We are now well into October, which means that the personal tax filing season is in full swing. The following is a summary of some of the key issues to be borne in mind during this busy time.

Deadlines

The principal deadlines are as follows:

31 October 2011: Deadline for filing income tax and capital gains tax returns for the tax year 2010

31 October 2011: Deadline for payment of any balance of income tax for 2010 and preliminary income tax for 2011

15 November 2011: Extension of the above deadlines where the taxpayer both pays and files online using the Revenue Online Service (ROS)

15 December 2011: Payment of capital gains tax for the period from 1 January 2011 to 30 November 2011

31 January 2012: Payment of capital gains tax for the period from 1 December 2011 to 31 December 2011

The deadline for filing Capital Acquisitions Tax returns, and paying any Capital Acquisitions Tax due, was 30 September 2011 in respect of gifts and inheritances received in the year ended 31 August 2011. This deadline was previously aligned with the income tax filing deadline of 31 October but it was brought forward by one month to 30 September by Finance Act 2011. There is no extension of this deadline for filing on ROS.

Requirement to File a Tax Return

A person is not required to file a tax return unless he/she falls within the definition of a “chargeable person”. Generally, a chargeable person is someone in receipt of trading or professional income or investment income, i.e. non-Schedule E income. Examples of investment income include rental income, dividends and deposit interest.

An individual in receipt of PAYE income only is a chargeable person if the individual:

• Opens a foreign bank account
• Acquires a foreign life policy
• Acquires a material interest in an offshore fund
• Exercises share options

Company directors are regarded as chargeable persons, even where the director's only income is salary subject to PAYE. However, Revenue's Statement of Practice SP-IT/1/93 removes from the definition of chargeable persons non-proprietary directors, i.e. those who are not the beneficial owner of, or able, either directly or indirectly, to control more than 15% of the ordinary share capital of the company. This is provided the director is not otherwise a chargeable person and any non-PAYE income is coded into his/her tax credits and standard rate cut-off point.

Revenue confirmed in Tax Briefing 62 that individuals subject to income from PAYE sources who are also in receipt of income from non-PAYE sources will not be regarded as chargeable persons if the total gross income from non-PAYE sources is less than €50,000, the net assessable income is less than €3,174 and the income is coded against tax credits and standard rate cut-off point. Gross income is income before deductions, losses, allowances and other reliefs and net income is the amount actually assessable.

Preliminary Tax Payments

In addition to the payment of any balance of tax due for the 2010 tax year by 31 October 2011, a preliminary tax payment is also due for 2011 by that date. The preliminary tax to be paid must equal at least the lesser of the following amounts:

• 90% of the 2011 tax liability
• 100% of the 2010 tax liability (as adjusted for the Universal Social Charge {USC})

There is also an option for those paying by way of direct debit to pay based on 105% of the 2009 tax liability.

Any BES or film relief claimed in 2010 or 2009 must be added back in calculating the 2011 preliminary tax due under the 100% or 105% options referred to above.

In calculating the 2011 preliminary tax liability, the 2010 tax liability must be adjusted for the USC when using the 100% option. This involves adding a notional USC charge to the 2010 liability as if the USC was in force in 2010. The income levy and health contribution are ignored for the purposes of this calculation.

Revenue's approach to the calculation of the notional USC liability in cases where PAYE income has been earned was confirmed in Revenue eBrief 53/11. The above provisions can make the preliminary tax calculations quite complex.

Clearly, the 2011 tax liability can only be estimated at this stage but, due to the current economic climate, this option may give a lower figure. Many clients will therefore request that an estimated 2011 tax computation be prepared by their tax advisor. If the amount of tax paid does not meet the preliminary tax requirements interest will be due on the amount underpaid at the rate of 0.0219% per day or part of a day.

Pension Contributions

The most popular means of reducing a tax liability is the payment of pension contributions. A tax deduction at the marginal tax rate remains available although, as various proposals have been made to reduce the tax relief due, relief at the marginal tax rate may not continue for much longer. Relief is no longer available against PRSI and is not available against the USC.

Tax relief is available for the 2010 year in respect of “top-up” contributions made in 2011 up to and including the 2010 income tax filing deadline date, i.e. 31 October 2011, or 15 November 2011 for those paying and filing via ROS.

In addition to the various age-related limits, ranging from 15% of earnings for those under 30 years of age to 40% for those age 60 and over, a relevant earnings limit of €115,000 also now exists.

High Income Earners Restriction

A restriction applies to the amount of certain “specified” reliefs which can be claimed in a given tax year by certain individuals. The reliefs to which the restriction applies include certain property incentive reliefs, interest relief for investing in companies, and charitable donations. Tax exemptions for certain income, such as patents, woodland and artists income, are also affected. Any reliefs not utilised in a given tax year can be carried forward to be relieved in following tax years, subject to income availability. The calculation is designed to ensure that affected individuals pay an effective tax rate of around 30% in the 2010 tax year. A “high income earner” for 2010 is an individual who earns at least €125,000 and claims “specified” reliefs in excess of €80,000. The additional liability for 2010, if any, arising from the restriction must be taken into account in calculating the 2011 preliminary tax liability using the 100% option.

Offshore Funds

Special tax rules apply to offshore funds. What constitutes an offshore fund is beyond the scope of this article but suffice to say that the rules are very complex and need to be examined in great detail. The acquisition of a material interest in an offshore fund must be disclosed in the tax return. If this is not disclosed an unfavourable tax treatment may apply on the disposal of the investment.

Social Insurance and Levies

With the introduction of the USC from 1 January 2011, and the fact that the health contribution and income levy were not abolished until 1 January 2011, there are a multitude of social insurance and levy charges to be borne in mind during the filing season; namely PRSI, the health contribution, the income levy and the USC. Income earned in 2010 could be subject to PRSI, the health contribution and the income levy, whereas income earned in 2011 could be subject to PRSI and the USC.

As these charges and levies can amount to the equivalent of an effective rate of tax of 14% at upper income levels, time should be taken to ensure that the charges are correctly applied and that any exemptions have been claimed. For example, a person paying class A PRSI on his/her PAYE income is generally not subject to class S PRSI unless he/she is in receipt of income taxable under Schedule D Case I or II. Age exemptions also apply in some cases, as do exemptions for medical card holders. As a very rough rule of thumb, the income levy and USC generally apply to gross income before deductions, whereas PRSI and the health contribution are generally calculated after certain deductions. There are, however, exceptions to this.

Other Considerations

In order to be able to pay and file on ROS on behalf of a client, you will need to ensure that the client is registered under your Tax Advisor Identification Number (TAIN). This is essential if you are availing of the 15 November ROS extension. Revenue now requires an Agent Link Notification form to be signed by both the agent and client. However, this is not necessary where a TR1/TR2 form containing the agent's details has already been submitted to Revenue.

Due to the current economic climate, many clients may find it difficult to discharge their tax liabilities. This makes it very important that clients are advised of their liabilities as soon as possible and that engagement with Revenue takes place without delay in ‘inability to pay’ situations. As the 15 November ROS extension only applies where the tax liability is paid in full, the tax return must be filed by 31 October where the client is unable to discharge his/her tax liability on time.

Conclusion

This article highlights some of the issues which should be considered at this time of the year. 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.

Aidan O'Boyle is a Tax Manager with Grant Thornton Financial and Taxation Consultants Limited

Telephone:+353 (0)1 6805785

Email: aidan.oboyle@ie.gt.com