Chap 12

Household
Insurance &
Taxation

1. The type of insurance

households need

Product liability
Employers PRSI
Public liability
Property insurance- (premises, land
etc)
Motor Insurance- fully comprehensive
- third party cover
- third party, fire & theft

Other key insurance terms

Fidelity guarantee
Consequential loss insurance
Key person insurance
Whole Life assurance
Endowment life assurance
Exposure unit
Loadings
No claims bonus
Average clause

3. HOW CAN INSUARNCE BE

TAKEN OUT?
I.

Contact insurance company?

This can be directly by use on formal over

the counter discussion, telephone call,
or use of the internet.
Insurance Brokers may also be used to act
independently of insurance companys
and they give unbiased advice on the
best insurance to buy.

II Filling in of a proposal from

This is completed by the person seeking
insurance. It includes details such as
name, age, address, occupation etc.

III Assessing the risk &

calculating the premium
Insurance companys calculate the risk
and premium. Factors that influence
the size of the premium include,
value of item being insured, the
level of risk involved

IV

Policy Issued

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

4. How can a business reduce its

premiums

Install burglar alarms and secure entrances

to business
Install fire alarms & use fireproof materials
in buildings
Spread the valuable stock in different
location to spread the risk
Setting up of cameras to counteract
shoplifting etc
Promotion of health and safety amongst
staff on working of machinery

5. What are the principles of

insurance
(rules of how insurance works)
1.
.

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

2. Utmost good faith

The person seeking insurance must
provide all the information the
insurer needs. The insured must
disclose all material facts to enable
the insurer to calculate the premium
for the risk involved.
If the insured person is found to have
withheld any information, the
insurance firm can treat the contract
as void.

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

4. Subrogation

Is related to the principle of indemnity.

Once full compensation has been paid for
a loss, any remaining property whether
intact or partly damaged, becomes the
property of the insurance company.
Also once the insured person receives their
compensation, any rights to sue a third
party for damage caused revert to the
insurance company.

5. Contribution

Seeks to prevent a person making a profit

from insurance by insuring an item with
more than one insurance company. In
such a situation, the compensation will
only be paid once. Each of the companies
involved contributing to the loss in
proportion to the sums insured with them.
Example: Person insured with two
companies cannot gain two separate full
amounts of compensation. They must
agree to pay out only to the amount of the
loss suffered.

TYPICAL LC style question

Discuss the similarities & differences
between managing household and
business insurance?
To answer
Def: Insurance 1/2 lines
discuss in point form 4/5 similarities
discuss in point form 4/5 differences

ANSWER:

HOUSEHOLD & BUSINESS

TAX

Def: Tax is a levy charged by the

government on individuals and
companies to finance government
expenditure.

The main taxes paid by

households

The PAYE system

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

VAT - Is a tax paid by consumers on

certain goods and services. Goods are
bought, VAT is paid. The two main VAT
rates are 13 % and 21 %.
Excise duties are taxes levied on
certain types of goods within the
state, e.g. alcohol and tobacco
Motor Tax is a tax on all roadworthy
vehicles. The amount of tax varies
with the size of the vehicle.

Capital gains tax is a tax paid on the

profits made by an individual/family from
selling an asset, e.g. selling property.
Capital Acquisition Tax (CAT)- CAT is
made up of two parts- gift and inheritance
tax.
Gift tax is the tax on the value of goods
received by a person from another person
who is still alive.
Inheritance tax is a tax on the value of an
inheritance received by a person from
another person who has died. A certain
amount of each gift or inheritance is
exempt from this tax. The amount of the
exemption depends on the closeness of the
relationship between the giver & the
recipient.

Gift tax is the tax on the value of

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

The main taxes paid by

businesses

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

Capital gains tax is a tax paid on the

profits made by a company from selling an
asset, e.g. selling property.

Customs duties are taxes levied on

certain types of goods imported into this
country. This does not apply to imports
from the other EU member states. This
only applies to countries outside this free
trade area.
Employers PRSI This is a compulsory
insurance payment levied on firms for
every employee they have. Money goes
towards unemployment payments,
pensions, maternity benefits.

The PAYE system.

This is the system of tax collection used in
Ireland. Businesses do not have to pay
this tax but they must register as an
employer with the revenue commissioners.
Employers deduct the tax automatically
from their employees wages and pass it
on to the revenue commissioners.
VAT - Is a tax paid by consumers on certain
goods and services. When goods/services
are bought, VAT is paid. The two main VAT
rates are 13 % and 21 %.

The SELF-ASSESSMENT SYSTEM

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

These taxpayers must submit their

estimated tax to the revenue
commissioners by 31st October.
Preliminary tax is the estimated of
how much taxpayers think they owe
during the tax year.
A tax audit is a detailed look at the
taxpayers financial records by the
revenue commissioners.

Key Definitions

Direct tax is a tax on income or

wealth. All the taxes such as DIRT,
CGT and CAT is examples of these.
Indirect Tax is any tax on goods
and services. An indirect tax is paid
when spending money. Examples of
this would be VAT, Customs duties,
stamp duties.

TYPICAL LC style question

Discuss the similarities &
differences between managing
household and business tax?
To answer
Def: TAX 1/2 lines
discuss in point form 4/5
similarities
discuss in point form 4/5
differences

HOW THE PAYE SYSTEM

OPERATES

All new employees to the PAYE system

follow the same procedure.
1.
2.
3.
4.
5.
6.
7.
8.

Form P12A
Notice of Tax Credits
Emergency Tax
Tax Credits
P 35
P 21 (balancing statement)
P 45 (cessation certificate)
P 60

LC 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 cutoff point) and
41% 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 SOLUTION
Form P21
Form P21 is known as a balancing statement. All PAYE taxpayers are entitled to request a
Form P21 annually from the Inspector of Taxes. It is an end of year summary of an
employees tax situation and contains all details of income, allowances and the calculations of
the tax payable at the various rates for the year. Form P21 will indicate if an employee has
overpaid or unpaid tax for the year. If an employee has overpaid tax, the Inspector of Taxes
will issue a tax refund. If an employee has underpaid tax, the Inspector of Taxes will issue a
tax demand.
Form P60
A 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, 588

C) TQM
TQM 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.