How to get October's tax return right
Miss the deadline or file a dodgy return and you could face interest and penalties, writes Louise McBride
Published 04/10/2015 | 02:30
About 450,000 people will have filed their tax return by the time the tax deadline hits in a few weeks.
You might well be one of these 450,000. It is not just the self-employed who must file a return. Anyone who is receiving income which cannot be taxed in the normal way must usually do so - and pay whatever tax is due. That income could include rent earned from an investment property, share dividends, foreign income and foreign pensions, fees earned for nixers, and any profits you make from exercising share options.
Failure to file a correct return could see you being hit with interest and penalties. Here's our guide to getting it right - and on time.
WHAT FORMS DO I NEED?
You must register for self-assessment before you can file a tax return. You will need the TR1 form to do so. On top of this, you will need to register for the Revenue Online Service (ROS) should you wish to file your tax return online.
It could take as much as two weeks to get up and running on ROS because there is a three-step registration process. So get registered for self-assessment now - and start registering for ROS too if you plan to file online.
When it comes to filing the return itself, use Form 11 if you are self-employed. Form 11S, which is a shorter version of Form 11, can be used if you are a self-employed individual with only a small amount of income - or a PAYE (Pay As You Earn) worker with rental or other non-PAYE income. Form 12 can be used by PAYE individuals whose main source of income is their PAYE job. Just make sure that all the information that is relevant to you is on the form you use.
SHOULD I FILE ONLINE OR ON PAPER?
File online if this is your first time filing a tax return - and you don't have an accountant.
The main advantage of filing your return through ROS is that it will calculate your tax bill for you - though you must sign a declaration online stating that you believe the ROS calculation to be correct. (You also have the option to disagree with the ROS calculation and to state what you believe your tax bill should be).
You can get the Revenue Commissioners to calculate your tax bill if filing a paper tax return - but only if you file your return by August 31, 2015. Should you file a paper tax return after that date, it is up to you to calculate your tax bill.
Another advantage of filing online is that you have more time. The deadline for paper tax returns is October 31, 2015. The deadline for ROS returns is November 12, 2015.
You may not have the option to file a paper return. "Many categories of taxpayer are now subject to a mandatory requirement to file their return electronically," said Audrey Lydon, head of private client services with Ernst & Young. "This includes taxpayers claiming certain 'specified reliefs', but also extends to many others. Revenue may reject a paper return filed in such cases, which could result in a return being treated as not filed, or filed late."
WHAT YEAR AM I FILING THE RETURN FOR?
You are filing your return for income earned in 2014. However, you must also pay 90pc of what you expect your tax bill to be for income earned in 2015.
This is known as the preliminary tax for 2015. So should this be your first year filing a tax return, you're almost getting hit for a double tax bill as you have to pay your full tax bill for 2014 - and 90pc of your tax bill for 2015.
However, if this isn't your first year filing your tax return, you should have already paid your preliminary tax for 2014 which means you should only have about a tenth of the tax bill for 2014 left to pay - and 90pc of your estimated tax bill for 2015.
WHAT PAPERWORK SHOULD I HAVE HANDY?
Don't leave it until the last minute to file your tax return. You need time to get a lot of paperwork together - and to do some calculations yourself.
For example, you need your P60 if you are a PAYE worker with non-PAYE income. Your P60 will tell you your gross income for 2014, the amount of Universal Social Charge (USC) you paid that year, the total amount of PAYE tax paid, and details of any illness benefit you received from the Department of Social Protection when on sick leave (all of these figures must be put into your tax return form). You will also need your spouse's P60 if you are married and jointly assessed for tax purposes.
You must gather and tot up all your doctor's bills and medical expenses - should you be claiming tax relief on medical expenses.
You will need bank statements for any savings accounts you have because you must state the amount of interest you earned on your savings - even if you have already paid Deposit Interest Retention Tax (DIRT) on that interest. (You must now pay PRSI on the interest earned on your savings and that PRSI bill should be reflected in your tax return.)
Should you be earning rental income, you must dig out all receipts received for any repairs or maintenance of that property - as the cost of such repairs must be stated as an expense on your tax return form (and written off your tax bill). Check your receipts for home and mortgage protection insurance on the rented property too - as these expenses can be offset against tax. Have the statement from your lender clarifying how much mortgage interest you paid on the mortgage for your rented property (if you still have a mortgage outstanding on it) handy. You can write 75pc of this mortgage interest off your tax bill when filing your return (as long as you have registered the rented property with the Private Residential Tenancies Board).
You must also calculate your wear and tear allowance (also known as the capital allowance) if filing a tax return for rental income. With this allowance, you can write off an eighth of the cost of furniture, fixtures and fittings, and electrical appliances each year for eight years - as long as they were bought for the rented property. So you will need to tot up the receipts for what you spent kitting out the rented property - and use that to calculate your capital allowance. For example, if you spent €3,000 on furniture, fittings, and electrical appliances, a capital allowance of €375 a year can be written off your rental income-tax bill for the next eight years.
Those filing a return for a trade or profession should have a set of accounts nearby as these will be needed to outline your turnover or sales, profit, expenses and so on.
The more expenses and sources of income you have, the more paperwork you will need handy when filing your return.
HOW CAN I AVOID MISTAKES?
Filing your tax return can be tricky - particularly if this is your first time doing so and you've decided not to hire an accountant. Here are some useful rules of thumb.
Declare all your income
"The self-employed do not always appreciate that they must report all of their income on their tax return - and not just their self-employed business income," said Ms Lydon. "Other income that should be reported includes PAYE income, dividends, interest, rental profits, and gains or losses on the sale of assets. Exempt income, such as forestry income and rental income covered by the rent-a-room relief, should also be reported."
Be careful with Section 23 and capital allowances
Taxpayers can easily slip up on capital allowances and Section 23 relief (a tax break given for rented residential property in a tax incentive area) when filing their tax return, according to Suzanne O'Neill, private client partner with Baker Tilly Ryan Glennon.
"Section 23-type reliefs are not deductible for USC purposes but capital allowances for a business - such as the wear and tear of machinery - are," said Ms O'Neill. "You might include your allowance in the wrong area when filing your return, incorrectly receive a relief - and then face interest and penalties later on if it's picked up down the line."
Get advice if you have foreign investments
Another tricky area is foreign income, such as foreign dividends, pension, savings accounts, life policies or offshore funds. "Anyone with complex dividends or investment portfolios should get expert advice before filing," said Ms O'Neill.
Claim all your tax credits
Tax credits reduce the amount of tax you have to pay - but they are not an automatic entitlement and must be claimed, according to Ms Lydon.
"You may be eligible for the age tax credit for the over 65s, the tax credit for widows with dependent children, the one-parent family credit - or the rental tax credit (as long as you have been renting continuously since 2010)," she said. "You may also be entitled to tax relief on tuition fees and, in certain cases, on mortgage interest and interest on loans to invest in a business."
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