The filing deadline for 2014 income tax return – the Form 11, is fast approaching. Taxpayers who are obliged to file their tax returns and make relevant tax payments via Revenue On-line Service, (ROS) have an extended period until 12 November 2015 to file their returns without incurring penalties. The due date for paper filers is the end of this month – 31 October.

Effective from the 2013 tax year, taxpayers are responsible for the completion of the self-assessment section within the Form 11 and to calculate their own tax liability. Revenue, per eBrief No. 86/15, will calculate the tax liability for paper filers who had their returns submitted by 30 September.

Where a taxpayer is not in the position to discharge their 2014 tax liability in full, the return should be filed by 31 October to avoid the application of a late filing surcharge. In such cases they should engage with Revenue to seek a payment arrangement.

Outlined below are some key aspects of making the Form 11 return of which taxpayers should be mindful.

Medical Expenses

Medical expenses are one of the most common tax credits claimed by individuals.

Tax relief at the standard rate is available in respect of qualifying health expenses incurred in a tax year. Some of the more common qualifying health expenses include,

• Services of a practitioner
• Diagnostic procedures carried out on the advice of a practitioner
• Maintenance or treatment in a hospital
• Drugs or medicine supplied on the prescription of a practitioner,
• Physiotherapy prescribed by a practitioner
• Orthoptic treatment prescribed by a practitioner
• Non-routine dental treatment
• In vitro fertilisation treatment
• Maternity care

Expenses incurred on the maintenance or treatment in a nursing home qualifies for tax relief at the marginal income tax rate, currently 40%, but this was 41% in 2014.

However, expenses incurred on: routine ophthalmic treatment, routine dental treatment, or cosmetic surgery or similar procedures, unless the surgery or procedure is necessary to ameliorate a physical deformity arising from, or directly related to, a congenial abnormality, a personal injury or a disfiguring disease do not qualify for tax relief.

Qualifying medical expenses for tax relief purposes are reduced by sums reimbursed from a medical insurance provider, for example VHI, Public/Local Authority or funded from a compensation claim.

There is no requirement to submit receipts or supporting documentation with the claim, however, Revenue may look for them at a later stage for audit or verification purposes and therefore taxpayers should retain all receipts for at least 6 years.

Pensions

Pension payments made up to 31 October in the current year can be taken into account when computing the tax liability for 2014. Where the returned is filed and taxes paid via ROS, pension payments up to the extended filing date of 12 November qualify for relief in 2014.

Tax relief on pension payments is allowed at the marginal rate of income tax. The maximum amount on which tax relief is granted is determined with reference to net relevant earnings and the taxpayer’s age. The chart below sets the maximum relief available.

“Net relevant earnings” are earnings from trades, professional and non-pensionable employments and the sum from these sources is capped at €115,000. Investment or rental income is not regarded as net relevant earnings. Equally each spouse is assessed separately with regard to the €115,000 ceiling.

It is worth noting further restrictions apply in relation to the calculation of deductible pension contributions for medical practitioners involved in the GMS scheme.

Age	% of Net Relevant Earnings
Up to 30 years	15%
30 but less than 40	20%
40 but less than 50	25%
50 but less than 55	30%
55 but less than 60	35%
60 years or over	40%

Where a pension premium cannot be fully utilised in the current year, the excess can be carried forward and utilised in the subsequent tax year.

From a preliminary tax perspective, there is also merit in making a pension payment if the taxpayer is basing their preliminary tax on the 100% of the prior year rule.

Employment and Investment Incentive Scheme (EIIS)

EIIS was introduced by Finance Act 2011 and replaced the Business Expansion Scheme (BES). From the investor’s perspective there were two fundamental changes effected with the introduction of EIIS.

• Tax relief is given over 2 phases, 30% in year 1 and 10% (previously 11% up to 2014) in year 4 provided the company has achieved growth in employment numbers or R & D spend at the end of the third year of the investment.
• The holding period has reduced from 5 years to 3 years.

The maximum amount that can qualify for EIIS is €150,000 in any one year. Where the investment exceeds this amount or there is not sufficient income to shelter the investment, the excess amount can be carried forward to a subsequent tax year.

It should be noted however, that EIIS is ordinarily regarded as a “specified relief ” for the purposes of the High Earners restriction. Finance (No 2) Act 2013 introduced a temporary measure which removed the EIIS from the “specified relief ” listing for investments entered into between October 2013 and December 2016 to boost the EIIS relief which had been quite low based on tax returns filed for 2011 and 2012.

There are pitfalls taxpayers should be mindful of in connection with the EIIS relief.

• If the company ceases to be a “qualifying company” in the relevant period, Revenue can withdraw the relief from the individual through the issue of an amended notice of assessment for the year in which the original relief was granted.
• Where EIIS qualifying shares are sold at a loss, the loss is reduced by the amount of the EIIS relief obtained.
• Unlike pensions, for preliminary tax purposes the benefit of EIIS relief must be disregarded when using the prior year basis for calculating preliminary tax.

Preliminary Tax Payments

In addition to making a balance payment in respect of 2014, a payment on account is required in respect of year ended 31 December 2015. To satisfy the preliminary tax requirement and avoid an exposure to interest on an underpayment of tax, taxpayers must pay a minimum of:

1. 90% of the final tax liability for the current year i.e. 2015 or
2. 100% of the final liability for the previous year i.e. 2014

In calculating (b) no account is taken of EIIS as discussed earlier or Film Relief.

If taxpayers are using the direct debit scheme to discharge your income tax liability, they will need to review payments made to date to ensure that they are paying a minimum of 105% of the 2013 final tax liability.

Where income levels fluctuate year on year it is worth reviewing current year income levels to see if basing preliminary tax on 90% of the current year income would give a cash flow benefit in meeting the preliminary tax obligations.

Capital Gains Tax (“CGT”)

CGT payment is due by 15 December 2015 in respect of capital assets disposed of between 1 January and 30 November 2015. CGT on assets disposed during the month of December falls due for payment by 31 January 2016.

The timing of capital transactions at this time of the year is important to ensure that the necessary funds are available to discharge any of CGT obligations as they fall due. The date of disposal for CGT is usually the date of the contract unless it is a conditional contract when the date of disposal is the date the condition is satisfied.

Where a CGT liability is due from an earlier disposal in the year, consideration should be given to disposing of an asset in which there is an inherent loss available.

Following amendments in Finance (No. 2) Act 2013, account must be taken of any debt written off associated with the acquisition of capital assets disposed of during 2015. This amendment seeks to restrict capital losses computed under normal CGT rules to the actual economic loss incurred. This amendment also applied to disposals in 2014.

Capital losses realised in the same year or capital losses carried forward can be offset against current year gains.

If assets have become negligible in value through destruction, dissipation or extinction, consideration should be given to submitting a negligible value claim to the Inspector of Taxes. If the Inspector is satisfied with the claim, taxpayers will be deemed to have disposed of the asset and reacquired it at its current value. The unrealised loss would then be available to the taxpayer to shelter a capital gain. Technically, such a claim should be made in the year in which you wish to utilise the loss, however, by concession, Revenue accept such a claim within 12 months of the year of assessment for which the relief is sought provided the assets were of negligible value in that year.

Other considerations

Tax-based property incentives have been a feature of our tax legislation for the last 20 years. In recent years their benefit has been capped in monetary terms, ring-fenced against certain income or restricted by the High Earners’ restriction. Where the tax-life of such investments has expired the benefit of any utilised capital allowances terminated at 31 December 2014 and therefore are not available to carry forward to 2015. Thereafter any carry forward capital allowances will terminate in the year the tax-life of the investment expires. In order to quantify capital allowances available for 2015 and subsequent years, an analysis of the capital allowances available to carry forward at 31 December 2014 is required.

Since 1 January 2014, PRSI is payable by individuals who are “chargeable persons” on income generated from wealth such as rental income, investment income, dividends and interest on deposits and saving. PRSI will be calculated at 4% on such income.

To avoid the imposition of a local property tax “LPT” surcharge being applied to the tax assessment for 2014, taxpayers should ensure that they have filed and paid their local property tax for all properties registered in their names before they file their 2014 return. This surcharge is imposed regardless of whether or not the income tax return is filed on time. Where the LPT is paid subsequent to the return being filed, the surcharge may be reduced to the LPT liability where this is less than the 10% surcharge.

Returns submitted after the due date are subject to a late filing surcharge, 5% of the final tax liability where the return is submitted within 2 months, capped at €12,695 or 10% of the final liability capped at €63,485 where the return is in excess of 2 months late. In the case of a company director the late filing surcharge is applied before the credit for PAYE deducted at source.

Conclusion

In summary, the Form 11 is growing in size and complexity year on year; the 2014 form is 30 pages long. The complexity of the return will vary from taxpayer to taxpayer and the key to managing the compliance programme over the coming weeks is the receipt of all information in a timely manner.

Caroline McGrath is a Senior Tax Manager with Deloitte.

Email: camcgrath@deloitte.ie

Website: www.deloitte.com/ie