Tax warehousing has been a boon for business, says John Fitzgerald of McInerney Saunders, but the KEEP share options scheme and Entrepreneur Relief need beefing up

What’s it like operating a tax practice in current circumstances?

We have a very busy tax department in McInerney Saunders and, as with other practices, managing working arrangements has been challenging. Keeping in touch with everybody and trying to maintain the firm’s culture has probably been most difficult over the past 16 months or so particularly when new team members are recruited — it’s tricky getting to know new colleagues but we think we’ve managed okay.

Certain departments within the firm continue to work remotely while the rest of the practice is operating on a hybrid model.

McInerney Saunders invested in making the work environment as safe and comfortable as possible and has also implemented a number of policies around Covid awareness in the workplace so the plan would be to look at returning fully to the office over the next few months.

There are a lot of deadlines to be met between September and December and in the absence of any extensions from Revenue, having the team together in the office will certainly help get through this busy period.

What tax issues have been top of mind with clients this year?

Trading with the UK has been tricky after Brexit, in terms of administration and logistics, but I get a sense that a lot of lessons have been learned since the beginning of the year and the supply chain might be getting a little smoother.

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However, I don’t think we’re at the end of the Brexit road yet as costs appear to have increased significantly (particularly shipping costs) so I expect there are some more lessons to be learned over the next six months.

There appears to be a good uptake on OSS/IOSS schemes since their introduction on 1 July 2021. These should simplify VAT on cross-border B2C supplies, either intra-EU or direct from UK-EU.

The tax debt warehousing arrangement runs until the end of 2021. Among your clients who have availed of the scheme, what counsel are you providing about repaying this tax debt?

The tax debt warehousing facility has been a huge help to businesses from a cash-flow perspective since it was introduced. However, one specific aspect of debt warehousing is giving rise to significant problems. Where companies are warehousing PAYE employer liabilities, any directors or employees owning more than 15% of the company cannot claim a credit for taxes deducted if these have been warehoused and not paid over to Revenue.

This ultimately means that directors/employees that hold more than 15% of companies may be personally liable for the PAYE deducted but not paid over to Revenue when they are completing their 2020 personal income tax returns. It may be possible for these employees/directors to personally apply for warehousing of the personal liabilities, but it may not be appropriate in every situation.

We are advising clients that are facing financial difficulties to act early as it should allow them more time and options with regard to cash-flow planning for the payment of tax and other debts.

Which tax incentives for business incentive should be top of the finance minister’s agenda, and what should he do?

The efforts of the Irish Tax Institute in seeking enhancements and reforms of EIIS, SURE, KEEP and R&D tax credits are very welcome. There have been some enhancements to EIIS in recent years to simplify the process, and I would hope that momentum will continue. In addition, we would urge the minister to focus on reforming and enhancing KEEP in particular.

Incentivising employees through share awards is very common and seamless in other countries, but there are limitations associated with KEEP in its current form and we would be hopeful that a number of issues would be addressed such as:

1. The uncertainty of Revenue accepting share valuations
2. The challenge of SMEs providing liquidity for employee shares as KEEP does not provide for automatic CGT treatment on the buy-back of shares and not all companies will be sold or listed on the stock exchange
3. Redefining conditions relating to the qualifying individual
4. Bbroadening access to the scheme to take account of common group structures.

Unless these issues are addressed, the effectiveness and take up of KEEP will continue to be limited.

In relation to CGT Entrepreneur Relief (ER), a lot more needs to be done to make this relief more competitive when compared with other jurisdictions such as the UK. In the UK, ER applies to gains up to £10m while in Ireland ER is limited to gains of €1m. There should also be some practical changes to the operation of the relief such as:

1. Possibly removing or amending the requirement to own at least 5% of the company as there is limited scope for employees that are owners of KEEP shares to qualify for ER
2. Allowing ER to apply in cases where there is a dormant company within a corporate group. I have seen cases where there are dormant companies within a group because they are either commencing to trade or have ceased trading. ER does not currently apply in situations where there is a dormant company within a group structure
3. Extending ER relief to external investors
4. Separating the ER lifetime limit from other CGT reliefs such as Retirement Relief.

The original purpose of the relief was to incentivise the development and maintenance of business activity, but without improvements the relief as it stands could prevent take-up or limit the expansion of businesses.

The minister needs to continuously monitor and improve these types of reliefs to ensure that Ireland remains competitive and attractive for employers and entrepreneurs setting up business operations here, particularly in the context of Brexit.

• John Fitzgerald (pictured) is a tax partner with McInerney Saunders