In Ireland we operate a system of self-assessment, whereby the responsibility is put on self-assessed taxpayers and their agents to calculate, return and pay over taxes within specified timeframes.

In the course of this article we will look at the compliance issues that relate to income tax, capital gains tax and capital acquisitions tax for self-assessed taxpayers.

Tax Filing and Payment Requirements

Income Tax

For income tax purposes, an individual falls within the scope of the self-assessment system if they are regarded as a “chargeable person”. Such a person includes:All self-employed individuals;

• Employees who have gross income from non employment sources of at least €50,000 or who have taxable income from non employment sources of €3,174 or more;
• All “proprietary directors”. A proprietary director is an individual who owns or controls more than 15% of the ordinary share capital of a company;
• Individuals acquiring certain foreign life policies or acquiring a material interest in an offshore fund;
• Individuals in receipt of legally enforceable maintenance payments.

All chargeable persons are required to file a personal tax return in respect of each tax year (the tax year runs from 1 January to 31 December). The return for the tax year 2011 (i.e. 1 January 2011 to 31 December 2011), should show details of:

• all income earned during the year;
• disposals of chargeable assets made during the year; and
• all claims for allowances and tax credits for the tax year.

This 2011 tax return must be filed on or before 31 October 2012 - the return used will normally be either a Form 11 or a Form 11E.

Where an individual commences to trade during a year (and that is the first year for which they are a chargeable person), an extension is available whereby the taxpayer is given an extra twelve months to file their first income tax return. Thus if an individual commences to trade in 2011 (and this is the first year as a chargeable person), the due date to file the tax return for 2011 would be 31 October 2013, rather than 31 October 2012. The 2012 tax return would also have to be filed by 31 October 2013.

A new requirement being introduced from the tax year 2013 means that a chargeable person will be required to submit an income tax computation together with their tax return.

In addition to filing a return by 31 October 2012, a chargeable person must also, on or before that date:

1. make a preliminary tax payment for 2012, and
2. pay any balance of tax owed for 2011.

Preliminary tax is essentially a “payment on account”. As it may not be possible to calculate the final 2012 tax liability at the time of payment, tax law allows a number of options to calculate the preliminary tax payment. For 2012, the preliminary tax payment made must not be less than the lower of:

1. 90% of the final liability for 2012, or
2. 100% of the final liability for 2011 (this liability is calculated ignoring any relief claimed under the BES, EIIS or film investment schemes), or
3. 105% of the liability for 2010 (this option only applies where tax is being paid by direct debit and where there was an actual tax liability in 2010).

Remember that preliminary tax is an estimate of all income taxes and this must also include PRSI and USC (the universal social charge).

Revenue On-Line Service (ROS)

This is an internet facility operated by Revenue which allows taxpayers (or their agents) to file tax returns, pay tax liabilities and access their tax details on line.

Certain categories of taxpayer are obliged to pay taxes and file returns electronically using ROS, and these include:

• Self-employed individuals subject to the high earners restriction;
• Self-employed individuals filing a return of payments to third parties;
• Self-employed individuals claiming property based incentives;
• Self-employed individuals benefiting from or who have acquired foreign life policies, offshore funds or other offshore products.

Capital Gains Tax

Self-assessment also applies to capital gains tax (CGT). A return of chargeable gains must be made on or before 31 October in the year following the year of disposal. Thus, any chargeable gains made in 2011 must be returned to the Revenue by 31 October 2012.

Details of chargeable gains will normally be included on a Form 11 (or Form 11E) where the individual is a chargeable person. Where the individual is a PAYE taxpayer and is not a chargeable person, details of the chargeable gains should be included on a Form 12.

The amount of CGT to be paid is 100% of the CGT liability. However, CGT may be payable in two stages, depending upon the date or dates of disposal:

• For gains on disposals made between 1 January 2012 and 30 November 2012, the CGT must be paid on or before 15 December 2012.
• For gains on disposals made between 1 December 2012 and 31 December 2012, the CGT must be paid on or before 31 January 2013.

Capital Acquisitions Tax

Where an individual receives either a gift or an inheritance, it may be necessary to file a Capital Acquisitions Tax (CAT) return, even though there is no tax liability. Where the value of the aggregate benefits received by an individual exceeds 80% of the tax-free threshold amount applicable to that benefit, a CAT return must be filed.

Normally, CAT returns and payments must be made electronically via ROS. However, where an individual is not claiming any exemption or relief (other than the small gift exemption), a paper return (Form IT38S) may be filed.

The filing date for CAT returns has been changed to 31 October to coincide with that for income tax and CGT. However, CAT returns are not completed on the basis of a calendar year, but rather based on a year end of 31 August. As a result, the CAT return to be filed on 31 October 2012 should include details of gifts and inheritances received in the twelve month period from 1 September 2011 to 31 August 2012.

Revenue Practice

With regard to the above taxes, Revenue have confirmed that where a taxpayer both files the tax return and makes the appropriate tax payment through ROS, they can avail of an extension to the normal filing date, whereby the deadline will be extended from 31 October 2012 to 15 November 2012.

In addition, Revenue may exclude a taxpayer from their obligation to pay and file via ROS, where Revenue is satisfied that the taxpayer does not have the capacity to do so. This “lack of capacity” would generally be where the taxpayer does not have sufficient access to the internet to make a return or payment by electronic means, or where an individual is prevented by age or mental or physical infirmity from doing so.

Surcharge for Late Filing

Where a tax return is submitted after the specified date, or where the return is incorrect, the tax liability for that year will be increased by a surcharge.

This surcharge will be based on the total tax liability of the year and will be calculated as follows:

• 5% of the tax liability where the tax return is filed after 31 October 2012 but on or before by 31 December 2012, subject to a maximum surcharge of €12,695; or
• 10% of the tax liability where the tax return is filed on or after 1 January 2013, subject to a maximum surcharge of €63,485.

When calculating the surcharge, no credit is normally allowed for any tax paid by the taxpayer in respect of that tax liability. However, for income tax surcharge purposes a credit will be allowed for PAYE deducted, provided the individual is not a company director.

An important point to note in relation to income tax, is that where a surcharge is imposed, not only will this increase the final tax liability for that particular year, but it could also result in the preliminary tax payment being less than the required minimum amount, which could also give rise to interest charges.

Where a taxpayer is filing a return and is unsure about the treatment of a particular item, they should draw the Revenue's attention to this matter by making an “expression of doubt” claim on the return. Provided the expression of doubt claim is genuine, the Revenue will deem the taxpayer to have made a valid return, even where the item has been treated incorrectly, thereby avoiding any surcharge or interest charges.

Interest and Penalties

Where a tax payment is less than the required amount, or where the payment is made after the specified date, interest will be charged at the rate of 0.0219% per day.

To encourage taxpayers to regularly review their compliance position, Revenue allow taxpayers “self-correct” tax returns without penalty provided the taxpayer:

1. notifies Revenue in writing of the adjustments to be made; and
2. files a computation of the correct tax and statutory interest payable, within twelve months of the due date for filing the return.

Revenue can apply penalties where a taxpayer fails to comply with mandatory e-filing requirements. The penalty is €1,520 for each instance of non compliance.

Conclusion

You should ensure that you and your clients meet all tax obligations on time. Not only will this avoid possible interest and penalties, but late filing and/or payment of taxes can increase the likelihood of an individual being chosen for a Revenue audit.

You should check whether any of your clients are required to submit returns and/or make payments electronically. If so and you have not yet registered for ROS, you should apply to register as soon as possible as from experience the entire process can take two to three weeks to complete.

Michael Smith is a Director with FS Taxation Limited, taxation and accounting consultants.

Email: michael@fstax.ie