Brad Wilson is married to Anna Quinn They moved to Ireland in January 2016 : Taxation Case Study, UO, UK

University University of Oxford (UO)
Subject Taxation

Case study

Brad Wilson (aged 35 years) is married to Anna Quinn (aged 33 years). The couple moved to Ireland in January 2016 from Canada. Brad was born and raised in Canada, his parents are Canadian and he holds Canadian citizenship and a Canadian passport. Anna was born in Ireland and moved to Canada after college but she was always keen to return to Ireland to be near her parents and family who all live there.

Brad is self-employed and has operated a corporate catering business as a sole trader for the last 5 years. He recently emailed you a copy of a letter (dated 10 September 2021) that he received from the Revenue Commissioner advising him that Revenue is carrying out an audit of his VAT returns for the period from 1 January 2018 to 31 December 2018.

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You meet with Brad on 15 September 2021 and he tells you the following:

  • Brad’s bookkeeper has reviewed the VAT returns and payments for 2018 and all appears to be in order;
  • Brad earns net rental profits of approximately €10,000 each year from the letting of an apartment that he owns in Toronto. The rent is lodged into his Canadian bank account and is used to fund the repayments of the mortgage on the apartment. Brad has not included these rental profits in any Irish tax return to date;
  • Brad received a dividend of €10,000 in both 2020 and 2021 from a Canadian quoted company.No Canadian tax arose on these dividends which were paid into Brad’sIrishbank account.  Brad presumes that no Irish tax arises not these dividends either given the fact that Canadian tax isn’t payable meaning he thinks he doesn’t need to include this income in his 2020 or 2021 Irish tax return; and
  • The cash payments related to bonuses and round sum expense payments. No PAYE was operated on these payments and Brad re-categorized the payments as miscellaneous expenses in the 2018 Statement of Profit or Loss. Brad assures you the approach he took in 2018 has not been repeated since and his accounts and PAYE payments for 2019 and 2020 are correct.

Brands therefore keen to sort out any tax discrepancies that may have inlighted the forthcoming Revenue audit as efficiently as possible. He does not want to be published on the tax defaulters list because he is in the process of negotiating a lucrative contract with a high-profile business and being named and shamed as a tax defaulter would damage his reputation.

The Revenue audit letter states that the audit will take place at Brad’s premises on 25 September 2021 but this is a very busy time for Brad and he is worried he won’t have the time to prepare for the auditor deal with the Revenue auditor on arrival. He therefore also asks you to provide professional advice on how to approach and prepare for the audit.

Brad also wants his 2020 income tax return finalized. To assist with this, the Statement of Profit or Loss for his catering business for the twelve months to 31 December 2020, along with accompanying notes and other relevant information is set out in Appendix1.

Until 1 September 2021, Anna Quinn worked as a sales rep for an advertising company. On 1 September 2021, following a company restructuring, Anna was made redundant and is about to be paid a severance package based on the following details:

Agreed statutory redundancy7,400
Agreed tax-exempt ex-gratia payment24,750
Pay in lieu notice3,700

Anna was paid a salary totaling €80,000 from January 2021 to August 2021 and PAYE was correctly operated on these monthly payments.

Anna was provided with a company car from 1 January 2021 to 1 September 2021 for the purposes of her work. The open market value of the car was €25,000. Anna traveled a total of 46,000 kilometers between January 2021 and August 2021 of which 9,600 kilometers were for private purposes. According to Anna’s employer, any tax payable by Anna in relation to the company car has not been put through payroll and must therefore be deducted from the final severance payment (Anna has confirmed that this is correct).

Anna asks you to review this information and calculate the total tax liability deductible from her severance payment so that she can compare this with her employer’s calculations as she wants to be absolutely sure that her tax and net payment are correct before she finalizes all the paperwork and signs her termination agreement.

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Appendix 1 

Statement of Profit or Loss for the twelve months to 31 December 2020

Notes
Sales435,000
Less cost of sales1(304,500)
Gross profit130,500
Grant income21,000
131,500
Fewer expenses:
Payroll expenses395,000
Bad debts42,700
Fines5250
Rent and rates20,000
Insurance62,850
Light and heat3,600
Motor expenses75,300
Leasing charges87,340
(137,040)
Profit/(loss)      (5,540)

 Notes

  1. Included in the cost of sales is €5,000 for food taken by Brad for his and Anna’s personal use.
  2. IDA Ireland paid Brad an employment grant of€1,000.
  3. Payroll expenses are comprised of the following:
Brad’s drawings30,000
Employee salaries40,000
Employer pension contributions (all paid in the period)10,000
Contributions to Brad’s pension15,000
€95,000

4. Bad debts are comprised of the following: €

General provision for bad debts1,200
Specific bad debt provision1,500
€2,700

 

The specific bad debt provision relates to a  customer who owed B a rad €1,500 a sat31December 2020 but ceased trading in 2021 and is insolvent.

  1. Following an inspection by the Food Safety Authority, Brad paid fines of €250 for some minor breaches of regulations.
  2. Insurance is comprised of the following: €
Premises insurance850
Employers and public liability insurance1,500
Car insurance*500
€2,850

*The car insurance relates to Brad’s car which he uses 20% of the time for business purposes.

  1. Motor expenses are comprised of the following: €
Brad’s car1,700
Delivery van€3,600
€5,300

The delivery van cost €17,400 when purchased in 2019.

  1. Leasing charges (all operating leases) are comprised of the following:
Lease       of    cash    register/payment system450
Lease of kitchen equipment2,690
Lease of Brad’s car4,200
€7,340

Brad’s car had a market value of €25,000 when first leased on 15 January 2019 and has an emissions rating of Category D.

Other information 

Brad’s PPSN is 9999575I and he will submit financial statements for the business in iXBRL format via ROS. Brad and Anna are jointly assessed for income tax purposes and Brad is the assessable spouse.

Anna’s P60 details for 2020 are as follows: €

Taxable pay87,262
Total income tax deducted21,395
Total pay for USC purposes94,135
Total USC deducted4,387
Gross pay for employee PRSI purposes94,137
Employee PRSI deducted3,766

Requirements

  1. Prepare a file note setting out, with explanations, whether each of the foreign income sources received by Brad is within the scope of Irish tax.
  2. Write a letter to Brad advising how he should regularise his tax affairs in light of the information he gave you at the meeting and how to approach the Revenueaudit.
  3. PrepareBradandAnna’sTaxReturnfor2020completewithsupportingtaxcomputations, schedules and calculations. This should include the following:
    • Case I tax adjusted trading profit/(loss) for Brad’sbusiness;
    • Tax computation;
    • Tax return;and
    • A file note setting out the supporting technical basis of your calculations.

Note: a recalculation of Anna’s PRSI and USC in 2020 is not required.

  1. Prepare a letter to Brad and Anna setting out their tax compliance obligations in respect of their 2020 income tax return.
  2.  Calculate, with supporting explanations, the total tax payable in respect of Anna’s severance package and setout how much Anna will receive overall net of taxation payable

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