CASE

Dalttta /tote/ Grrou

Dalata Hotel Group pic is one of the largest hotel Guests at the hotels
operators in Ireland with a portfolio ofthirty-nine pay VAT on room
hotels, which include the brands Maldron and rates and products
Clayton. Like many businesses across Ireland, Dalata purchased at the
is responsible for paying a number of taxes to the hotel such as meals.
Revenue Commissioners. The hotel bars and
Through the Pay As You Earn (PA YE) system restaurants stock a
Dalata collects income tax and PRSI payments on range of alcoholic drinks on which excise duties are
income earned by its 4,300 employees and sends paid. Imports of alcohol from countries outside the
them to the Revenue Commissioners. Dalata also European Union are also subject to customs duties.
pays employer's PRSI on each member of staff it The firm values environmental sustainability and
employs. The total annual employer's PRSI paid by has reduced its carbon tax liability by using 100%
Dalata amounts to €8.5 million. The firm also pays renewable energy, which is supplied by Bord Gais
corporation tax on its profits of over €9 million. Energy.
Some of the hotels operated by Dalata offer a Dalata hotels pay commercial rates to their local
shuttle bus service to the local airport, so the firm authority. This enables the council to maintain and
ensures that it pays the correct rate of motor tax improve roads in the area, as well as providing
on its vehicles. street cleaners and water supplies.

226
 Chapter 16- Managing a Business and a Household: Taxation

WHAT IS TAXATION?
Taxation is a levy imposed by government on individuals and
businesses. It is paid on income, the purchase of goods and services,
Note!
and on property. The Revenue Commissioners, often referred to as The Department of
Revenue, is the government agency responsible for collecting taxes Finance, through the
on behalf of the Irish government. Minister for Finance, is
responsible for setting the
In recent years the Revenue rates of taxation to be
Commissioners has collected on levied on households and
average €50 billion in taxes from businesses.
individuals and businesses.

REASONS FOR TAXATION

A country needs taxation for a number of reasons, including:

~ For acountry to function the government needs to raise income through taxation.
Government
The government collects taxes to fund the daily running of the country, i.e. to
Revenue
provide essential services such as healthcare and education.
~ Taxation takes money from higher earners through the PAYE system and
Redistribution redistributes it among the less well off in society using the social welfare system.
of W ealth This lessens the gap between the rich and the poor with the aim of making a
country a fairer place to live in.
~ The government places higher taxes on products that are unhealthy. This makes
Discouraging
them more expensive to purchase and discourages citizens from buying these
Consumption
items, e.g. excise duty on tobacco products and alcohol.

In 2018 a sugar tax was Activity _

______;__ 16.1 _ _ __.~!rl\m
Q
introduced on juices and
In pairs, discuss the effects of the sugar tax and its consequences
soft drinks with more than
for households and for businesses operating in the soft drinks
of sugar per 1OOml.
industry.

I In 1696 the King of England introduced a tax on homes with more than six I
windows. As a result, houses were built with no more than six windows and
home owners began to fill in windows with bricks. The phrase 'daylight robbery'
comes from this period and refers to homes where bricked-up windows
prevented rooms from receiving any sunlight. People began to suffer health
l problems from lack of sunlight, and the tax was repealed in 1851.

DIRECT AND INDIRECT TAXATION

Taxation can be classified into two types: direct and indirect.

Direct Taxation Indirect Taxation

These are taxes levied on the income earned These are taxes levied on what people
by a household or businesses and paid spend, rather than earnings. Examples
directly to the government. Examples include include VAT and import duties.
PAYE income tax and corporation tax.

227
Inside Business: Unit 4

TAXES PAID BY HOUSEHOLDS AND BUSINESSES

1 Value added tax (VAT) .I .I

2 Motor t ax .I .I
3 Capital gains tax (CGT) .I .I
4 Cust oms duty .I .I
5 Excise duty .I .I
6 Carbon tax .I .I
7 Pay related social insurance (PRSI) .I .I
8 Pay As You Earn (PAVE) income tax .I ){

9 Self-assessment income tax .I ){

10 Universal social charge (USC) .I ){

11 Deposit int erest retention tax (DIRT) .I ){

12 Local property t ax (LPT) .I ){

13 Capital acquisitio ns tax (CAT) .I ){

14 Corporation t ax ){ .I
15 Commercial rat es ){ .I

Taxes Paid by Both Households and Businesses

The following taxes are paid by both households and businesses in Ireland.
1 Value Added Tax {VAT)
VAT is a tax on goods and services paid by both households and businesses. Some goods and services are
exempt from VAT, and not all goods and services have the same rate applied. The standard rate of VAT is 23%.
• Households: VAT is paid by households when they buy goods and services. This tax is included in the
selling price of products.
• Businesses: Businesses have a dual role in the VAT system . They pay VAT and also col lect VAT on
beha lf of the Revenue Commissioners, if they are registered for VAT with Revenue. The system
operates as follows:
A business pays VAT on the goods and services it purchases.
A business collects VAT on the goods and services it sells.
The business can claim the VAT paid on purchases against the VAT collected on sales.
If a business pays more VAT than it collected from sales in a particular period it w il l be entitled to
a VAT refund from the Revenue Commissioners; if it collects more VAT than it pays, it transfers
the balance to t he Revenue Commissioners.

Activity 16.2 rl\m

- - - - - - - - - - - - - - '' Q
Research t he current rates of VAT on the following items in Ireland.
Rat e It ems subject to rat e
% Basic f ood items, chi ldren's clothes and medicines
_ % Hospitalit y/tourism activities incl uding hotel rooms and cinema tickets
_ % Services and home buildings/heating, e.g. electricity and home heating
% Chocolates, sw eets, computers
Compare your answers with other students' answers to ensure that all students have identif ied the
correct rates.

228
 Chapter 16 - Managing a Business and a Household: Taxation

2 Motor Tax
Motor tax is paid on all motor vehicles that use public roads. The rates are set by the government and
the tax is collected through local authorities, e.g. Offaly County Council.
• Households: Households pay motor tax on the vehicles they own. The amount of motor tax paid
depends on C0 2 emissions or engine size.
• Businesses: Businesses also pay tax on all their vehicles, e.g. trucks, vans and cars. These vehicles are
subject to a business rate of motor tax.

3 Capital Gains Tax (CGT)

This is a tax on the gain made when a household or business sells an asset, e.g. land or company shares.
The capital gain is the difference between the selling price and the original price paid for the asset. The
current rate of CGT on most assets is 33%.

Activity
__ 16.3 M\tn
_ _ _ _ _ _ _IQ
Eve bought shares in a company for €12,000. The shares later rose in value on the stock market.
She sold the shares for € 18,000. Calculate the capital gains tax Eve paid, using the rate of 33%.

4 Customs Duty
This tax is levied on goods imported to Ireland from countries outside the European Union. This makes
the imported goods more expensive and encourages citizens to purchase more goods grown or
manufactured in the EU .

5 Excise Duty
This tax is paid on certain goods such as alcohol and tobacco products and is used by the government to
discourage consumption of these items. Different rates of excise are applied to different goods.

6 Carbon Tax
A tax levied on products that emit carbon into the atmosphere, e.g. heating oil, diesel and petrol. The
objectives of a carbon tax include:
• To discourage our use of such products as they damage the environment
• To help pay for climate change programmes.

7 Pay Related Social Insurance (PRSI)

PRSI is a statutory deduction made by employers on behalf of the Revenue Commissioners. It is a tax
charged on both employers and employees and is used to fund social welfare benefits, e.g. pensions
and medical cards.
• Households: For employees, the amount of PRSI to be paid is deducted from their wages, with
different rates payable depending on the amount they earn.
• Businesses: Businesses that employ staff pay employer's PRSI. The PRSI payment by the employer is
based on the amount earned by the employee.

Employers make deductions from employees' pay on a statutory or non-statutory

(voluntary) basis.
• Statutory deductions: Employers are required by law to make these deductions,
e.g. PAYE and PRSI.
• Non-statutory deductions: Employees request that their employer makes certain deductions
from their pay, e.g. trade union subscriptions and private health insurance.

Taxes Paid by Households Only

The following are some ofthe main taxes paid by households:

1 Pay as You Earn (PAVE) Income Tax Note!

This is a direct tax on employees' wages and salaries and is
Many people refer to PA YEas a tax, or
collected through the PAYE system. It is a statutory deduction
use the term when referring to income
which is deducted at source by the employer and paid directly
tax. However, the term PAYE relates to
to the Revenue Commissioners. There are two rates of tax:
the system used to collect income tax
• The standard rate, which is currently 20% from employees.
• The higher rate (marginal rate}, which is currently 40%.
229
Inside Business: Unit 4

2 Self-Assessment Income Tax

This is a tax paid by self-employed people on their business profits and other income earned. By 31
October each year, an estimate of tax due (known as preliminary tax) for the current year must be paid,
in addition to any amounts outstanding from the previous year.

3 Universal Social Charge (USC)

USC is paid by all employees and self-employed people who earn more than €12,000 per annum .

4 Deposit Interest Retention Tax {DIRT)

DIRT is a tax on interest earned on savings in deposit accounts in banks, post offices and credit unions.
The financial institution is responsible for deducting this tax at source. The DIRT rate for 2019 is 35%.

5 Local Property Tax (LPT)

This tax is based on the va lue of residential property, e.g. a main
home, holiday home or property rented to other people. It is
paid by the household or landlord each year to their local
authority.

6 Capital Acquisitions Tax (CAT)

This is a tax on gifts and inheritances. The amount of tax paid is
based on the relationship between the person giving and
receiving the gift or inheritance. The closer the relationship to
the person giving the gift or inheritance, the lower the amount
of tax that will be paid by the recipient, e.g. there is no CAT
between spouses or civil partners. CAT is charged at 33%.

Activity
__ 16.4 r--\\m.
_ _ _ _ _ __ . I Q
In pairs, look up houses for sale in your local area on www.daft.ie or www.myhome.ie and calculate
the LPT on the property. Use the 'Calculate your Local Property Tax' link on the Revenue website,
www.revenue.ie.

Taxes Paid by Businesses Only

The following are the main taxes paid by businesses only.

1 Corporation Tax
This is a tax on a firm's profits. The standard rate of corporation tax in Ireland is You will/earn
12.5%. This low rate of corporation tax relative to other European Union more about FDI in
countries has been a major factor in attracting foreign direct investment (FDI) to Chapter 28.
Ireland, e.g. firms such as Google and Facebook.

Activity
__ 16.5 r--\\m.
_ _ _ _ _ _ _IQ
Working in pairs, research the different rates of corporation tax rates around the world. Create a
table in Microsoft Excel or a similar application listing the countries and their corporation tax rates.

Activity _
_ 16.6 r--\\m.
_ _ _ _ _ _ _ .IV
Empire Ltd recorded a profit of €150,000. How much corporation tax would it be liable for if it was
based in (i) Ireland, (ii) the USA and (iii) France?

2 Commercial Rates
Commercial rates are levied by the local authority on
Brown Thomas on Dublin's
a firm's property and are used to finance local
Grafton Street pays annual
government services, e.g. street cleaning and lighting.
commercial rates of over
The amount paid is based on the value of the property
€7 million to Dublin City Council.
as well as the size and nature of the business, e.g. a large
supermarket in a prime location will pay a higher commercial
230 rate than a small shop on the outskirts of a town.
 Chapter 16- Managing a Business and a Household: Taxation

_A_ct_iv_i_ty
__ 1_6_.7______________________________________________~
In pairs, draw a Venn diagram in your copybook. Fill in the diagram to show the similarities and
differences between the taxes paid by households and businesses.

Note!
Some taxes are progressive; others are regressive.

'DcffvrttfOVI: Progressive tax

.I 'DcffV!ftfOVI: Regressive tax
The amount of tax is levied uniformly. As a
Taxes that impose higher rates for those result, a regressive tax takes a larger
on higher incomes, e.g. PRSI and PAYE percentage of income from low income
income tax. earners than high income earners, e.g. VAT.

THE PAVE SYSTEM

Every person employed in Ireland is subject to tax on
their income. The collection system in Ireland is known 'DcffvrttfOVI: Tax rate/band
as PAYE- Pay As You Earn. As we have already learned, This specifies the range of income for an
there are two rates of PAYE income tax, 20% and 40%. individual that is subject to the standard rate
The standard rate of tax (20%) applies to income up to of income tax (20%) and any balance that is
a certain level, known as the standard rate cut-off point subject to the higher rate of tax (40%).
(SRCOP). Any income earned above this level is subject
to the higher rate of tax (40%).
The amount of PAYE payable by individuals varies
and depends on their own personal circumstances, 'DcffV!ft fOVI: Tax credits
e.g. whether they are single, married or widowed. A tax credit reduces the amount of PAYE income
The amount of tax payable can be reduced by tax paid by an employee. There are a number of
claiming tax credits. different tax credits available, including:
Single person tax credit
Approximately €800 million in tax
Employee tax credit
credits goes unclaimed each year
Home carer tax credit.
in Ireland.

PAVE Modernisation
In the past, employers in Ireland dealt with many taxation forms relating to the employment and end of
employment of staff. This created annual paperwork of almost 5 million forms for employers
t hroughout Ireland.
There has been a growth in the number of employers and employees in Ireland, and over 200,000
people are in more than one employment, e.g. a person working part-time for three different
employers. In order to reflect these changes in the employment market, reduce taxation paperwork and
increase efficiency, the Revenue Commissioners have introduced PAYE modernisation.
From 2019 the PA YE system operates as follows.

1 Commencing Employment
An individual registers with the Revenue 'DcffV!ftfOVI: PPSN
.
I
Commissioners using their PPSN (Personal Public A PPSN (Personal Public Service Number) is
Service Number), creates an online account and enters a unique reference number assigned to each
details about their employer. The Revenue person in Ireland; it enables people to access
Commissioners then assigns this individual the correct social welfare benefits and public services and
t ax bands and t ax credits, which is known as the RPN identifies t hem for employment and tax
(Revenue Payroll Notificatio n). purposes.
The information contained in the RPN is used by t he
employer to ensure that the employee pays the correct
rates of tax and receives the correct tax credits.

23 1
Inside Business: Unit 4

Emergency Tax
If an employer does not have an employee's PPSN or RPN, it must impose emergency tax on the
employee's income. If after four weeks the employer still does not have the required information,
all income is taxed at the higher rate of PAYE income tax, i.e. 40%.

2 During Employment
An employee can log on to their account with the Revenue Commissioners and obtain up-to-date
information on the amount of taxes that they have paid. They can also check to ensure that the correct
tax rates and tax credits have been applied to their income.
An end-of-year statement will be available for employees via their online account w ith the Revenue
Commissioners. It will include details of all their pay and tax deductions from all employments for that
tax year.

3 Ending Employment
When an employee ceases employment with an employer, the employer communicates the end date
with the Revenue system. This information is available to the individual's:
• New employer- so that they can register the tax band and tax credits of the new employee
• Local social welfare office- so that he/she can access the relevant social welfare payments, e.g.
Jobseeker's Benefit.

Benefits of PAVE Modernisation

~ The employer's payroll systems can integrate --+ Employees can access information on
with Revenue's system. This means that their tax credits and tax bands through
information on employees can be their online account on the Revenue
exchanged automatically, which saves time. website.
Minimise costs Maximise the use of tax credits
~ There are lower costs for the employer, as ~ Theemployee can monitor their
less staff time is taken up with preparing allocation of tax credits during the year
and processing forms, e.g. P60 and P45. to ensure that they don't overpay taxes.
Abolition of forms Automatic review
~ It has led to the abolition of forms such ~ The system undertakes an automatic
as the P45 (when an employee ended end-of-year review of tax paid.
their employment). Employees receive a tax refund if they are
found to have overpaid taxes during t he
year.
Real-time reporting
~ It ensures that employees and employers ~ Employees can log on to their Revenue
pay the correct amount of taxes. It also account to see what taxes they have paid
reduces the number of employees who pay to date.
emergency tax.
Time savings Transparency
~ It saves the employer time as forms such as ~ Employees can see that tax deducted by
P45s and P60s will not have to be created by their employer has been paid to Revenue.
the employer, which was time-consuming.

Example
Boxform Ltd, a building contractor, pleaded guilty to five Revenue offences, which included the
failure to transfer PAYE and PRSI deducted from employees to the Revenue Commissioners. The fraud
was initially discovered when former employees attempted to claim social welfare benefits and found
no appropriate records in respect of themselves. In total, the company owed over €2.5m to the
Revenue Commissioners. Now, under PAYE modernisation, an employee can check that taxes collected
by their employer have actually been paid over to the Revenue Commissioners.

232
 Chapter 16- Managing a Business and a Household: Taxation

TAX NON-COMPLIANCE
Nobody likes paying taxes. However, taxes are essential in a fair
society and for a country to function. Some individuals and Example
businesses will try to evade paying their taxes (illegal) or find ways The former director of an Irish
to avoid paying their taxes (legal). firm was sentenced to three
years in prison for tax evasion.
I The director was f ound guilty
'Dcffl1.ftfOl1.: Tax evasion of unpaid taxes, including VAT,
Households and businesses avoid paying the correct amount of PRSI and PAVE, amounting to
tax by under-declaring income or over-claiming tax deductions. €2.1 mill ion.
This is illegal , and heavy penalties are applied by the Revenue
Commissioners for tax evasion.

It is estimated that in a ten-year

period, tax evasion in Ireland
amounted to €1 billion.

I
'Dcffl1.ftfOl1.: Tax avoidance •
This reduces the tax liability for households
and businesses. Unlike tax evasion, tax
avoidance can be done legally by using t he
tax laws (sometimes referred to as loopholes)
to reduce tax liability, e.g. by maximising tax
deduct ions and tax credits while minimising
ta xable income.

To reduce the incidence of tax evasion, the Revenue Commissioners conduct random revenue audits.
During these audits, officers compare the tax returns of households and businesses with their tax
records to see if they have underpaid tax.

TAX CALCULATIONS
The employer is responsible for calculating and collecting taxes paid by employees. It is very important
t hat employees understand how t o calculate their own pay to check that the correct tax band and tax
credits are applied. The amount of tax owed by an employee is based on:
• Gross pay: basic pay plus overtime and bonuses
• The financial value of any benefits-in-kind.
Once gross income has been calcu lated, the gross PAVE tax is calculated using the standard rate and
higher rate of tax (if applicable). Tax credits available to the employee are then deducted from the gross
PAVE tax in computing the net PAVE t ax.

Pay as You Earn (PAVE) Income Tax Calculation Summary

• Gross pay= basic pay+ overtime + bonuses

• Gross income= gross pay+ financial value of benefits in kind
• Gross PAVE tax= gross income x appropriate tax rates
• Net PA YE tax= gross PAVE tax - tax credits

PRSI and USC charges are then ca lculated and subtracted from gross income to arrive at net pay:
Net pay (also known as take-home pay) = gross income - PA YE - PRSI - USC.

233
Inside Business: Unit 4

Tax Calculations: Sample Questions

Example 1
Ashley works as a part-time mechanic with FM Motors Ltd.
His salary is €23,500 per annum. Ashley has been allocated
a personal tax credit of €2,200 per annum. Calculate
Ashley's net annual pay (take-home pay).

Solution
€ € €
Gross Pay 23,500.00
Step 1: Calculate Gross PAYE Tax

Standard rate: €23,500 x 20% 4,700.00

Higher rate: (nil, since salary is below the
0
standard rate cut-off point)
Gross PA YE Tax 4,700.00
Less Tax Credits ~2,200 .00}

(A) Net PAYE Tax 2,500.00

Step 2: Calculate PRSI (levied on gross pay)

(B) €23,500 X 4% 940.00

Step 3: Calculate USC

First €12,012 x 0.5% 60.06

Next €7,360 x 2% 147.20
Remainder (€23,500- €19,372) x 4.75% 196.08
(C) Total USC Payable 403.34
Total Deductions (A+ B +C) 3,843.34
Step 4: Subtract Total Deductions from Gross Pay (3,843.34)
Net Pay (Take-home Pay) 19,656.66

234
 Chapter 16- Managing a Business and a Household: Taxation

Example 2
Tom Wall is an employee at Parle Dist ribut ions Ltd
and earns an annual salary of €92,000. His personal
tax credits consist of a single person tax credit of
€1,760 and an employee tax credit of €1,760. Calculate
his net annual pay (t ake-home pay).

Solution
€ € €
A n nual Salary 92,000.00
Gross PAYE Tax
Sta ndard rate: €33,800 x 20 % 6,760.00
Higher rate: €58,200 x 40% 23,280.00
Gross PAVE Tax 30,040.00
Less Tax Credits
Single person 1,760.00
Employee 1J60.00 {3,520.00}
(A) Net PAVE Tax 26,520.00
(B) PRSI
92,000 X 4% 3,680.00
usc
First €12,012 x 0.5% 60.06
Next €7,360 x 2% 147.20
Next €50,672 x 4 .75% 2,406.92
Remainder (92,000- 70,044) x 8% 1,756.48
(C) Tot al USC Payable 4,370.66
Total Deductions (A + B + C) {34,570.66}
Net Pay (Take-home Pay) 57,429.34

Example 3
Shauna Butler is an employee at Meadowlands
Resources pic. She earns an annual salary of €76,000.
She also has the use of a company car during the
year wit h an estimated value to her of €6,000. Th is
is treated as a benefit-in-kind for taxation purposes
and is taxed accordingly. Shauna has the following
t ax credits: employee € 1,760; single person € 1, 760;
dependent relative €900.
Calculate Shauna's net annual pay (take-home pay).

235
Inside Business: Unit 4

Solution
€ € €
Income
Gross Salary 76,000.00
Add Benefit-in-Kind (Company Car) 6,000.00
Gross Income 82.000.00
Gross PA YE Tax
Standard rate: €33,800 x 20% 6,760.00
Higher rate: €48,200 x 40% 19,280.00
Gross PA YE Tax 26,040.00
less Tax Credits
Employee 1,760.00
Single person 1,760.00
Dependent relative 900.00 {4!420.00~
(A) Net PAVE Tax 21 ,620.00
(B) PRSI
€82,000 X 4% 3,280.00
usc
First €12,012 x 0.5% 60.06
Next €7,360 x 2% 147.20
Next €50,672 x 4.75% 2,406.92
Remainder (82,000- 70,044) x 8% 956.48
(C) Total USC Payable 3,570.66
Total Deductions (A+ B +C) {28,470.66~
Net Pay (Take-Home Pay) 53,529.34

THE IMPLICATIONS OF TAX FOR HOUSEHOLDS AND

BUSINESSES

POSITIVE IMPLICATIONS
Households Businesses
1 Redistribution of Wealth 1 Tax Incentives
Taxation helps to redistribute wealth in society. Tax incentives can be used to encourage
Employee PRSI is used to provide social welfare businesses to expand or establish in
payments such as Jobseeker's Benefit. disadvantaged areas. This reduces the cost of
setting up or expanding a business.

2 Improved Public Services 2 Lower Rates of Corporation Tax

The government uses tax revenue to provide Low corporation tax rates in Ireland increases the
public services, e.g. education. This improves the amount of profits that a business can keep.
standard of living for all citizens.

236
 Chapter 16- Managing a Business and a Household: Taxation

NEGATIVE IMPLICATIONS
Households Businesses
1 Reduces Disposable Income 1 Overtime
PA YE, PRSI and USC reduce employees' take- High rates of income tax may discourage
home pay. This means that households have less employees from working overtime, which can
disposable income, i.e. the amount they have make it difficult for firms to fulfil orders at busy
available to spend. times of the year.

2 Higher Prices 2 Employer's PRSI

VAT, customs duty and excise duty increase the Employers must pay employer's Pay Related
price of goods and services. Consumers may buy Social Insurance (PRSI) for each employee, which
fewer of these products and/or purchase from increases business costs.
businesses outside Ireland to reduce costs.

3 Regressive Taxes 3 Discourages Enterprise

Regressive taxes such as VAT result in those on High rates of taxation such as employer's PRSI
lower incomes paying a larger portion of their and commercial rates discourage enterprise.
income in tax than wealthier people. People do not take the risk of setting up their
own businesses.

_16.8
Activity _ _ _IQ
r-\\m )
'DcffWtiOl'l: Depreciation of assets
As a class, debate the following motion. 'Taxation is Depreciation is the loss in value of a fixed
simply a burden on society and only serves to asset over its useful economic life due to
increase prices.' wear and tear and passage of time.

SUMMARY: HOUSEHOLD AND BUSINESS TAXES

Both households and businesses are liable for many taxes. There are similarities and differences between
them in relation to taxation.

HOUSEHOLD AND BUSINESS TAXES

./ Similarities X Differences
1 Registration 1 Reduced Tax Liability
Both households and businesses register for tax Businesses can reduce their tax liability in more
with the Revenue Commissioners. ways than a household. For example, legitimate
business expenses can be written off for tax
purposes, e.g. depreciation of assets.

2 Tax Compliance 2 Reclaim VAT

They both pay the correct amount of tax. A VAT-registered business can claim back VAT
paid on its purchases of goods and services.

3 Tax Avoidance 3 Greater Range of Taxes

Households and businesses use only legal More taxes apply to businesses, e.g. corporation
methods to reduce their tax liability, i.e. tax tax and commercial rates.
avoidance strategies.
4 Tax Collection
4 Record Keeping Businesses act as collectors of taxes on behalf of
Record keeping the Revenue Commissioners.

237
Inside Business: Unit 4

O KEYTERMS
Now you have completed this chapter, you should understand and be able to explain the
following terms. In your copybook, write a definition of each term to build up your own
glossary of terms.
• taxation • Pay As You Earn (PAYE) • corporation tax
• direct tax income tax • commercial rates
• indirect tax • self-assessment income • progressive tax
• value added tax (VAT) tax • regressive tax
• motor tax • Universal Social Charge • tax credits
(USC)
• capital gains tax (CGT) • tax band
• customs duty • deposit interest retention • PA YE modernisation
tax (DIRT)
• excise duty • tax evasion
• local property tax (LPT)
• carbon tax • tax avoidance
• capital acquisitions tax
• Pay Related Social • revenue audit
(CAT)
Insurance (PRSI) • net take-home pay

• PowerPoint Summary)

EXAM-STYLE QUESTIONS
Ordinary Level
Section 1- Short Questions {10 marks each)
1 Name three taxes paid by a household.
2 Name three taxes paid by a business.
3 What do the following letters stand for? (i) VAT, (ii) PRSI and (iii) DIRT.
4 What do the following initials stand for? (i) CGT, (ii) PAYE and (iii) CAT.
5 What is meant by the term emergency tax?
6 Tony Mowbray's annual salary is €26,000. PAYE is pa id at 20% on the first €32,000 and 40% on the
remainder. PRSI is charged at 3%. Calculate Tony's annual take-home pay if he has an employee tax
credit of €3,200 per annum. Show your workings.
7 Brian Finnegan has an annual salary of €68,000. PAY E is paid at 20% on the first €34,000 and at 40%
on the remainder. PRSI is charged at 4%. Calculate 8 rian's annual take-home pay if he has a single
person's tax credit of €3,900 per annum. Show your workings.
8 Indicate whether the following statements are true or false.
Statements True or False
A VAT stands for value appreciated tax.
Deposit interest retention tax is a tax paid on the interest earned on savings in
8
a bank or post office.
Tax avoidance is a legal way of reducing your tax liability.
PAYE is an example of an indirect tax.
Corporation tax is a tax on a company's profits.

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 Chapter 16- Managing a Business and a Household: Taxation

Section 2 - Long Questions

John Murphy works at Ross Printers. He earns €34,000 annual salary and from this saves
€100 per month with his local post office in a post office savings account. He has a car and
owns his own house.

Outline four taxes that John would be likely to pay. (20 marks)
2 Broderick pic has a taxable profit of €96,000. Corporation tax is charged at 12.5%. Calculate
the amount of tax to be paid by Broderick pic. (10 marks)
3 Calculate Susan Griffin's annual net take-home pay from the following information:
Annual salary €54,000, Tax credits €2,900, Standard PAYE rate 20%, Higher rate 40%, Standard cut-off
point €34,000, PRSI is charged at 4%, USC is charged at 1% up to €12,000, 3% between €12,000
and €22,000 and 7% on the remainder. (20 marks)
4 Calculate Michael Acheson's annual net take-home pay from the following information:
Annual salary €85,600, Employee tax credit €1 ,600, Married person tax credit €1 ,600, Standard PAYE
rate 20%, Higher rate 42%, Standard cut-off point €34,000, PRSI is charged at 5%, USC is charged at
2% up to € 14,000, 4% between €14,000 and €25,000 and 8% on the remainder. (20 marks)
5 Irish households are overburdened with taxation. Describe the taxes paid by households
in Ireland. (25 marks)
6 Outline the implications of taxation for a household. (15 marks)
7 Outline two similarities and two differences in relation to taxation for a household and
a business. (20 marks)

Higher Level
Section 1- Short Questions (10 marks each)
Outline the reasons for taxation.
2 Distinguish between a direct tax and an indirect tax. Illustrate your answer with relevant examples.
3 List five taxes that both households and businesses pay.
4 Distinguish between corporation tax and commercial rates.
5 Explain what is meant by the term tax credit.
6 Distinguish between tax evasion and tax avoidance. Illustrate your answers with relevant examples.
7 Column 1 is a list of taxation terms. Column 2 is a list of possible explanations for these terms. Match the
two lists in your copybook by writing your answers in the form number= letter (e.g. 1 =A).

Terms Explanations
A tax on the gain made when an individual or business sells an asset, e.g.
1 VAT A
land and buildings or company shares.
Levied by the local authorities on business property. The purpose is to help
2 Progressive Tax B
finance local government services, e.g. street cleaning and lighting.
3 PPSN c A tax on goods and services paid by both consumers and businesses.
A number unique to an individual that is used for employment purposes
4 Capital Gains Tax D
and to acces.s social welfare benefits and public services in Ireland.
5 Commercial Rates E Taxes that impose higher rates for those on higher incomes.

8 Choose the correct option in each of the foll<:>wing sentences.

(i) Tax evasion/avoidance is an illegal process whereby individuals and business do not pay the
correct amount of tax.
(ii) VAT is levied on goods and services/income.
(iii) The tax payable on alcohol and tobacco products is called an import/excise duty.
(iv) Local property tax/local premises tax is based on the value of residential property.
(v) When a business or individual inherits an item, e.g. a property, it is subject to capital gains tax/
capital acquisitions tax.

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Inside Business: Unit 4

Section 2 -Applied Business Question (80 marks)

Kian's Kitchen
Kian Finnegan set up his restaurant Kian's Kitchen five years ago. He
chose a village in Carlow to locate his business, as the government
offered tax incentives and reduced corporation tax for firms that set up
in the area. Kian knows of other chefs who have chosen not to set up
their own business due to the high cost of commercial rates, especially in
city locations.
Kian uses high-quality international produce in his restaurant. He
imports manuka honey from New Zealand and wine from a small
importer in the UK. Kian has purchased a van and one member of staff
travels to Dublin each week to collect the produce from Dublin port.
Kian has recently employed a new chef as he found it difficult to get his
existing staff to work overtime each week. He knows that the new chef
is an additional cost to the business, especially in terms of taxation, but
business is busy and he does not want the quality standards in the
restaurant to suffer.
The new chef has an annual salary of €54,000 together with health
insurance premiums paid at a cost of €2,000. Kian reminds the new chef
to log on to www.revenue.ie to check that he is registered on the
Revenue system and that he has received the correct tax credits. In the
past some staff have had emergency tax applied and Kian does not want
this to happen to the new recruits.

A Describe the taxes that Kian Finnegan would have to pay as owner of Kian's Kitchen. (30 marks)
B (i) Explain the underlined tax terms.
(ii) Calculate the chefs take-home pay using the following information.
PAYE: the standard rate is 20%, higher rate is 41%. The standard cut-off point is €32,000.
PRSI is levied at 3% on gross income.
USC is charged at 3% on the first €13,000, 4% on the next €7,000 and 7% on the remainder.
Employee Tax Credit of €2, 100. (30 marks)
C The taxation policy of a government can have positive and negative implications for business.
Describe how these policies can affect businesses such as Kian's Kitchen. (20 marks)

Section 3 - Long Questions

1 Discuss the reasons why the government imposes taxes on society. (1 5 marks)
2
Laura is single and works as a scientist at a large pharmaceutical company. She owns her
own home and has recently received a large monetary inheritance.

Describe the taxes that Laura would be liable to pay. (20 marks)
3 Employees pay a number of statutory deductions. Describe three statutory deductions
paid by employees in Ireland. (15 marks)
4 Describe the changes that have occurred with the introduction of PAYE modernisation . (20 marks)
5 Managing a business and running a household are similar when it comes to the area of
taxation. Evaluate this statement. (20 marks)
6 Compare and contrast the different taxes associated with running a household and
managing a business. (20 marks)

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 Chapter 16- Managing a Business and a Household: Taxation

Section 3 - Long Questions continued

For questions 7 and 8 use the information supplied below:

PAVE PRSI
Standard rate 21% First €52,000 4%
Higher rate 42% Remainder 6%
Standard cut-off point €33,200

usc Tax credits

First €14,000 2% Single person €1,500
Next €8,000 4% Married person €3,000
Remainder 8% Employee €1,600
Dependent child €900

7 Catherine McDonald is single and recently began work for the first time. Catherine's net salary
will be €28,000 a year.
(i) What is meant by the term emergency tax?
(ii) Calculat e Catherine's annual take-home pay. (30 marks)
8 Anthony Kelly is married with two dependent children . He has worked as a project manager for a
number of years and has an annual salary of € 102,000.
(i) Outline the purpose of a tax credit.
(ii) Calculat e A nthony's annual take-home pay. (25 marks)

PREVIOUS LEAVING CERTIFICATE EXAM QUESTIONS

Ordinary Level
Section A- Short Questions (10 marks each)
Calculate Joanne Heffernan's Net Annual take-home pay f rom t he fol lowing details. Show your
workings:
Name: Ken McGrath € €
Gross Pay 70,000
Deductions
6,910
PAVE (20% of €34,550)
14.180
(40% of €35.450)
21,090
Less tax credits 4,200
Net PAVE 16,890
PRSI (4% of €70,000) (i)
USC (3% of €70,000) (i i)
Total Deductions (iii)
Net Annual Take Home Pay (iv)
[LC OL 2018]
2 What do the following initials stand for? (i) PAVE and (ii) USC. [LC OL 2013]
3 A limited company has a taxable profit of €68,400. Tax is charged at a rate of 12.5%.
(i) Calculat e the amount of tax to be paid . (Show your workings.)
(ii) W hat is the missing word in the following sentence? The tax paid on profits of a
limited company is called tax. [LC OL 2006]

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Inside Business: Unit 4

Section B
1 List two taxes other than motor tax that a business might pay. (15 marks) [LC OL 2016]
2
Elaine McGrath works as an Assessor for lnsure2Bsure Ltd. Her job includes processing claims
from customers and deciding on compensation. She earns Gross Pay of €32,000 per annum. She
pays PAYE at the standard rate of 20%. Assume PRSI is 4% and the Universal Social Charge (USC)
is 3%, both calcu lated on her gross pay. Her annual tax credit is €3,600.

(i) Explain the three underlined terms. (15 marks)

(ii) Calculate Elaine's Net Annual take-home pay. (20 marks) [LC OL 2012]

Higher Level
Section A- Short Questions (10 marks each)
1 Distinguish between VAT and corporation tax. [LC HL 2016]
2 What do the letters PAYE stand for? Outline two main feat ures of the PAYE tax system. [LC HL 2015]
3 Explain the difference between tax rates and tax credits. [LC HL 201 2]

Section B

Audrey Stapleton is an employee at BAT Resources Ltd and earns a gross annual salary of
€78,000. Her employer provides her with a holiday voucher worth €2,000. This is treated as a
benefit-in-kind for t ax purposes and taxed accordingly.
The standard rate band for a single taxpayer is €32,800. (This means that the first €32,800 is taxed
at the 20% standard rate and the remainder is taxed at the higher rate of 41 %.)
Audrey has t he following tax credits: Single Person Tax Credit €1,650, Employee Tax Credit €1,650
and Rent Tax Credit €320.
The Universal Social Charge (USC) rates on Audrey's gross income are 2% on the first € 10,036, 4%
on the next €5,980 and 7% on the balance of her gross income. Audrey pays PRSI at 4% of her
gross income.

Calculat e Audrey Stapleton's net monthly take-home pay. (20 marks) [LC HL 2013]
2 Pay As You Earn (PAYE). Value Added Tax (VAT) and Corporation Tax are examples of taxes relevant to
businesses.
(i) Explain each tax underlined above.
(ii) Evaluat e the implications of each tax for a business. (25 marks) [LC HL 2011]
3 From the following information calculat e the net annual take-home pay of Ms Joan McCormack.

Joan McCormack is an employee of Lynch Printers Ltd and earns a gross annual salary of €84,000.
She is allowed the f ollowing tax credits: Single person credit of €1, 760 and employee credit of
€1,760. The income tax rates are: 20% on the first € 34,000 (standard cut-off point) and 41% on
the balance. The employee PRSI Rate is 6% on the first €48,800 and 2% on t he balance.

(20 marks) [LC HL 2007]

II Solutions)

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