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Don't make forms taxing

Children often get a scare at Halloween, but it is nothing compared to the fear that the self-employed can experience when getting their income tax returns completed by October 31.

But it doesn't have to be a traumatic experience if you are well prepared.

Most taxpayers in the self-assessment system have received a 'pay and file' reminder recently. The first thing you need to do is send a tax return to the Revenue. This lays out what you have earned -- or lost, as the case may be -- in 2009. This document is a legal requirement, so don't mess with it.

Often people will send in a cheque or payment based on what their accountant has calculated with the tax return. Whatever way you do it, you'll need to have all your taxes for 2009 completely paid up by the end of this month.

But you are not home and dry just yet. The Revenue will also want you to pay most of your tax liability for 2010 in what they call a 'preliminary tax'. It must amount to at least 90pc of the 2010 final liability or 100pc of the liability for 2009.

Those who are computer savvy have until November 16 if you pay and file online using the Revenue online service (ROS).

Avoiding fines

It is important to pay the correct amount of preliminary tax and to pay it on time, otherwise you will be exposed to penalties that quickly mount up. The first is interest of 0.0219pc per day. That may not seem like much but it adds up to 8pc per annum and it's not up for debate. The second is a surcharge if you miss the October deadline. This amounts to 5pc until December 31, 2010, or 10pc if you dally until after that date. The surcharge will also be included in the daily interest rate charge, so potentially you could be looking at an all-in penalty of nearly 20pc a year for late payments or returns. That's severe enough to make borrowing on your credit card look like value!

Grey areas

If you have a genuine doubt as to the tax treatment of an item in the return, there is an option to file an expression of doubt, which, if genuine, will protect you from penalties for filing an incorrect return.

When you submit your tax returns, the Revenue will reply with a Notice of Assessment, with their interpretation of your tax liability. If you disagree with this assessment, you can lodge an appeal in writing to the Inspector of Taxes, but you will need to do it within 30 days from the Notice of Assessment's issue date.

Remember, even if you are not sent a 'pay and file' reminder or you are not on Revenue's records, it is still up to you to ensure you are tax compliant. So if, for example you have taken over the family farm from your parents, suddenly you are not the employee anymore and may be liable for tax.

The newest aspect of everyone's tax liabilities is the income levies that came into effect on January 1, 2009. It is a levy payable on aggregate income, before any relief for capital allowances, losses or pension contributions, and thanks to our banking mess has increased even since it was introduced.

PRSI and health levies have also increased in some cases. Self-assessed people are in general liable to pay PRSI and Class S.

You can see from the tables that PRSI and levies now account for a major part of preliminary tax.

Cat and CGt Tax

Your 2009 tax return must contain details of any gains on disposal of chargeable assets arising in the 2009 tax year.

Where a capital gain arises in the period January 1 2010 to November 30 2010, the resulting Capital Gains Tax liability is payable by December 15 2010. If the gain arises in December 2010, the resulting tax is payable by January 31 2011.

For 2009 the normal rate of Capital Gains Tax accruing up to 7 April 2009 was 22pc. This rose to 25pc from April 8 2009. There is also now a windfall rate of Capital Gains Tax of 80pc in limited circumstances.

Where the valuation date relating to gifts and inheritances arises on or after June 14 2010, the self-assessment system for Capital Aquisitions tax also applies. For 2010, this system applies to valuation dates from June 14 to August 31 2010.

All of the normal self assessment rules apply with the additional requirements that the Revenue on line system (ROS) must be used where relief is being claimed. This would include Agricultural Relief, Business Relief etc.

Last week: In relation to last week's article on the Capital Gains Tax due where land, milk quota etc is transferred to a child, it is important to note the exemption from this tax only applies in the following situations:

  • The land owner must be 55 at the date of transfer;
  • He/she must have owned the land for more than 10 years;
  • He/she must have farmed all of the land for the 10 years immediately preceding the transfer;
  • The 2007 Finance Act extended this relief in certain situations where the land was let.

Michael Hough is a tax specialist with Owen Sweetman & Co.

Irish Independent