High Income Individuals’ Restriction

Revenue has published a Guidance Document which contains comprehensive information on the application of the High Income Individuals’ Restriction for the tax year 2010 and subsequent years. The document includes some useful reminders for agents and taxpayers when considering both the application and calculation of the restriction. The Guidance Document is available on the Revenue website at: Tax Practitioners – Technical Guidelines - Guidance Document-High Income Individuals Restriction.

In particular, the Guidance Document emphasises the effect of the changes which were introduced under the 2010 Finance Act. For individuals who are fully subject to the restriction, these changes provide that, with effect from the tax year 2010, such individuals are liable to pay an annual effective rate of income tax of approximately 30 per cent, as opposed to an effective rate of income tax of approximately 20 per cent which applied for the tax years 2007, 2008 and 2009.

Preliminary Tax Payments for 2010

The Guidance Document reminds high income individuals of the need to take account of the changes that were made to the restriction by Finance Act 2010 when making preliminary tax payments for the tax year 2010. Individuals (particularly those subject to the restriction for the first time in 2010) should be aware that, in order to avoid the possibility of interest charges arising, preliminary tax payments for the tax year 2010 need to equal or exceed the lower of-

• 90% of the income tax payable by the individual for the tax year 2010 (including any additional tax due as a result of the application of the high income individuals’ restriction),
• 100% of the income tax payable by the individual for the tax year 2009 (including any additional tax due as a result of the application of the high income individuals’ restriction), and
• 105% of the income tax payable by the individual for the tax year 2008 (including any additional tax due as a result of the application of the high income individuals’ restriction), where the individual has made arrangements with Revenue to pay preliminary tax by direct debit.

Where an individual bases his or her preliminary tax payment for 2010 on 90% of the tax payable for 2010 (particularly, an individual who becomes subject to the restriction for the first time in 2010), the individual needs to ensure that he or she takes account of the increased tax due as a result of the restriction.

Alternatively, if an individual makes a preliminary tax payment for the tax year 2010 by reference to either the 100% or 105% rule referred to above, this could result in a significant balance of tax to be paid in October 2011 (when submitting his or her tax return for the tax year 2010) as a result of the revised application of the restriction in 2010. It should be noted that such payment would coincide with the making of a preliminary tax payment for the tax year 2011.