It’s tax returns time again. It might seem a bit strange this year, coming as it does so soon after the rescheduled budget, but with the deadline now fast approaching it’s time to take action. And remember, next year the deadline might come even sooner.
The deadline
First things first. If you have a tax liability arising from 2012, you will need to file a tax return as soon as possible. The deadline for doing so by post is next Thursday, October 31st, but if you want to buy a little time you can do so online, through Ros (ros.ie) before November 14th.
The November 14th date also applies to those looking to settle a liability arising from capital acquisitions tax (CAT). Remember however, that if you have not already set up an account with Ros – or have changed computers or lost your digital certificate – it will take some time to get things in order before you will be able to pay and file.
Get online
If you wish to avail of the longer deadline and file online, you will need to take action – and fast. Registering with Ros is a three-step process, which will take eight days, as it involves the post, and Revenue recommends you leave at least 10 days for the process. The steps are as follows:
Step one: Apply for a ROS Access Number. This involves entering your tax registration number (your PPS number in the case of self assessed returns), which will be validated by Ros, who will then post your ROS Access Number to you.
Step two: apply for a digital certificate. This involves entering your access number along with your registration number and an email address. When this is processed by Revenue, a ROS System password will be generated and posted to you.
Step three: retrieving your digital certificate. To install this you need your ROS System password, and you will then be asked to create your own password. Once this is installed you will be able to use the service.
Beware the Revenue's "hotspots"
As the recent budget has shown, with its effort to keep construction workers in the tax net by allowing homeowners claim back their VAT, cutting down on tax evasion and the black economy is a key focus of the Government.
As a result, the Revenue is paying much closer attention to expenses that those filing self-employed tax returns are looking to deduct from their tax bill.
Earlier this year for example, it was disclosed that the Revenue had discovered €42 million which it was owed from an audit of more than 700 property owners. Landlords had avoided taxes in numerous ways including not declaring rental income, claiming false or non-allowable expenses, and clawing back stamp duty.
In addition, the Revenue has cast its eagle eye on mileage expenses that contractors and company directors are claiming for.
But this doesn’t mean that you should not file legitimate expense claims. Mairead O’Grady, taxation partner with Russell Brennan Keane, urges people to remember that all business expenses should be captured to minimise taxable profits, such as bad debts, loan interest, etc. Stock on hand should be reflected at its minimum value, in particular development sites, she recommends, while capital expenditure should be examined to establish if it can be seen as a repair or plant and claimed as a tax deduction.
And individuals should not forget other deductions they might be able to claim, such as the flat rate expenses that apply for various professions and trades. A bricklayer for example can claim a deduction of €175 against their tax bill, rising to €1,312 for miners.
Remember your property filing
If you are one of the 10 per cent or so who have not yet filed a property tax return, it's time to do so or potentially face a fine.
Christine Keily, head of direct taxes at Taxback. com, warns that if you don't file – and pay – your LPT before your income tax return, you will face a surcharge of 10 per cent on your income tax return.
If you haven’t yet paid the tax, and also earn PAYE income as well as filing a tax return, the tax will be deducted by the Revenue from your salary. Not only that, but Keily says that a surcharge for late payment will also be applied.
“No credit will be allowed for LPT deducted via payroll although credit will be allowed for PAYE deducted when calculating the surcharge applicable,” she says
And, if you owe CGT as well, and haven’t yet filed a return, the surcharge will be based on both the income tax and the CGT liability, which could really add up.
Don't be late...
If you don't get your tax return and payment in on time, you might be liable to a fine.
If you manage to get it in within two months of the filing date, you will be charged 5 per cent of the tax up to a maximum of €12,695. So, if your total bill is €20,000, you will be fined €1,000. Leave it any longer than that, and the fine rises to 10 per cent of the tax you owe up to a maximum of €63,485.
If you feel you will find it difficult to meet the deadline, it’s worth talking to Revenue. It says it will be “disposed to working with such businesses and taxpayers to find a way through these difficulties provided there is early, positive and honest engagement with Revenue and the fundamentals of the underlying business are sound”.
It suggests you file a return in any case, and then contact Revenue with a view to seeing if a phased payment arrangement can be put in place.
2013: beware a change in filing date
While your focus is most likely on getting your tax return in for this year – and finding the funds to pay for it – it's worth keeping in mind that next year the pay and file date is likely to change.
As part of new euro zone financial monitoring rules (known as the “two-pack”), this year the Government brought forward the annual budget from December to October.
But doing so meant that it had to frame the budget for the year ahead – without full knowledge of what income it could expect to earn from those filing tax returns.
As the Department of Finance says in the consultation document it has launched, the current system means that “the ability to project future yield is compromised”.
So, it is looking to bring forward the filing dates for self-assessed income tax/capital gains tax (CGT) and capital acquisitions tax (CAT), and has opened a consultation process which will run until November 8th.
The three main proposals are: move the pay and file date forward by four months to June 30th; move it to September with a September 20th deadline for those who file online; or move the date to September but allow those in receipt of state payments to mandate those to Revenue.
It’s not a new endeavour – in 2011 the Government tried to bring forward the pay and file date by a month to September 30th. However the measure was later reversed.
This time around, the move is likely to happen, with the changes due to be incorporated into Finance (No.2) Bill 2013 which is due to be signed into law by the end of the year. It’s likely to cause considerable concern among people who may have up to four months less to find the funds to settle their tax bill.
As Sean Walsh, senior tax manager with PricewaterhouseCoopers notes: “It could put a severe cash flow strain on people.”
Cora O'Brien, technical director with the Irish Tax Institute, says the change is going to be "difficult" for businesses, given that, if the June date is upheld, they will be paying two sets of tax payments within just seven months. And this at a time when many are already struggling.
“If they change the payment date, it will cause real problems and real hardship,” she says, adding that businesses without the cash on hand will have to borrow, and it can be very difficult to do that. It will also hit seasonal businesses particularly hard, given that they might be relying on income from the summer period to settle a tax bill.
While O’Brien recognises that, from the Government’s point of view, it would be nice to have more certainty, she doesn’t think it’s a “huge make or break issue”, given that figures for 2012 suggest that just 6 per cent of total tax revenues came from November’s income tax receipts.
“Given the upheaval a change is going to cause, is that upheaval worth the added certainty that the Government needs?” she asks, suggesting that if any change is to be introduced, it should come with a lead-in period, to give individuals and small businesses time to adjust.
Walsh adds that for people concerned about finding the funds to settle their preliminary tax bill come next June or September, the Revenue does offer an option to pay this by direct debit over 12 months. If this is something you want to consider however, he urges people to get organised well ahead of time.
"You can't do it the day before the deadline".
The Budget . . . and the fallout
While it was first announced last year, the clarification offered this week that PRSI will be imposed on so called "unearned income" – interest, rental income and dividends to you and me – from January 2014, is causing a lot of concern. The fact that it wasn't even mentioned in this year's Budget speech has added to the confusion, as has the differing information being dispersed.
So what does it actually mean? And will it require those with PAYE income to file tax returns?
Self-employed people already pay PRSI on unearned income, and what we now know for sure, is that whatever your primary source of income may be, you too will also have to pay PRSI on investment income, provided you meet certain requirements.
The move won’t affect people aged over 66, or under 16, who are exempt from PRSI for example, while the Revenue has confirmed that those with investment income of less than €3,174 will be considered “insignificant”, and won’t have to pay PRSI on their deposit interest.
So, if for example you earn interest of €1,500 a year on your deposits, as well as dividend income of €500, you won’t be brought into the new PRSI net as you will be below the threshold.
Those with income above this however, will now have to pay tax on savings at a rate of 45 per cent (DIRT @41 per cent +4% PRSI), as the universal social charge, at 7 per cent, won’t apply. PRSI will also apply to income earned from rental properties and dividends.
The mechanism used to collect this income will be the current self-assessment scheme, and, given that a PAYE worker with investment income in excess of the €3,174 threshold has already had to file a tax return, this should mean no changes there.
