Most people look forward to the annual pay-and-file deadline with as much relish as root canal treatment; the Sunday Business Post devotes its personal finance section this weekend to mitigating the pain.

As the eight-page supplement to the newspaper notes, taxpayers have only a few weeks to file their returns for 2010, pay the balance of last year’s bill and pay preliminary tax for this year. It also notes this responsibility rests not only on the shoulders of the self-employed, but on PAYE workers who derive income from non-PAYE sources, such as rental income or profits from share options.

This year is probably more complicated than most when it comes to assessing income.

“With more people now required to file online, further tightening of tax reliefs for high earners in 2010 and the introduction of the universal social charge (USC), particular care is required during pay-and-file season this year.

“For example, when calculating your preliminary tax for 2011, the USC and restrictions on certain types of tax relief will affect the calculation. Failure to pay the correct amount of preliminary tax could lead to hefty interest payments.

“Changes introduced in last December’s budget will also be relevant if you plan to make a pension contribution in the coming weeks. The cap on net relevant earnings for pension contributions is down considerably in recent years, and now stands are €115,000. Also, pension contributions are no longer subject to relief from PRSI.”

The two main reasons this year’s returns could catch many people on the hop are the introduction of the USC and further restrictions on certain reliefs.

The USC applies from January 1, 2011, replacing the income levy and health contribution. It is payable on gross income, before pension contributions and varies between 2% and 7% based on income. Self-employed people earning more than €100,000 a year are also liable to a 3% surcharge.

The income thresholds for certain reliefs were also changed in last year’s budget, affecting the liabilities of many taxpayers for both 2010 and their preliminary tax for 2011.

Cash-flow could be a real difficulty this year in particular for many small businesses. A failure to pay incurs heavy penalties and is something to be avoided at all costs. If you can’t pay (as a result of cash-flow difficulties or otherwise) you should still file a return. There is no point burying your head in the sand.

Bernard Doherty, president of the Irish Taxation Institute and a tax partner with Grant Thornton, advises that if you are unable to pay off both the balance of 2010 and preliminary tax for 2011, you should take care of the 2010 liability first.

“If the 2010 liability is not paid by the deadline date, a tax debt is logged on Revenue’s system,” he says. “This will trigger the issue of demands for payment from Revenue and can lead to action to enforce the debt.”

As regards preliminary tax, he advises to pay as much as you can off when you can.

“If you are in serious difficulty and cannot pay your 2010 liability in full, contact Revenue early. It may be possible to enter into an arrangement to pay what you owe in instalments.”

Although money is too tight to mention, some banks are actually still giving loans to small businesses with cash-flow difficulties – particularly at this time of year. AIB’s Promptpay product, for example, is designed to alleviate short-term cash-flow problems where a large payment is due.

“We would usually see a 15 to 20% increase in applications in October,” said John Irwin, head of strategy and propositions in AIB’s business banking division.

Interest rates on such loans mirror business overdrafts and are currently around 8 to 8.5%. Customers make regular fixed payments over a maximum of 11 months to ‘smooth’ cash-flow.

Pension contributions have always been regarded as a good way to minimise tax as the reliefs have been attractive to those with one eye on a decent standard of living after retirement.

The self-employed receive tax relief at their marginal rate of income tax and there is still a chance to reduce your tax liability for 2010 by way of additional pension contributions. The level of relief is based on age, ranging from 15% of earnings for those under 30 to 40% for the over-60s.

The maximum level of earnings that qualify for relief is €115,000 for contributions paid between January 1 this year and the filing date of the return. If contributions were made before January 1 – ie in 2010 – the figure would be €150,000.

However Jim Connolly, head of pensions at Standard Life, cautions the importance of viewing pensions as an investment rather than a tax-minimisation vehicle.

“People by the concept of tax relief as opposed to the pension contribution,” he said. “We’d like to change that culture and make people see it as an investment and not just a tax shelter.”

Questions you should consider include:

  • What type of assets does the pension fund invest in
  • Who manages the fund
  • What sort of charges apply

Although the tax deadline is still October 31, many people have now migrated to ROS, the Revenue online service with a November 15 deadline. This gives a little more breathing space but as we all know, longer-term paperwork can be sacrificed on the altar of daily business tasks. Also, anyone who wants – or has to migrate to ROS if they happen to fall into certain categories, such as those with rental income – can expect to wait two weeks for their application to be processed. In other words: Do it now!

The newspaper provides a three-page guide on how to complete the relevant forms but by necessity it can only adopt a broad-brush approach. The main headings are a pointer to the daunting nature of the documentation a self-assessed taxpayer faces:

  • Personal details
  • Incomes from trades, professions or vocations
  • Irish rental income
  • Income from employment (including foreign employment in the state), offices, pensions, directorships etc
  • Foreign income (dividends, employments, pensions, rents etc)
  • Income from fees, covenants, distributions etc
  • Exempt income
  • Claim for tax credits, allowances, reliefs and health expenses

The article sagely advises:

“If you are preoccupied with running your business, it pays to have a professional look after your tax return – the professional may spot deductions that you should have claimed and will help in minimising your taxes.”

We couldn’t have put it better ourselves!

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