Chapter 10
Household and Business Manager 2
Insurance and Taxation
INSURANCE
Things you should know from Junior Cert.
- The concept of ‘pooling risk’
- Know how insurance works for households and businesses
- Key terms:
- Proposal form
- Premium
- Policy
- Loading
- No claims bonus
- Assessor
- Actuary
Basic Legal Principles of Insurance
- Utmost good faith
- Insurable interest
- Indemnity
- Contribution
- Subrogation
- Proximate cause
- Average Clause (if you insure something for less than it is worth, you will be compensated proportionally).
Types of Insurance a Business should have
- Buildings and Contents (fire and accident)
- Motor (Third Party, third party fire and theft, comprehensive)
- Employers’ Liability
- Public Liability
- Product Liability
- Consequential loss
- Fidelity guarantee
- Key Person
- PRSI
Types of Insurance a Household should have
- Buildings and Contents
- Motor
- Health (VHI, Quinn, Aviva)
- Permanent Health (salary protection)
- Life Assurance (whole life, term life, endowment)
- PRSI
Importance of Insurance for Households and Businesses
- Cash Flow planning. (you can plan for an insurance premium but not for a loss)
- To get a loan (a mortgage protection policy)
- Money in times of difficulty (assurance)
- Peace of mind
- To save (endowment)
- Legal requirement (PRSI, motor)
Risk Management
Both households and businesses need to identify risks, decide on the risks to insure against and take measures to reduce risk.
Ways of reducing risk:
- Security devices and procedures
- Train staff in health and safety
- Safe buildings
- Safe machines
TAXATION
Taxes paid by Households
- PAYE (income tax, direct)
- VAT
- Motor
- Excise duties
- DIRT
- CGT (Capital Gains Tax)
- CAT (Capital Acquisitions Tax)
How PAYE works:
- Tax year is calendar year
- Deducted by employer
- Calculate the income levy (2%)
- Standard rate cut-off point given by revenue 36,400 @ 20%
- Higher rate on the balance @ 41%
- Subtract tax credits from gross tax
- Then subtract PRSI
Important PAYE forms
- P12 (sent by employee to revenue and is used to calculate credits)
- P60 (issued by employer to employee at end of tax year)
- P45 (cessation certificate)
- P21 (balancing statement)
- Revenue Online Service (ROS)
Taxes Paid by Businesses
- Corporation Profit Tax (12%)
- VAT (claim back)
- PAYE (collects, self-assessment)
- Commercial Rates
- Customs Duties
- CGT
- Motor
- PRSI
How Taxation Affects Businesses
- Adds to wage costs
- Adds to production costs
- Adds to administration costs.
- Reduces competitiveness
- Affects cash flow
- Can affect where to locate
- Helps improve infrastructure
Similarities between Households and Businesses
- Some taxes
- Both must register and pay by law
- Both should take tax into account when budgeting
Differences
- Some taxes
- Businesses can claim VAT back
- Businesses get Tax Relief whereas households get Tax Credits
- Taxes can be a disincentive to invest for businesses and a disincentive to work for households