although many businesses do not recognise the value of services provided by the ‘non-principal’ spouse, so the question of even a basic wage is never considered...Consider these questions to see whether this is something relevant to you:-

• Is your spouse assisting you in the business in an 'invisible' way – perhaps answering phones, taking orders, keeping the books, filing tax returns, doing payroll or indeed simply acting as a company director (more on that below)?
• Has a comprehensive list of what your spouse does ever been drawn up, or are diaries kept? Perhaps have them keep a diary for a month or so, which should give a good indication of the type of work they are doing, and how long it typically takes them to do it.
•  There is an intrinsic value in having someone available at times when you are not, does your spouse fill this description? When business contacts deal with your spouse, do they consider that they are still dealing with the business itself?
• If your spouse is a company director, this is a significant role of itself, as your spouse cannot delegate this responsibility to you. They are fully responsible for the activities of the company. No-one else would carry this responsibility for no pay, why should your spouse?

You may feel that your business cannot afford to pay your spouse – but perhaps wages or a salary could be accrued in your company accounts until times are better or more cash is available. This acknowledges the value brought by your spouse. No-one else would do this without payment! Some pointers for doing this:-

• Have a contract of employment drawn up for your spouse to include a full description of the role carried out by them
• Agree a structured payment and notify Revenue of the position. There are tax savings that can be generated by doing this, rather than having all allowances and credits claimed through one spouse.
• Do consider whether there are PAYE issues to be addressed. Bear in mind the impact of the USC which takes effect for anyone earning more than €77pw.
• In light of recent pension changes, consider whether it might be useful to have a separate pension structure for your spouse.

The bottom line here is that if you are going to do something, do it in a way that brings maximum benefits, taking care of all the details. Last thing anyone needs is a debate with Revenue over whether a spouse’s salary is justified!

If any of these issues are relevant to you and you would like more details please call (01) 6611022 or email justask@independent-trustee.com

Sonia McEntee