The lapse of evening daylight and increase in rush hour traffice heralds the onset of autumn and of course the launch of the Chartered Accountants busy tax compliance season
The key deadline on the horizon are 23 September for the ROS filing of Corporation Tax Returns with 31 December 2009 year ends and balance of corporate payments for 31 December 2009, and 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.
Let us now take a brief look at some compliance and planning musts to help you prepare to succeed for the income tax compliance deadline with minimum risk exposure and optimal client service delivery.
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 he is taxable and how changes in recent budgets may effect his tax position.
Is the client a chargeable person?
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 only be in receipt of PAYE income, nevertheless are regarded as chargeable persons with exceptions to the rule set in the 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.
Is the client within the scope of Irish tax?
Recent Budgets have tinkered with many of the long established rules of residency and tax charge for different sources of income so it’s very important now to ensure that you are up-to-date with how these various rule amendments affect the client
Section 819 TCA 1997 states that an individual will be regarded as resident in the year of assessment where:
· he/she spends 183 days or more in Ireland in the year of assessment; or
· 280 aggregate days over 2 consecutive tax years. Aggregate days in Year 2 are not counted where the individual spends 30 days or less in Ireland.
The definition of a day was amended in F(No2)A 2008 to state that a day counts if the individual is in Ireland for any time in that day which effectively put an end to the Cinderella phenomena.
The remittance basis for foreign employments exercised in Ireland operates on a very narrow application. For 2009 tax returns, foreign employments exercised in Ireland are subject to a “pay now and refund later” type of relief where:
- the employees are nationals and employees of an employer resident in a non-EEA state with which Ireland has a DTA agreement, and
- the assignment placing the employee in Ireland must be at least three years in length
At the end of the tax year, the qualifying employee may apply for a refund of PAYE on the greater of the relevant emoluments earned and remitted into the State and an amount equal to €100,000 plus 50% of the emoluments in excess of €100,000.
For disposals of UK assets made on or after 20 November 2008, a resident or ordinarily tax resident individual but non-Irish domiciled individual will only be liable to Irish CGT on the gains remitted to Ireland.
Is a CGT payment obligation triggered?
For 2009 and subsequent years the tax year is divided into two periods for CGT payment purposes, as follows:
- 'initial period' - 1 January to 30 November, both inclusive.
- 'later period' - 1 December - 31 December, both inclusive.
The due dates for payment of CGT are:
- Disposals in the initial period: Tax due by 15 December in the same tax year.
- Disposals in the later period: Tax due by 31 January in the following tax year.
For Capital Gains Tax purposes the date the contract is signed is very important as in general, a disposal is made for CGT purposes when a contract is signed. This is not necessarily the date when the proceeds are paid so it’s very important to time the signing of the contract as close as possible to the date when proceeds are paid to ensure that one has funds to meet the CGT liability. For example if a contract is signed on 29 November 2010 then the CGT liability arising from the disposal is due to be paid on 15 December 2010. This payment must be made by 15 December even if the proceeds from sale will not be paid for some time to come.
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 well worth the time to drill down into your clients details to see if he/she is exempt 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 him out of the requirement to pay PRSI on his non-PAYE income. If the client is aged over 70 he/she will not be required to pay 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 rate changes took place mid year in 2009 on PRSI, Health Contributions and the Income Levy so it’s worth taking a closer look at any payroll calculations prepared on your client’s liability under these taxes to ensure that all is correct.
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. 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. The extended file and pay deadlines for income tax purposes also apply for CAT purposes i.e. 16 November 2010.
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.
Claiming back dated tax relief on qualifying pension contributions can be a stop gap solution to ease the pressure of cash flow on tax payable. For example, in the calculation of the 2009 income tax liability, a taxpayer can claim tax relief for pension contributions paid in the period 1 January 2010 to 16 November 2010 in addition to contributions paid in the 2009 tax year if tax relief has not been already claimed on the contribution through the payroll or the 2008 tax return. Of course tax relief cannot be claimed again on the contributions paid in January to November 2010 in the 2010 Tax Return.
Is your house in order?
Is your client list and tain number registration details up to date? From 1 July 2010, Revenue will 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 authorization.
Do you have correct and current dates for the client’s direct debit mandate in place?
If the client is new, do you have all of the information required from the former agent?
The forgoing is just the tip of the iceberg when it comes to the tax technical and compliance procedures necessary for a successful compliance season. Chartered Accountants Ireland will be running CPD courses throughout September, October and November to help you brush up on all tax knowledge.
Our weekly Tax News letter will also brief you on the latest commentary and information on all ROS updates and compliance issues for the months ahead.