This is an extremely busy time of year for practitioners who have to cope with the income tax deadline(s) as well as assorted other tax submissions, including for example Corporation Tax Returns for Companies with January year ends, CAT submissions, VAT and PAYE submissions etc. Taxation is a complex area at the best of times, and the risk of errors arising increases further when you add severe time pressure to the mix, as well as other associated factors not least of course the tiredness that comes from long, busy work days.

The true test of a firm’s internal structures and processes is how they cope over the next few weeks in terms of minimising errors and maximising opportunities. The purpose of this article is to focus on the importance of getting the basics right, incorporating a review of persistent problem areas and other related issues, which will hopefully provide practical assistance to advisors in dealing with the tax deadline.

Chargeable Person:

One of the most basic questions advisors should ask when dealing with a client is whether or not the client is subject to the self-assessment regime. Section 950 TCA 1997 defines the concept of a ‘chargeable person’ for income tax purposes and the general rule is that an individual is regarded as a chargeable person unless all of his/her income is assessed via the PAYE system. Therefore an employee with rental income is subject to the self-assessment rules unless he or she has properly coded his rental income into his Tax Credit Certificate.

As always, there are exceptions to the general rule, for example a proprietary director is always a ‘chargeable person’ even if all of their income is assessed via the PAYE system. In addition, any individual who opens a foreign bank account is deemed to be a chargeable person for that period, even if they received no foreign interest.

Incidentally, don’t forget that the 31st October deadline is not restricted to ‘Form 11 cases’ and section 879 TCA 1997 can impose the filing date for cases involving a Form 12.

Deadline Date:

While practitioners recognise the 31st October as being the official due date for income tax submissions, in practice most firms operate on the basis that Thursday 13th November is the ‘real’ deadline as the vast majority of their clients are filed via Revenue Online Service or ROS. However, it is important to remember that this extended deadline date is only available to tax-payers who both pay and file on-line. Merely filing an on-line return is not sufficient.

In these turbulent times, it is not unusual to meet with the client in early November to discuss their return and payment obligations only to discover that they cannot find the necessary tax payments. In such circumstances, the return is now officially late and thus subject to the 5% late submission surcharge under section 1084 TCA 1997.

The 31st October is also the due date for payment of the current year’s preliminary tax. Advisors will be familiar with the minimum payment requirements – 90% v 100% v 105%. If a late submission surcharge is incurred, remember to review its potential impact on the preliminary tax payment.

Box-ticking and other Form Completion Errors:

Failure to properly complete an Income Tax Return can trigger a variety of direct and indirect problems for practitioners and their clients. At a minimum, it can lead to additional time being incurred in subsequently correcting the error(s). Such errors may lead to a client being incorrectly selected for a Revenue Audit or intervention. Practitioners should also be wary that section1084 TCA 1997 is capable of being widely interpreted – therefore in certain circumstances a late submission surcharge can be imposed where the original return was submitted on time, but the return was incorrectly completed.

The following is only a brief summary of the numerous errors that can, and unfortunately do, frequently arise in practice:

• Failure to properly complete the extracts from accounts, e.g. completing the ‘sub-contractors’ section in non-RCT cases, failure to separately identify ‘receipts from Government Agencies’ – like GMS income for doctors – from other sales, over-stating purchases by including ‘costs of purchases’ like carriage etc.
• Failure to identify clients that are subject to the High Income Earners Restriction or HIER is a persistent problem area and Revenue have indicated that they will be focusing on this aspect over the next year.
• Under-stating Deposit Interest is another persistent problem area, probably reflecting the fact that many clients fail to inform their advisors in the mistaken belief that such income ‘is taxed already’. Failure to identify the existence of foreign bank accounts can also cause problems in due course.
• Failure to disclose gifts and/or inheritances received during the year. Remember this section of the form should be completed even when a Form IT38 has already been submitted.
• Failure to remove historic entries from pre-populated forms – social welfare income being a regular offender in this category.

In addition to the above, there are numerous examples of ‘obvious conflicts’ that arise which reflect the type of errors that can only be made at this time of the year when practitioners simply don’t have time to properly review the forms prior to submission. Examples include claiming the Home Carer’s credit without stating the number of ‘dependent children’ earlier in the form, claiming loan interest in the rental income section but forgetting to tick the box confirming that PRTB registration is in order, and omitting details of any ‘property-based incentives’ claimed from Part N of the form despite claiming the capital allowances against the rental income.

Checking the Source Data/Supporting Documentation:

One of the principles of ‘self-assessment’ is that ultimately the client must take responsibility for the accuracy of their submissions, but practitioners must still strive to implement ‘best practice’ even at this busy time of year.

One of the persistent problem areas in this category is claiming non-qualifying medical expenses. Just because medicine is purchased in a pharmacy does not mean it is tax deductible, and over-the-counter medicines never qualify. Dental costs should never be claimed unless the expense is for non-routine treatment and a Form Med.2 has been provided.

In addition, advisors should always seek dividend counterfoils to support details of dividend income. This allows advisors to monitor shareholding details and perhaps identify acquisitions and disposals for CGT purposes.

Particular attention should be paid to rental accounts and landlords; simply because landlords have been near the top of ‘audited sectors’ for the past few years. Ensure that the loan interest certificate is obtained and that the 75% restriction is properly applied. Review any item classed as ‘repairs’ to ensure that they are not actually ‘capital improvements’. Incidentally, remember to prepare separate rental accounts for each property.

Planning Opportunities:

So far we have focussed on minimising risks and errors, but it is also important that practitioners take advantage of the fact that they will be liaising with clients about their tax affairs over the next few weeks by identifying potential tax-planning opportunities.

At a minimum, ensure that all relevant tax credits and allowances are being claimed, including college fees, medical expenses, flat-rate expense allowances, etc. Explore the possibility of making a pension contribution. Take the initiative and discuss issues like retirement and/or succession planning with clients approaching 55 years of age. The possibility of incorporation should be broached with sole-traders paying tax at the marginal rate.

It is too late to manage 2013 but if a client can control his income level – e.g. director’s salaries etc. – then monitor the possible exposure to the 5% USC for property-based capital allowances and of course the HIER. Similarly, explore the possibility of redistributing income between spouses to ensure that tax bands are being fully utilised going forward.

Summary:

There is a reason why clichés like ‘fail to prepare – prepare to fail’ survive, and a stitch in time really does save nine. The following are a few simple tips that can be implemented relatively easily and quickly:

1. A manual computation should always be prepared to reconcile the official computation. This can be very roughly drafted as it is for internal use only, but it will help identify obvious omissions and/or errors contained in the ROS submission prior to filing.
2. Peer-review is always an effective cross-checking mechanism, and every submission should be subjected to ‘a second set of eyes’.
3. Take the time to distribute the Revenue’s guidance notes on items like completing the extracts from accounts and the Form 11, and ensure these are read by all staff.
4. Lastly, and perhaps most important of all, ensure that the client gets a copy of his/her Income Tax Return and computation along with a clear instruction that they should review these to ensure that “everything has been included and that nothing has been omitted”.

As stated, a firm’s internal processes determine how well it can cope with the tax deadline. It is well worth taking a few hours to review these processes in your office to ensure that they are ‘fit for purpose’.

Brendan Twohig is Tax Partner at MK Brazil and Marie O’Shea is a Tax Consultant at MK Brazil

email: brendantwohig@mkbrazil.com