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INCOME TAX | PRSI / HEALTH LEVIES | VAT FACT SHEET

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INCOME TAX | PRSI / HEALTH LEVIES | VAT FACT SHEET

INCOME TAX – FREQUENTLY ASKED QUESTIONS

What is the Artists Exemption to Income Tax?

Restrictions

On 1 January 2007, a restriction on “specified reliefs” was introduced for the purposes of Income Tax. The Artists Exemption is an example of a specified relief.  This restriction limited the amount by which an individual could shelter their total income with specified reliefs to the greater of:

• 50% of an individual’s ‘adjusted income’
OR
• €250,000

Any amount of a specified relief that is disallowed for the year is added to the individual’s taxable income to give an increased taxable income figure. 
 
Under the provisions of Finance Act 2010 (which was enacted on 3 April 2010), this restriction now limits the total specified reliefs which can be claimed in any one year (such as the artists exemption) to the greater of:
 
• 20% of an individual’s ‘adjusted income’
OR
• €80,000
 
Finance Act 2010 will therefore increase the effective tax rate from approx. 20% to 33%.  This income is also liable to the Income Levy from 1 January 2009.
 
The amount by which the reliefs are restricted will depend on the amount of income which the individual has earned in that tax year, and on the split of that income as between exempt income, income that may be reduced by tax reliefs (relievable income) and fully taxable income. 
 
Any unused restricted relief may again be subject to restriction in the following year, but it should ultimately be utilisable assuming the individual continues to receive sufficient levels of taxable income.
 
Outlined below is a very simple example to demonstrate the impact of the changes introduced by Finance Act 2010 on the artists’ exemption:
 
 
John is a songwriter whose income is made up as follows:
         
                                                                          €
Royalty income                                               725,000
Dividend income (i.e. income from shares)         75,000
Total income                                                  800,000
 
 
John makes a donation to the Irish Cancer Society (this can be claimed as an income tax deduction) of €50,000 during the year:
 
Therefore John’s ‘adjusted income’ is calculated as follows:
                                                                                         €
Exempt/deductible income (Royalty income + donation)      775,000
Taxable income (Dividend income – donation)                     25,000
Adjusted income                                                             800,000
 
Tax Computation BEFORE Finance Act 2010                     €
 
 
Adjusted Income                                                            800,000
Threshold Amount is the greater of                                (400,000)
(50% of Adjusted Income or €250,000)
 
 
Revised Taxable Income                                                 400,000
Taxed as follows:
 
 
First   * 36,400 x 20%                                                       7,280
Next    363,600 x 41%                                                    149,076
           400,000       
 
 
Total Tax Due (excl of PRSI/Levies)                                 156,356
 
 
Please note that this income will also be liable to the Income Levy from 1 January 2009.
 
*Standard cut-off point of a single person (i.e. the amount that an individual can earn before they start to pay the higher tax rate of 41%)
 

Tax Computation AFTER Finance Act 2010         €
 
Adjusted Income                                               800,000
Threshold Amount is the greater of                   (160,000)
 
(20% of Adjusted Income or €80,000)
 
Revised Taxable Income                                    640,000
 
Taxed as follows:
 
First    *36,400 x 20%                                          7,280
Next    603,600 x 41%                                       247,476
            640,000       
Total Tax Due (excl of PRSI/Levies)                    254,756
 
Please note that this income will also be liable to the Income Levy from 1 January 2009.
*Standard cut-off point of a single person (i.e. the amount that an individual can earn before they start to pay the higher tax rate of 41%)

As with all tax provisions, proper structuring of one’s affairs will assist in reducing the impact of the new provisions. The optimum structure for each individual will depend on their overall circumstances, but the following point should be of interest.
 
For married couples, each spouse is looked at separately for the purposes of the restriction. Therefore, if two authors are married and each has income of €120,000 in 2010, comprised entirely of tax-exempt royalties, the restriction will not apply to them as neither earns above the €125,000 threshold and so their full income of €280,000 will remain exempt from income tax (but will still be liable to the Income Levy).
 
The information contained in this note is intended to be a brief guide and should under no circumstances be taken as any form of tax advice. If you believe that you may be impacted by the changes introduced to the high earners restriction, it is recommended that you obtain professional advice in relation to how these changes may affect you.

 More detail on this relief is available on the Revenue web-site at Artists Exemption

Can I claim this Exemption?

In order to claim this exemption, an individual must:

• Have produced an original musical composition
• Apply to the Revenue Commissions to establish that they fall into one of the five categories listed in the Act. These categories include books, plays, musical compositions, paintings, sculptures.
• Be resident in the State

Or

• Be ordinarily resident and domiciled in the State and not resident elsewhere.

N.B. An application must be made by the artist directly to the Revenue.

Based on the conditions above being met, Revenue will have to determine whether the work to be original and creative works generally recognised as having cultural or artistic merit.

(Any references made to this Revenue determination relate to works and individuals that have met detailed Revenue Guidelines)

(For more detail of Revenue Guidelines in relation to this please see the Artists Exemption section of the Revenue web-site)

How can I apply for this Revenue determination and where should the application form be sent?

Application for Artists Exemption should be made on Claim Form 2

http://www.revenue.ie/en/tax/it/forms/artist2.pdf

Applications should be submitted to :

Office of the Revenue Commissioners,                 
Income and Capital Taxes Division,                     
Artists Exemption Unit,                                        
1st Floor New Stamping Building,                      
 Dublin Castle

Tel: + 353 1 6475000 
Fax: +353 1 6799287 
Ext. 48011, 48684 or 48224
Email: direct-taxes-admin@revenue.ie

If the determination is granted, how do I claim the Exemption?

A Tax Return must be submitted to the Inspector of Taxes using a Form 11 by the 31 October of the year following the year of assessment i.e. 2008 Tax return must be submitted by 31 October 2009.

The musician is obliged by law to detail all income including the exempted income and applicable reliefs.

N.B. Any tax return submitted may be subjected to a verification audit by the Revenue

If the determination is granted, do I need to apply for future works?

No, the determination covers the original work as well as any future work in the same category  with the Guidelines outlined by Revenue  in the Artists Exemption section of the Revenue web-site.

The Claim Form requires a PPSN. What is this and where do I get it from?

The Personal Public Service Number (PPS number) is the citizen’s unique reference number for all dealings with the Irish Public Service.

If you do now know your PPS number then please contact your local Department of Social and Family Affairs Office

If I am subject to a Revenue Audit, what will the focus of the audit be?

The audit would focus on whether:

• Profits / gains on which artists exemption is being claimed, is derived from works in respect of the determination granted by the Revenue.

And

• Any later works in the same category are deemed by Revenue to fall under the exemption as long as the Guidelines set out by Revenue in the Artists Exemption are met.

How long must I keep records?

Records must be kept for 6 years unless advised by Revenue.

What can I do if the determination is refused?

• Re-submit the claim form with additional supporting documentation
• Appeal the Revenue’s decision to the Appeals Commissioners where the appellant will be permitted to bring formal evidence and witnesses.

Can I claim the artist’s exemption in relation to work which does not fall within the Revenue Guidelines?

No the work must fall within one of the five categories referred to above.

Are advance royalties exempt from tax?

Yes, if a claim is lodged with the Revenue Commissioners in the tax year in which royalties are paid.  However, independent confirmation must be received from the publisher that the work will be published.

Where there are timing issues between the receipt of the advance and the granting of the determination, any tax liability arising on the advance must be paid. The Inspector of Taxes will make any appropriate refund of the overpaid tax if the determination is subsequently granted.

Advance royalties paid before the year of claim are not exempt.

What is Tax Clearance? Do I need it?

Where a company or individual provides good / services to the Public Sector, a tax clearance cert is required to prove that the company / individual is tax compliant.

A tax clearance cert is required if payments / commissions in excess of €6,500  are received within a 12 month period from a Government or Public Body.

How do I apply for a Tax Clearance Cert?

Tax Clearance Application

Useful Contacts

• Claims Forms and Information (As above)
• Appeals:

Office of the Appeals Commissioners,
8th Floor Fitz-Wilton Place,                     
Wilton Place,                                          
Dublin 2

 Tel: +353 1 6624530
 Fax: +353 1 6611892
 

IMPORTANT

This summary should not be treated as advice or a recommendation for your particular situation. If you have any queries then please contact the Revenue Commissioners or obtain professional advice. 

 


PRSI / HEALTH LEVIES – FREQUENTLY ASKED QUESTIONS

What is PRSI / Health Levy and what is it for?

Employers and employees pay social insurance contributions (normally via salary deductions) into the national Social Insurance Fund. This fund is used to fund social insurance payments i.e. State pensions, maternity benefit, jobseekers benefit, illness benefit etc.

The Health levy is paid by employees (normally via salary deduction) to the Department of Health & Children to fund health service in Ireland.

The health levy is not paid by the following:

• People earning less than €500 per week.
• People who have a medical card.
• People in receipt of One-Parent Family Payment, State Pensions, Deserted Wife’s Benefit / Allowance, Widow(er)s Pensions.

Does it apply to Royalties?

PRSI and levies are payable on all earnings including income derived from works which have received a determination (which allows an artist to claim Artists Exemption to Income Tax) unless the individual is specifically exempt from the Health Levy for the reasons detailed above or from PRSI based on their earnings.

Is it compulsory?

In general yes.

How are PRSI and the Health Levy levied?

• Employee (part-time musician)
o Social insurance class is determined by earnings which will in turn determine PRSI to be paid.
o Health levy is levied on taxable income.
o Responsibility of employer to deduct and pay over PRSI to Revenue who will pass onto the Department of Social and Family Affairs
o Any royalty earnings will be subject to PRSI under Class S and should be paid directly over to Revenue.
• Self-employed (full-time musician)
o Class S social insurance contributions directly to the Revenue.
o Health levy on taxable income should be paid directly to Revenue.

These PRSI and Health Levy details should be detailed in the relevant section of the Form 11 which is used to make an annual tax return.

Please see detailed PRSI and Levy rates for 2009.

PRSI Contribution Rates and User Guide 2009 – SW14 » PRSI Contribution Rates and User Guide SW 14 » Publications » The Department of Social and Family Affairs

Changes to PRSI and Health Levy rates in the April 2009 Supplementary Budget are detailed as follows:

Supplementary Budget April 2009-Summary of Pay Related Social Insurance (PRSI) Changes  » Budget April 2009-Supplementary » Budget » Topics » The Department of Social and Family Affairs

What are the implications of not paying PRSI / Health Levy?

Entitlements to social insurance payments are dependent on:

• Class of social insurance paid
• Age that an individual started making social insurance contributions
• How many contributions have been paid / credited since entering insurable employment?
• How many contributions have been paid / credited in the relevant tax year before the benefit year in which the claim is made.
• Yearly average number of contributions

N.B. Not paying PRSI and Health Levy contributions may affect your entitlements to benefits.

Where can I do for more information?

Department of Social and Family Affairs,
Cork Road,
Waterford.

Tel: (051) 356002

 
IMPORTANT

This summary should not be treated as advice of a recommendation for your particular situation. If you have any queries then please contact your local office of the Department of Social and Family Affairs or the office detailed above.



VAT – FREQUENTLY ASKED QUESTIONS

What is VAT?

VAT is a tax on consumer spending.

It is collected by VAT-registered traders on their supplies of goods and services effected within the State.

Each trader charges VAT on his / her sales and is entitled to deduct the amount of VAT paid on his / her purchases. Specific rules in relation to VAT are outlined on the Revenue web-site.

Where is VAT chargeable i.e. where is the place of supply?

Goods and services are taxable at the place where the supplier has established his / her business.

However, in relation to Cultural, Artistic and Entertainment services the place where these services are supplied for VAT purposes is the place where they are physically performed.

For example, the Fees received by an entertainer in respect of a concert given in Ireland are liable to VAT.

Similarly, an Irish based entertainer performing in the UK is outside the scope of Irish VAT.

What rate of VAT should I charge?

Any fee charged by a performer is subject to VAT at 21.5%.

A performer who is register for VAT will issue a VAT invoice for the amount of his / her fee and charge VAT at 21.5% on the full amount of that fee.

A non-resident performer will normally not be required to register for VAT in Ireland. In the case of performances by non-resident performers, the person who hired the performer, normally the promoter, will account for the VAT.

Do I have to register for VAT?

An individual is obliged to register for VAT if annual turnover exceeds €37,500 for supply of services or €75,000 for supply of goods.


How often do I have to submit a VAT return?

A VAT-registered person normally accounts for VAT on a two-monthly basis e.g. January / February, March / April).

The return is made using a form VAT 3 together with payment for any VAT due to the Collector General on or before the 19th of the month following the end of the taxable period.

For example, a return for the VAT period May /June is due by 19 July 2009.

For more a general explanation on VAT and more detail of the rules and regulations in relation to its administration please use the following link to the Revenue Website.
 

How do I account for VAT if I promote my own performances?

Where a performer promotes, either by him / herself or with others, an event in which he / she is performing, any payment received must be apportioned between the performance and the promotion.

Any such apportionment will depend on the individual circumstance and the performer must demonstrate to the satisfaction of Revenue that the apportionment is correct.

If a performer can show evidence of real work carried out in the promotion of the event, Revenue is prepared to accept that a portion of the payment received by a self-promoting performer may be treated as being in respect of the promotion, up to a maximum of 40% of the total fee (this may be exempt or liable to VAT according to the nature of the event). VAT of 13.5% may be charged on the promotional element of the fee subject to the Revenue guidelines.

The remainder of the fee, at least 60% is treated as being in respect of the performance and liable to VAT at the standard (21.5%) rate.

For more detail on the VAT rules in relation to this subject please see Theatrical & Musical Events

How do I get more information?

Use the contact locator on the Revenue web-site to find your local Revenue office.
 
Revenue Commissioners – Locator

To use the contact locator you will need your PPS number (Personal Public Service Number).

Revenue – Irish Tax & Customs

IMPORTANT

This summary should not be treated as advice of a recommendation for your particular situation. If you have any queries then please contact the Revenue Commissioners or obtain professional advice.


 

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