NEW FINANCIAL REPORTING STANDARDS FOR 2015 – IS YOUR COMPANY GETING READY?

The rules, known as Financial Reporting Standard 102 (FRS 102), will come into effect at the end of next year.  FRS 102 is the third and most important of the trilogy of financial reporting standards that form new UK and Irish GAAP (Generally Accepted Accounting Principles). The trilogy is:

• FRS 100 – Application of Financial Reporting Requirements
• FRS 101 – Reduced Disclosure Framework
• FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland

Irish companies need to start planning for the new standards now as they will have many different impacts related not just to accounting, including repercussions for tax systems and processes.

The new rules simplify accounting procedures. At under 300 pages, the rule book is far shorter than its predecessor GAAP, which is over 2,500 pages long.

FRS 102 now sets out rules for unlisted companies which conform to International Financial Reporting Standards (IFRS) but make more sense for smaller companies.

The new rules will be used by all Irish and UK entities that are not already legally required to comply with IFRS. This includes subsidiaries of listed companies as well as charities.

Budget 2013 Updates

Pensions

Tax relief will only be allowed to pensions designed to deliver an income of up to €60k (from 1 Jan 2014)

Budget 2013 Updates

Excise Duty

NOT increasing duty on petrol or diesel.

Hikes on alcohol: Beer/ cider – 10c; spirits – 10c extra per litre

AND ON WINE, €1 increase on 75cl bottle

10 cents on 20 cigarettes

50 cents on 25 grams packs of loose tobacco

Increase in Criteria to be classed as a Small Company

On the 3^rd of August 2012 Statutory Instrument 304 of 2012 changed the size criteria of a small company. Under the new legislation a company can now be defined as a small company provided the turnover does not exceed €8,800,000 and the balance sheet total does not exceed €4,400,000.

Prior to the enactment of Statutory Instrument 304 a private company qualified to be a small sized company if in that year and the previous financial year it satisfied two of the three conditions:

• Balance Sheet total not exceeding €1,904,607
• Turnover not exceeding €3,809,214
• Average number of employees not exceeding 50

Now the size criteria are :

• Balance Sheet total not exceeding €4,400,000
• Turnover not exceeding €8,800,000
• Average number of employees not exceeding 50

The big advantage that this change creates for small companies is in relation to the reduced requirement for information in their abridged accounts under the Companies Act 1986. Small company abridged accounts do not need to include directors reports, profit and loss accounts and the notes relating to the profit & loss accounts, substantially reducing the requirements for note disclosures back to the bare statutory note disclosure requirements.

Changes to Audit Exemption

On the 7^th of August 2012 Statutory Instrument 308 of 2012 increased the audit exemption criteria. Under the new legislation a company can now avail of the audit exemption provided the turnover of the Company does not exceed €8,800,000 and the balance sheet total (i.e. asst totals ignoring liabilities) does not exceed €4,400,000.

This represents an increase in the turnover criteria by €1,500,000 from €7,300,000 to €8,800,000 and an increase in the balance sheet total criteria of €750,000 from €3,650,000 to €4,400,000. S.I. 308 updates S.32 of the Companies Act 1999 which sets the criteria for availing of the audit exemption.

Now under Section 32 of Companies (Amendment) (No. 2) Act, 1999 (“the Act”) a private limited company may avail of an exemption from a requirement to have financial statements audited if it meets the following criteria.

1. Is a company to which the Companies (Amendment) Act 1986 applies;
2. The turnover of the Company does not exceed €8,800,000
3. The balance sheet total does not exceed €4,400,000
4. Average employees does not exceed 50
5. The company is not one of the following: – A company limited by guarantee, a public limited company, Bank or Insurance Company, a group company (i.e. parent, holding or subsidiary company), an investment, stock broking, building society, credit institution, management or trustee company.
6. The company must be up to date with its filing requirements at the Companies Registration Office.
7. The company should satisfy all the conditions in respect of the financial year in which the company is to avail of the exemption and the previous financial year.

EUROPEAN STABILITY MECH TREATY- Santa Claus, the Easter Bunny, the Tooth Fairy and the ESM – ultimately, it is you that is funding all of them.

May 23, 2012 Interesting Article by namawinelake.

The position on here is to advocate a “no” vote in the forthcoming referendum on 31st May.

Imagine this fairytale scenario: July 2012, Spain’s 10-year borrowing costs rise from 6.2% today to 7.1%, the same as Ireland’s 10-year bond at the start of November 2010 on the eve of our first bailout.Spain decides that this is an unsustainable interest rate, especially when the Europe’s new emergency fund, the European Stability Mechanism is supposed to be a cheap source of official funding. At the same time, Spain’s audit of its bank loans which it has just announced shows that its banks need €200bn to cover losses on a decade-long binge of lending for property development, lending that rivalled Ireland’s.

So Spain decides to seek a bailout. How much will it need to cover its banks, it maturing debt and its deficit? Probably north of €300bn. The IMF will probably loan Spain a maximum of €50bn on the basis that the EU puts in the rest and gives the IMF precedence in the queue to recover funds if Spain defaults.

So where will the EU get €250bn-plus? Although the old fund, the EFSF will still be available, Minister Noonan recently said “the Eurogroup’s statement of 30 March 2012, provides that the ESM will be the main instrument to finance new programmes as from July 2012. Its lending capacity will be €500 billion. The EFSF will, as a rule, only remain active in financing programmes that have started before that date” So Spain would get a bailout from the ESM of €250bn.

And where do you think that money would come from?

The hope is that the ESM can borrow on the bond markets in return for guarantees from the countries that contribute to the ESM. In addition to guarantees, ESM countries like Ireland will have to contribute an overall total of €80bn to an initial pool of cash – Ireland’s contribution will be €1.27bn – which will assuage the fears of lenders who we hope will lend to the ESM fund at the same rate they charge Germany. We’re hoping that lenders will provide the ESM with up to €500bn of cash loans.

If all goes to plan, in the above scenario the ESM will raise €250bn from lenders and will in turn lend the €250bn to Spain. The ESM will charge Spain an interest rate which covers its costs – what the ESM has to pay ITS lenders and the ESM’s operating costs – and “an appropriate margin”. All fine and dandy so far.

But again in our fairy tale, let’s imagine that Spain fails to get its deficit under control, that 24% unemployment overall and more than 50% youth employment finally stirs widespread social unrest, and let’s assume Spanish banks with their Seanie Fitzcaraldos have underestimated their losses which turn out to be akin to the level of losses in Irish banks but proportional to the size of the Spanish economy of €1tn. In short let’s assume Spain defaults on its loans. Okay it might repay the IMF which assumes the lead position in the queue but if the losses in Spanish banks are akin to ours and couple that with an uncompetitive Spanish economy that is far from “small and open”, and a default may not be such a fairytale – remember the Greek fairytale? So the ESM ends up with a €250bn loss. Who makes that good?

That would be the ESM members and in Ireland’s case, we would have to stump up 1.6% of the loss or €4bn. So Ireland would have to hand over more than any of the painful incremental annual budget adjustments and that money would be gone, and gone forever.

Imagine this no-doubt fairytale scenario (and no, this is not a duplicate): September 2012, Italy’s 10-year borrowing costs rise from 5.8% today to 7.1%, the same as Ireland’s 10-year bond at the start of November 2010 on the eve of our first bailout.Italy decides that this is an unsustainable interest rate, especially when the ESM is supposed to be a cheap source of official funding. So Italy decides to seek a bailout.Italy has a massive mountain of debt to refinance and is also running a small deficit. Italy decides to ask for €400bn. Now where do you think this is coming from?

The advantage of the ESM for Ireland is that we should be able to access funding at the same interest rate that Germany pays for its loans. And when Germany is paying 1% and Ireland must today pay 7%-plus on the traditional bond markets, you can see the attraction of teaming up in a fund which gives us cheap loans. But remember, this is a fund that is not exclusively ours, and indeed it is being designed so that Spain or  Italy– probably not both – can borrow from it. Ireland will have next to no say in the running of the ESM, the ESM and its staff are immune from legal action. Our potential exposure to lending to Spain and Italy would be €10bn-plus, and once we ratify the ESM Treaty that’s it, national parliaments can no longer decide to opt out or refuse a contribution.

So let’s not pretend the ESM is some fairytale creature that gives and gives. We hope to benefit from it or at least have it should we get into difficulties after the end of 2014, but we fund it and it is designed to fund larger EuroZone countries which may default and which may cost this country billions, and we will have very little say in its operation.

European Stability Mechanism Treaty-the way forward?

European Stability Mechanism Treaty-the way forward? Solve debt problem with more debt controlled by unaccountable unelected EU body with no upper limit to the debt fund it can FORCE its members to pay!

R&D Tax Credit Changes – Finance Bill 2012

1. ‘Key Employee’ Reward Mechanism 
This is a new reward mechanism for key employees who have been involved in the R&D activities of a company which will allow them to effectively receive part of their remuneration tax free.
Principle features of this mechanism are as follows:

• The employee must not be, or have been, a director of the company or be connected to a director of the company
• The employee must not have, or have had, a material interest in the company or be connected to a person who has a material interest
• The employee must perform 75% of their activities “in the conception or creation of new knowledge, products, processes, methods and systems”
• 75% of the emoluments of the employee must qualify for the R&D Tax Credit
• The amount of credit that can be surrendered to key employees is capped at the amount of corporation tax due by the company before taking the R&D Tax Credit into account i.e. the company must be taxpaying
• It is up to the company to decide which employees can avail of this relief and the amount of credit which can be allocated to each employee. The effective rate of tax payable by the employee for a tax year cannot be reduced below 23%. The employee must make a claim to Revenue for a refund of tax paid. Unutilised tax credits which the employee has been allocated can be carried forward by the employee indefinitely until they are used (or until the employee leaves the company)
• To the extent that some or all of the R&D Tax Credit is denied (i.e. following a Revenue audit) the employee may be obliged to repay some/all of the credit claimed against their income tax liability.

By virtue of the fact that a company has to be taxpaying to avail of the reward mechanism, and that the key employees cannot be directors or have a material interest in the company this measure is likely to have greater relevance for multinationals as opposed to SMEs.

2. Introduction of a Volume-Based Regime
The Finance Bill has introduced a volume-based regime i.e. an R&D tax credit for every euro incurred, up to the first €100k of qualifying spend incurred by a company. Companies claiming the R&D Tax Credit will therefore have up to an additional €25,000 per annum of tax credit (effectively cash) available to reinvest. This will be particularly valuable to SMEs.

3. Changes to the Existing Subcontracting Rules
The existing subcontracting rules have been changed whereby a company can now claim an R&D tax credit for outsourced spend based on the greater of the current percentage based limits (outsourced R&D expenditure paid to unconnected third parties/third level institutions restricted to 10%/5% of the company’s in-house spend) or €100K. However, the total amount claimed cannot exceed the qualifying
expenditure incurred by a company itself in the period.
SMEs tend to outsource a greater proportion of their activities as they would not have all of the necessary in-house capabilities required for their R&D activities.
This increase in the outsourced cap will therefore increase the R&D tax credit which can be claimed by SMEs which is likely to be subsequently reinvested in the business.
The legislation has been further amended to require the company to notify the third party provider in writing that it cannot also claim the R&D Tax Credit.
As currently drafted this provision has particularly negative consequences for the third party provider, which is concerning, and will no doubt impact on commercial arrangements between the company and the third party provider.

4. Management and Control of R&D Activities
Expenditure incurred in the managing or control of R&D activities will not qualify for the R&D tax credit unless such activities are carried on by the company itself.

5. Transfer of a Trade – Carried Forward Credits and Buildings
R&D tax credits carried forward can now be transferred intra-group as part of the transfer of a trade (subject to certain conditions).
R&D tax credits can also continue to be claimed on buildings qualifying for the R&D tax credit following a transfer of that building as part of a trade (again subject to certain conditions).

6. EU Grants
While the legislation previously specified that expenditure met by grant assistance from the State would not qualify for the credit, this has now been extended to include grants or other assistance received from the EU or European Economic Area.

Disclaimer: This blog is not intended to be professional advice but rather a summary of the subject discussed.  While every effort is made to insure the accuracy of the information, we do not accept any responsibility for loss or damage suffered by any person acting, or refraining from acting as a result of this material.  Full professional advice should be sought before action is taken or not taken as the case maybe.

Constitution Halts Sheriff Repossessing Family Home

POWER TO THE PEOPLE!

 

Is the EU on the edge of Extinction?

Europe is in the mist of its biggest financial crises in its history.  All member states have now committed to years of austerity that will suck the life blood out of all member’s economies.  In contrast places like Asia and Australia are leaping forward, allbeit at a slightly slower that expected pace, but still leaving the EU in their wakes.

As any company or business person knows, cash flow is the life blood of any business.  Extrapolate that  to the scale of the EU.  It operates exactly like a business, it has revenues and expenditure.  If expenditure exceeds revenues then you borrow.  The problem – at some point the borrowing has to be paid back!

The EU seems to think that it can get out of this mess by cutting spending and raising taxes to any extent.  This will be the downfall of the EU.  The economy will retract to such a level that revenues of governments will actually fall, not increased, by these policies leading to more austerity and hence continue the downward depression spiral we now find ourselves on.  The EU will implode on itself.

A way out of this mess?  Our politicians definitely have no clue.

Issue Eurobonds for one.  Get monies into the EU economies.  Get people back to work.  This will in turn increase tax revenues and turn the economies around.

Private investors who have lost their money in private banks should not be paid back.  This is the huge anchor that is holding the recovery back.  The big difference between this recession, or dare I say it depression, and the one of the eighties is the huge amounts of debt hanging over people, businesses and governments alike.

Unless the EU gets its act together it could find itself nowhere fast and in the shadow of the new economies of Asia.

Eric Power FCCA, Eric Power Accountants, email ericpower.fcca@gmail.com