If you've kids in college, crowns, or rent out a room, get your tax refund
Tax matters may be about to get easier for the self- employed too
The Government is promising to cut tax and the Minister for Finance, Michael Noonan, has promised to ease the tax burden on the self-employed in the next Budget. Before we look at what to expect, it is worth looking at what we have. Every year, millions of euro in tax refunds remain unclaimed and it's not that taxpayers don't care. In many cases, they just don't know, or didn't think they could get it back.
Health expenses are the most common, and sometimes, when you add it all up, it amounts to a lot. You can look back over the last four years to claim back tax, and even though most health expenses only attract tax relief at 20pc, if you spend €500 a year on them and it includes visits to the GP and prescription medicines, then that's a refund of €400 (€100 per year).
Routine dental work is not deductible for tax, but many that we consider routine, such as root canal treatment, crowns and braces, are deductible. They cost a lot and the tax refunds are valuable.
Most people don't get tax relief for mortgage interest any more, but some do. Top-up loans for home improvements in 2012 and 2013 qualify under the right conditions. The most valuable relief left for mortgage interest applies to first-time buyers who bought between 2004 and 2008. A couple can claim relief on interest payments of up to €20,000. The rate is at 30pc, so that amounts to a refund of €6,000 a year. Most mortgage interest relief is given at source, so a claim may not be necessary, but there are people who failed to apply and refunds can still be had. Based on these numbers, a tracker mortgage for €2m could qualify for full tax relief on interest payments.
A person can rent a room in their own home for €12,000 a year without paying any tax. But you must notify the Revenue and claim your entitlement. Otherwise, what you get is, technically, taxable in full. Up to 2014, the relief only covered €10,000, but for a top-rate taxpayer, that's a saving of €5,200 each year. Not everyone is free to rent a room in their home, or even comfortable with the idea. But for those who are struggling to meet their mortgage repayments, it's worth considering. Recently, the Revenue clarified that they would not allow it in the case of short-term arrangements such as holiday lets.
Many people are confused with tax relief for tuition fees. Since 2011 - that's as far as you can look back to claim a refund - tax relief can be claimed at 20pc on approved third-level courses, over a specified amount on which you cannot claim relief. The amount disregarded applies to the taxpayer and not the student. So, if you have three children attending college and you pay €3,000 for each of them, you get relief of €1,200 in 2015 [(€9,000-€3,000) at 20pc]. If they were paying their own fees - you can live in hope - they would get no relief. The maximum allowable fee claimable is €7,000 per course, such as in a private college, and a single individual would get €800 back in this case, or if you paid €7,000 for three of them, you'd get back €3,600. Did you claim your entitlements for the last four years? It might as well be in your pocket as theirs.
PRSI may warrant refunds too. The burden placed on employers is enormous, especially the small cases who don't have the resources. PAYE is bad enough, but PRSI is even more complex. Most workers now pay PRSI of 4pc, but there are exceptions. Employers pay PRSI of 10.75pc, but on lower incomes it is only 8.5pc, and it can change every week as pay moves up and down. Employer PRSI is only 0.5pc for subsidiary employments. If employers pay too much, will the Department of Social Protection spot it and repay what isn't due?
So the Government has a plan and it wants to make up for the misery it has inflicted on us. What can it possibly have in mind? It's been about employment and getting people back to work up to now, and they haven't really done a great job. The unemployment rate has dropped from nearly 15pc to under 11pc, but that includes a lot of jobs that just don't pay the bills. The economy is growing faster than in the rest of Europe, but we have a lot to make up, and so much is due to forces outside our control. Recovery could stop just as easily as it began. You have to give them credit, even if they can't explain the recovery, it's happening and long may it continue. It's what they do next that they will be judged by.
They are going to make things easier for the self-employed in the hope that they will deliver the jobs we need. It's a pity they didn't help more before now.
New start-up companies were allowed to earn nearly €1m tax free for three years - provided their corporation tax is no more than €40,000 a year.
Displaced workers could go on the dole; now, if they have been unemployed for at least 12 months before starting their own business, they can avail of a scheme that provides a two-year exemption from income tax (up to a maximum of €40,000 per year) and even keep some benefits.
Meanwhile, the self-employed see their tax credits cut, they don't even get the PAYE credit that their workers enjoy and they act as unpaid tax collectors for the Revenue. Whatever they get, it won't be enough. If they got a fair deal six years ago, the country wouldn't be in half the mess it's in.
James Fitzsimons is an independent financial adviser specialising in tax and financial planning