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Personal tax compliance
Dealing with your personal tax affairs, and in particular the income tax filing and payment deadline, can prove stressful.
Many taxpayers are not aware of the reliefs available to them. However, many more taxpayers increase the potential for penalties, interest and a Revenue Audit, as they do not understand the potential errors that can arise without professional tax advice.
What should be on your radar?
Firstly, you will fall into one of two categories: a PAYE taxpayer (with tax deducted at source by an employer or pension provider); or a self-assessed individual. If you have decided to stop reading because you have happily categorised yourself as a PAYE taxpayer, are you aware that you may have become a self-assessed taxpayer as the tax withheld on savings and investments may not satisfy your tax liability, or that there is a time limit on your claims for refunds and reliefs? If so, read further, along with investors, business owners and company directors to see how you might still be affected.
Some of the individuals obliged to file a self-assessed income tax return include:
- A PAYE individual in receipt of gross non-PAYE income of €50,000 or more from all sources, regardless of reliefs, losses or other deductions that have reduced their trading or investment income to nil
- A PAYE individual in receipt of non-PAYE income of €3,174 or more, which is assessable to tax in the year. While payments from the Department of Social Protection and legally enforceable maintenance payments are excluded from the definition of non-PAYE income, a tax liability may arise in respect of this income
- A proprietary director of a company who either directly or indirectly controls more than 15 per cent of the ordinary share capital of the company or is the beneficial owner of the company. This definition also brings the director’s spouse/civil partner within the requirements of self-assessment
- An individual chargeable to income tax or capitals gains tax on share options regardless of payments on account made to the Collector General
- An individual or their spouse/civil partner availing of certain tax reliefs
- An individual or their spouse/civil partner who opened a foreign bank account
- An individual or their spouse/civil partner who acquired a foreign life policy
- An individual or their spouse/civil partner who acquired a material interest in an offshore product or fund
- An individual or their spouse/civil partner who sold an asset.
At this stage you may have breathed a sigh of relief and decided you have your tax affairs in hand; however, further complications may arise due to:
- Non-compliance with Local Property Tax requirements
- Requirements for mandatory e-filers
- The two-year time limit to claim an offset of trade or professional losses against other income
- Restrictions on trade losses for those not active in the trade
- The four-year time limit to claim refunds such as medical expenses, third level tuition fees, or payment for a carer
- Property investment in Ireland and abroad
- Obligations for non-resident landlords
- Incorrect offset of capital allowances or losses causing cumulative problems in calculating trade, professional or investment income
- Failure to ring-fence losses, whether for income tax or capital gains tax purposes
- Calculation of double taxation relief for income tax and USC
- The high-income earner’s restriction limiting the use of certain tax reliefs and exemptions. Income exempt from income tax, but potentially subject to PRSI, USC and the high-income earner’s restriction (e.g. artists’ exempt income, childcare services, or income from woodlands)
- Reliefs that are not allowable in calculating the preliminary income tax obligation
- Cash-flow issues and the timing of the tax payments
- Underpayment of preliminary income tax
- Self-assessment declarations required for those filing after 31 August
- The domicile levy or;
- Relying on prior year treatment in preparing the tax return – there are simply too many legislative changes.
So what are your deadlines?
31 October 2016 or 10 November 2016 where the filing and payment are made via ROS: Filing the 2015 income tax return, payment of the 2015 income tax balance and payment of your 2016 preliminary income tax.
15 December 2016: Payment of capital gains tax arising on disposals made in the period 1 January 2016 to 30 November 2016 – ensure you review the date of the trade/contract rather than date of settlement/closing.
31 January 2017: Payment of capital gains tax arising on disposals made in the period 1 December 2016 to 31 December 2016.
And if you miss your deadline?
If you are a self-assessed taxpayer, Irish Revenue have a number of methods to encourage you to file and pay on time:
- A late filing surcharge of 5 per cent of your liability if you file within two months of the deadline up to a maximum penalty of €12,695
- A late filing surcharge of 10 per cent of your tax liability if you file two months after the deadline up to a maximum penalty of €63,485
- The surcharge liability is calculated without credit for preliminary tax paid on account
- Credit is allowed for PAYE tax deducted at source unless the chargeable person or their spouse/civil partner is a company director
- Underpayment of tax may be subject to interest at a daily rate of 0.0219 per cent and this may be backdated to the previous 31 October
- The surcharge forms part of the individual’s tax liability for the year, thus increasing their preliminary income tax requirement and potentially leading to interest charges
- Publication by the Revenue Commissioners in respect of certain tax offences and settlements
- A surcharge of 10 per cent of the income tax or capital gains tax liability where the local property tax return was not filed or payments are not being met.
And if you can’t pay?
In cases where taxpayers have difficulty meeting their tax liabilities and are engaging with Irish Revenue directly or through their tax adviser they may be able to agree a payment arrangement to reduce their hardship. The alternative is dealing with the Revenue Sheriff or a court action. It is important to engage with Irish Revenue as early as possible.
There are options in respect of calculating preliminary income tax that may help to reduce outgoings.
What can you do today?
If you have already filed your tax return, it’s time to consider some tax planning:
- Have you scope to make a pension contribution to reduce your tax liability? This can be made up to the tax filing deadline date with relief available at up to 40 per cent of the contribution. You should seek advice on the level of pension contribution, the amount of relief available and the taxation of your pension at drawdown
- Do you hold investments of negligible value? Once a paper loss has been agreed with the Inspector of Taxes, it is available to reduce chargeable gains as follows:
- Availed of in the year of assessment in which the claim has been submitted or
- Against future chargeable gains or
- By Revenue concession, a claim made to the Inspector of Taxes within 12 months of the end of the year of assessment for which relief is claimed will be permitted, but the asset must have been of negligible value in the relevant year of assessment
- Have you considered succession planning and how this could benefit your personal circumstances and those of your family?
If you have not filed your tax return it’s time to collate all details of your income and claims for relief and speak to your Deloitte adviser