Chap 12 Chap 12 Household Household

Insurance & Insurance & TaxationTaxation

1. The type of 1. The type of insuranceinsurance households needhouseholds need

Product liabilityProduct liability Employers PRSIEmployers PRSI Public liabilityPublic liability Property insurance- (premises, land Property insurance- (premises, land

etc)etc) Motor Insurance- Motor Insurance- fully comprehensivefully comprehensive

- third party cover- third party cover

- third party, fire & theft- third party, fire & theft

Other key insurance termsOther key insurance terms

Fidelity guaranteeFidelity guarantee Consequential loss insuranceConsequential loss insurance Key person insuranceKey person insurance Whole Life assuranceWhole Life assurance Endowment life assuranceEndowment life assurance Exposure unit Exposure unit Loadings Loadings No claims bonusNo claims bonus Average clauseAverage clause

3. HOW CAN INSUARNCE BE 3. HOW CAN INSUARNCE BE TAKEN OUT?TAKEN OUT?

I.I. Contact insurance company?Contact insurance company?This can be directly by use on formal over This can be directly by use on formal over

the counter discussion, telephone call, the counter discussion, telephone call, or use of the internet.or use of the internet.

Insurance Brokers may also be used to act Insurance Brokers may also be used to act independently of insurance company’s independently of insurance company’s and they give unbiased advice on the and they give unbiased advice on the best insurance to buy.best insurance to buy.

IIII Filling in of a proposal fromFilling in of a proposal from This is completed by the person seeking This is completed by the person seeking

insurance. It includes details such as insurance. It includes details such as name, age, address, occupation etc.name, age, address, occupation etc.

III Assessing the risk & III Assessing the risk & calculating the premiumcalculating the premium

Insurance company’s calculate the risk Insurance company’s calculate the risk and premium. Factors that influence and premium. Factors that influence the size of the premium include, the size of the premium include, value of item being insured, the value of item being insured, the level of risk involvedlevel of risk involved

IV Policy IssuedIV Policy Issued

If proposal is accepted If proposal is accepted a cover note is issueda cover note is issued Insurance policy set upInsurance policy set up Renewal notice sent out Renewal notice sent out Days of grace allowedDays of grace allowed

44. How can a business reduce its . How can a business reduce its premiumspremiums

Install burglar alarms and secure entrances Install burglar alarms and secure entrances to businessto business

Install fire alarms & use fireproof materials Install fire alarms & use fireproof materials in buildingsin buildings

Spread the valuable stock in different Spread the valuable stock in different location to spread the risklocation to spread the risk

Setting up of cameras to counteract Setting up of cameras to counteract shoplifting etc shoplifting etc

Promotion of health and safety amongst Promotion of health and safety amongst staff on working of machinerystaff on working of machinery

55. . What are the principles of What are the principles of insuranceinsurance

(rules of how insurance works)(rules of how insurance works)

1.1. Insurable InterestInsurable Interest The person being insured must The person being insured must

have a financial interest in the item have a financial interest in the item to be insured, the insured must to be insured, the insured must benefit form its existence and suffer benefit form its existence and suffer from its loss. from its loss.

2. Utmost good faith2. Utmost good faith The person seeking insurance must The person seeking insurance must

provide all the information the provide all the information the insurer needs. The insured must insurer needs. The insured must disclose all material facts to enable disclose all material facts to enable the insurer to calculate the premium the insurer to calculate the premium for the risk involved. for the risk involved.

If the insured person is found to have If the insured person is found to have withheld any information, the withheld any information, the insurance firm can treat the contract insurance firm can treat the contract as void. as void.

3. 3. IndemnityIndemnity

There must be no element of There must be no element of profitprofit to to the policy - holder, nor any element the policy - holder, nor any element of of lossloss. The objective of insurance is . The objective of insurance is to place the insured part in the same to place the insured part in the same financial position after the loss as financial position after the loss as they were before the loss occurred. they were before the loss occurred.

4. Subrogation4. Subrogation Is related to the principle of indemnity. Is related to the principle of indemnity.

Once full compensation has been paid for Once full compensation has been paid for a loss, any remaining property whether a loss, any remaining property whether intact or partly damaged, becomes the intact or partly damaged, becomes the property of the insurance company.property of the insurance company.

Also once the insured person receives Also once the insured person receives their compensation, any rights to sue a their compensation, any rights to sue a third party for damage caused revert to third party for damage caused revert to the insurance company. the insurance company.

5. Contribution5. Contribution Seeks to prevent a person making a profit Seeks to prevent a person making a profit

from insurance by insuring an item with from insurance by insuring an item with more than one insurance company. In more than one insurance company. In such a situation, the compensation will such a situation, the compensation will only be paid once. Each of the companies only be paid once. Each of the companies involved contributing to the loss in involved contributing to the loss in proportion to the sums insured with them.proportion to the sums insured with them.

ExampleExample: Person insured with two : Person insured with two companies cannot gain two separate full companies cannot gain two separate full amounts of compensation. They must amounts of compensation. They must agree to pay out only to the amount of the agree to pay out only to the amount of the loss suffered. loss suffered.

TYPICAL LC style questionTYPICAL LC style questionDiscuss the similarities & differences Discuss the similarities & differences

between managing household and between managing household and business insurance?business insurance?

To answerTo answer

Def: Insurance 1/2 linesDef: Insurance 1/2 lines discuss in point form 4/5 similaritiesdiscuss in point form 4/5 similarities discuss in point form 4/5 differencesdiscuss in point form 4/5 differences

ANSWER:ANSWER:

HOUSEHOLD & BUSINESS HOUSEHOLD & BUSINESS TAXTAX

Def:Def: Tax – Tax – is a levy charged by the is a levy charged by the government on individuals and government on individuals and companies to finance government companies to finance government expenditure.expenditure.

TheThe main taxes paid by main taxes paid by householdshouseholds

The PAYE systemThe PAYE system

Employers deduct the tax Employers deduct the tax automatically from their employee’s automatically from their employee’s wages and pass it on to the revenue wages and pass it on to the revenue commissioners. This system is commissioners. This system is progressive, so the more you earn, progressive, so the more you earn, the greater income tax has to be the greater income tax has to be paid.paid.

VATVAT - - Is a tax paid by consumers on Is a tax paid by consumers on certain goods and services. Goods are certain goods and services. Goods are bought, VAT is paid. The two main VAT bought, VAT is paid. The two main VAT rates are 13 % and 21 ½ %.rates are 13 % and 21 ½ %.

Excise dutiesExcise duties are taxes levied on are taxes levied on

certain types of goods within the certain types of goods within the state, e.g. alcohol and tobaccostate, e.g. alcohol and tobacco

Motor TaxMotor Tax is a tax on all roadworthy is a tax on all roadworthy vehicles. The amount of tax varies vehicles. The amount of tax varies with the size of the vehicle. with the size of the vehicle.

Capital gains taxCapital gains tax is a tax paid on the is a tax paid on the profits made by an individual/family from profits made by an individual/family from selling an asset, e.g. selling property.selling an asset, e.g. selling property.

Capital Acquisition Tax (CATCapital Acquisition Tax (CAT)-)- CAT is CAT is made up of two parts- gift and inheritance made up of two parts- gift and inheritance tax. tax.

Gift taxGift tax is the tax on the value of goods is the tax on the value of goods received by a person from another person received by a person from another person who is still alive. who is still alive.

Inheritance taxInheritance tax is a tax on the value of an is a tax on the value of an inheritance received by a person from inheritance received by a person from another person who has died. A certain another person who has died. A certain amount of each gift or inheritance is amount of each gift or inheritance is exempt from this tax. The amount of the exempt from this tax. The amount of the exemption depends on the closeness of the exemption depends on the closeness of the relationship between the giver & the relationship between the giver & the recipient.recipient.

Gift taxGift tax is the tax on the value of is the tax on the value of goods received by a person from goods received by a person from another person who is still alive. another person who is still alive.

Inheritance taxInheritance tax is a tax on the is a tax on the value of an inheritance received by a value of an inheritance received by a person from another person who has person from another person who has died. A certain amount of each gift or died. A certain amount of each gift or inheritance is exempt from this tax. inheritance is exempt from this tax. The amount of the exemption The amount of the exemption depends on the closeness of the depends on the closeness of the relationship between the giver & the relationship between the giver & the recipient.recipient.

The main taxes paid by The main taxes paid by businessesbusinesses

Corporation TaxCorporation TaxThis is a tax on company’s profits. The govt. This is a tax on company’s profits. The govt.

has reached an agreement with the has reached an agreement with the European Commission for the introduction European Commission for the introduction of a 12 ½ % corporate rate on trading of a 12 ½ % corporate rate on trading income since 1st January 2003. This is income since 1st January 2003. This is seen as quite a low percentage but it is seen as quite a low percentage but it is necessary to necessary to attract foreign investmentattract foreign investment in this country.in this country.

Capital gains taxCapital gains tax is a tax paid on the is a tax paid on the profits made by a company from selling an profits made by a company from selling an asset, e.g. selling property.asset, e.g. selling property.

Customs dutiesCustoms duties are taxes levied on are taxes levied on certain types of goods imported into this certain types of goods imported into this country. This does not apply to imports country. This does not apply to imports from the other EU member states. This from the other EU member states. This only applies to countries outside this free only applies to countries outside this free trade area.trade area.

Employers’ PRSIEmployers’ PRSI – This is a compulsory – This is a compulsory insurance payment levied on firms for insurance payment levied on firms for every employee they have. Money goes every employee they have. Money goes towards unemployment payments, towards unemployment payments, pensions, maternity benefits.pensions, maternity benefits.

The PAYE systemThe PAYE system..

This is the system of tax collection used in This is the system of tax collection used in Ireland. Businesses do not have to pay this Ireland. Businesses do not have to pay this tax but they must register as an employer tax but they must register as an employer with the revenue commissioners. with the revenue commissioners. Employers deduct the tax automatically Employers deduct the tax automatically from their employee’s wages and pass it from their employee’s wages and pass it on to the revenue commissioners.on to the revenue commissioners.

VATVAT - - Is a tax paid by consumers on certain Is a tax paid by consumers on certain goods and services. When goods/services goods and services. When goods/services are bought, VAT is paid. The two main VAT are bought, VAT is paid. The two main VAT rates are 13 % and 21 ½ %.rates are 13 % and 21 ½ %.

The SELF-ASSESSMENT SYSTEMThe SELF-ASSESSMENT SYSTEM Applies to all self-employed people Applies to all self-employed people

(e.g., accountants, carpenters, (e.g., accountants, carpenters, electricians, painters, taxi drivers). It electricians, painters, taxi drivers). It makes sure that all self-employed makes sure that all self-employed people are responsible for the people are responsible for the calculation & payment of tax. In calculation & payment of tax. In October the collector general sends October the collector general sends each self employed person a notice each self employed person a notice of of preliminary taxpreliminary tax due. due.

These taxpayers must submit their These taxpayers must submit their estimated tax to the revenue estimated tax to the revenue commissioners by 31st October. commissioners by 31st October.

Preliminary tax Preliminary tax is the estimated of is the estimated of how much taxpayers think they owe how much taxpayers think they owe during the tax year.during the tax year.

A A tax audittax audit is a detailed look at the is a detailed look at the taxpayer’s financial records by the taxpayer’s financial records by the revenue commissioners. revenue commissioners.

Key DefinitionsKey Definitions

Direct taxDirect tax – is a tax on income or – is a tax on income or wealth. All the taxes such as wealth. All the taxes such as DIRTDIRT, , CGTCGT and and CATCAT is examples of these. is examples of these.

Indirect TaxIndirect Tax – is any tax on goods – is any tax on goods and services. An indirect tax is paid and services. An indirect tax is paid when spending money. Examples of when spending money. Examples of this would be VAT, Customs duties, this would be VAT, Customs duties, stamp duties. stamp duties.

TYPICAL LC style questionTYPICAL LC style questionDiscuss the similarities & Discuss the similarities &

differences between managing differences between managing household and business tax?household and business tax?

To answerTo answerDef: TAX 1/2 linesDef: TAX 1/2 lines discuss in point form 4/5 discuss in point form 4/5

similaritiessimilarities discuss in point form 4/5 discuss in point form 4/5

differencesdifferences

HOW THE PAYE SYSTEM HOW THE PAYE SYSTEM OPERATESOPERATES

All new employees to the PAYE system All new employees to the PAYE system follow the same procedure.follow the same procedure.

1.1. Form P12AForm P12A

2.2. Notice of Tax CreditsNotice of Tax Credits

3.3. Emergency TaxEmergency Tax

4.4. Tax CreditsTax Credits

5.5. P 35 P 35

6.6. P 21 (balancing statement)P 21 (balancing statement)

7.7. P 45 (cessation certificate)P 45 (cessation certificate)

8.8. P 60 P 60

LC 2007 Q5LC 2007 Q5(A) Distinguish between the following taxation forms: Form P21 and Form P60.

(20 marks)

(B) From the following information, calculate 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 following tax credits: Single Person credit of €1,760 and PAYE

credit of€1,760. The income tax rates are: 20% on the first €34,000 (standard rate cut-off

point) and41% on the balance. The employee PRSI rate (including the health levy) is: 6% on

the first€48,800 and 2% on the balance.

(20 marks)

(C) Explain the term TQM and describe how it can be of benefit to an organisation.

(20 marks)(60 marks)

LC 2007 Q5 SOLUTIONLC 2007 Q5 SOLUTION

Form P21Form P21 is known as a ‘balancing statement’. All PAYE taxpayers are entitled to

request aForm P21 annually from the Inspector of Taxes. It is an end of year summary of anemployee’s tax situation and contains all details of income, allowances and the

calculations ofthe tax payable at the various rates for the year. Form P21 will indicate if an employee

hasoverpaid or unpaid tax for the year. If an employee has overpaid tax, the Inspector of

Taxeswill issue a tax refund. If an employee has underpaid tax, the Inspector of Taxes will

issue atax demand.

Form P60A P60 is issued by an employer to each of his/her employees at the end of each tax

year. It is a certificate which shows details of gross pay, and tax and PRSI deductions made during the year. After 31 December each year, all PAYE taxpayers receive from their employers a Form P60 which has two parts. A PAYE taxpayer has a statutory right to this document and it is used as proof of income for various purposes, e.g. education grants.

B) Take home pay £ 56, 588B) Take home pay £ 56, 588C) TQMTQM or Total Quality Management is a long-term focused effort to

change all parts of an organisation to produce the best products or services for its customers. There are basically three principles to a TQM approach:

• Satisfying customer needs• Providing top quality products and services• Teamwork.

TQM of benefit to an organisation (describe):• Quality of products• Reduced costs• Staff motivation• Public image• Customer satisfaction• Productivity.