The lapse of evening daylight and increase in rush hour traffic heralds the onset of autumn and of course the launch of the busy tax compliance season. The key deadlines on the horizon are:

• 16 November for the ROS filing of Income Tax Returns for 2009 along with the balance of tax for 2009 and preliminary tax for 2010
• 16 November for CAT returns and tax payments for gifts/inheritances with a valuation date falling in 1 January to 31 August 2010
• 15 December for CGT on disposals made in the period 1 January to 30 November 2010

The income tax and CAT filing obligations are accelerated to 31 October 2010 if both the returns and payments are not filed on line through ROS.

Tax Profile of the Client

It is always worth while to take a step back from the client you have known for years or the new client file just fresh on the desk and question objectively how they are taxable and how changes in recent budgets may effect their tax position.

Is the client a chargeable person for income tax purposes?

If someone is not a chargeable person then it is not necessary to file a tax return unless there is a refund due or the client is specifically requested by Revenue to do so. Generally a chargeable person is someone in receipt of income assessable to tax under Schedule D, Cases I/II, III, IV, V and Schedule F. However, an individual in receipt of PAYE income only, will become a chargeable person where the individual:

• Opens a foreign bank account
• Acquires a foreign life policy
• Acquires a material interest in an offshore product or fund

The implications of not reporting the acquisition of a material interest in an offshore fund are punitive as the individual may end up with an unfavourable tax treatment on the disposal of the investment where the reporting requirements were not met. An individual in receipt of PAYE income only also becomes a chargeable person on the exercise of share options.

Company directors, while they may be only in receipt of PAYE income, nevertheless are regarded as chargeable persons with exceptions to this rule set out in Statement of Practice SP-IT/1/9, generally covering Directors of dormant companies and Directors who own less than 15% of the company.

PAYE taxpayers with gross non-PAYE income of €50,000 or more are chargeable persons, as are PAYE taxpayers with gross non-PAYE income of less than €50,000 and a net assessable income thereon of more than €3,174.

Social Contributions and the Income Levy

PRSI, Health Contributions and the Income Levy can now add up to a whopping 14% rate of tax at the upper echelons. It is therefore worth while taking the time to drill down into your clients details to see if they are exempt or have paid the correct tax under the different rules applicable separately to PRSI and Heath Contributions and the Income Levy. For example, check out if the client is a Class S or Class A contributor for PRSI purposes as Class A may take them out of the requirement to pay PRSI on non-PAYE income. If the client is aged over 70 they will not be required to pay the Health Contribution. The Income Levy is calculated on gross income, with no deductions allowed, however some respite is available in certain circumstances including statutory redundancy or tax exempt ex-gratia payments.

Significant changes took place mid year in 2009 for PRSI, Health Contributions and the Income Levy so it's worth taking a close look at any payroll calculations prepared on your client's liability under these taxes to ensure that all is correct. In eBrief No. 60/10, Revenue confirms that the composite rates are to be applied to all relevant income for the year for the purpose of calculating the Income Levy. This includes Schedule E income, which may have already suffered the Income Levy at the different rates in force in 2009. The important point to note is that a change in Schedule E income in 2009 may have resulted in an underpayment of the Income Levy or indeed the Health Contribution which may come to light when making the income tax return for 2009.

High Income Earner Restrictions and Preliminary Tax

Individuals subject to the High Income Earners Restriction are liable to pay an annual effective rate of income tax of approximately 30% in the tax year 2010. An effective rate of income tax of approximately 20% applied under the restriction for the tax years 2007, 2008 and 2009. Where a preliminary income tax payment for 2010 is based on 90% of the tax payable for 2010, the increased tax due as a result of changes to the restriction must be taken into account. If the preliminary payment for 2010 is by reference to either the 100% or 105% rule, this could result in a significant balance of tax to be paid in October 2011 as a result of the revised application of the restriction in 2010 so you may need to prepare your client for next year's additional cash flow requirements.

Is a Capital Gains Tax Payment Obligation Triggered?

For Capital Gains Tax (CGT) purposes the date the contract is signed is very important as in general, a disposal is made for CGT purposes when the contract is signed. This is not necessarily the date when the proceeds are received so it's very important to time the signing of the contract to as close as possible to the date when proceeds are received to ensure that funds are available to meet the CGT liability.

The time of disposal is also important as the correct tax rates are determined by reference to the date of disposal. The rate of CGT has changed as follows over the last number of years:

• 20% before 14 October 2008,
• 22% from 14th October to 7 April 2009 and
• 25% from 8 April 2009.

Therefore the correct rate should be checked against the CGT information on the 2009 tax return to ensure that all the calculations are correct. Where a person has gains that are taxable at the two different CGT rates in force in 2009, then any losses available can firstly be set off against the gain taxable at the higher tax rate in that year of assessment.

Does the Client have a CAT liability?

Tax payment and return filing dates for CAT purposes have been radically overhauled with effect from 2010. If the valuation date of a gift or inheritance falls within the period 1 January 2010 to 31 August 2010, then the IT38 return and tax payment must be made by 31 October 2010 (16 November for ROS customers). If the valuation date of the gift or inheritance falls within the period 1 September 2010 and 31 December 2010, then the IT38 and tax payment must be made by 31 October 2011. Where reliefs/exemptions/credits etc. are claimed, the Gift or Inheritance Tax return must be filed electronically through ROS.

Ability to Pay?

Once the tax liability is established, start talking to your client as soon as possible to ascertain if the funds are available to pay the tax liability and indeed your fee. Cash flow is a harsh reality and the actual cash outlay on tax payments and pension payments for the income tax deadline can be significant. Engage with Revenue as soon as possible under the “Tax Payment Difficulties” guidelines published on the Revenue website. Reaching a payment agreement is not a matter taken lightly by Revenue but early engagement may limit the extent of debt collection procedures.

Is your House in Order?

Is your client list and Tax Advisory Identification Number (TAIN) registration details up to date?

From 1 July 2010, Revenue require written authorisation from the client where an agent seeks to represent a client for the first time, or add an additional tax for a client. If a TR1/TR2, containing the relevant agent's details has already been completed and signed by the client, it will not be necessary to submit a separate letter of authorisation.

Do you have correct and current dates for the client's direct debit mandate in place?

If the client is new, you will have to ensure that you have all of the information required from the former agent.

Conclusion

The forgoing is just the tip of the ice-burg when it comes to the tax technical and compliance procedures necessary for a successful compliance season. Chartered Accountants Ireland's weekly Tax News letter will brief you on the latest commentary and information on all ROS updates and compliance issues for the months ahead.

Norah Collender is Tax Technical
Manager with Chartered
Accountants Ireland
Tele: +353 (0) 1 637 7206
Email: norah.collender@charteredaccountants.ie