Beat the deadline: Top tips for filing self-assessed tax returns

The good news for many filing self-assessed tax returns this year is that their profits should be up, in line with the recovering economy. But rising profits also pose a risks for self-assessed taxpayers: that they may not have paid enough last year to cover their preliminary tax.

"An unexpected or underestimated increase in income in 2017 could mean that those filing a tax return could be hit with a double whammy in terms of the amount they owe. It is entirely possible that a "double hit" will occur for many self-employed people this year as a result of improving economic conditions," says Eileen Devereux, commercial director with Taxback. com.

And while taxes did fall between 2016 and 2017, the fall won't be enough to cushion the increase. Here are some things you should keep in mind as you ready your Form 11 for 2017.

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If you file your tax return by post, you’ll need to get moving – and fast – as time is slipping away. The deadline for paper returns is October 31st, but you’ll have a bit longer if you file electronically.

This year, the deadline for the Revenue’s ROS online filing system is November 14th. And remember, this means you need to settle your 2017 tax bill by this date, as well as making a preliminary payment for your 2018 taxes.

What if I’m late?

If your payment is late, a “late-filing” surcharge will apply. This surcharge, which is added on to your tax due, runs from 5 per cent of the tax due, or €12,695, whichever is the lesser, if the return is delivered within two months of the filing date. This rises to the lesser of 10 per cent of the tax due, or €63,485, if it is submitted after these two months – January 14th, 2019.

Can I pay with a credit card?

If you will find it difficult to get the funds to pay your bill this year, don’t worry about an extra surcharge if you need to pay with a credit card.

Traditionally, the Revenue Commissioners charged a fee on credit card transactions, ranging from 1.69 per cent to 1.1 per cent more recently. This meant that someone settling a €10,000 tax bill with their credit card would, for example, owe an extra €100 to Revenue, compared with someone paying with a debit card.

However, due to new EU regulations, from April 5th, 2018, this extra charge no longer applies to credit card transactions, “irrespective of whether the cards are personal, business or international”, Revenue says.

Will I pay less tax than last year?

It’s the big question, isn’t it – will you pay less tax this year? Well, thanks to changes introduced in Budget 2017, it’s likely that you will, but not by a huge amount.

Back in October 2016, then minister for finance Michael Noonan reduced three rates of the USC by half a percentage point. This brought the 1 per cent rate down to 0.5 per cent on the first €12,012 of eligible income; the next band came down to 2.5 per cent from 3 per cent for income between €12,013 and €18,772, with the threshold on this band lifted by €104; while the 5 per cent rate was cut from 5.5 per cent for income between €18,773 and €70,044.

These changes are now coming into play for people who are filing self-assessed tax returns for 2017, and mean that the average worker will see a 2.7 per cent reduction in their tax bill for that year.

For example, a single-income family earning €57,500 in 2016 would have had a monthly take-home income of €4,100 after tax; by 2017, this had risen to €4,128 a month.

Anything specific for the self-employed?

Back in 2016, the Government introduced an earned income credit with the aim of levelling the plain between those who pay taxes in the PAYE system and benefit from the €1,650 PAYE tax credit, and those who are self-employed and don’t receive any benefit.

Initially introduced at a level of €550, the credit was subsequently increased to €950 in 2017. If you claim this (and remember, it only applies to “earned income”, not income from rent or other passive means), your tax bill should fall by about €400, says Alison McGinley, managing director of TaxAssist Accountants.

Remember also that you are not allowed to claim both the PAYE tax credit and the earned-income credit if you earn money under both regimes.

The Fisher tax credit was also introduced in 2017. This allows someone who has fished for at least 80 days in a tax year to claim an income tax credit of €1,270 a year.

What about landlords?

Landlords will get some relief on their 2017 tax bills but it will be small. In the 2017 budget, Noonan increased tax relief on mortgage interest to 80 per cent of the interest paid on borrowings on a rental property, up from 75 per cent previously. This means that a landlord paying €3,900 in mortgage interest a year will save just €78 on their 2017 tax bills.

Looking ahead, last year’s budget saw a new deduction for tax purposes for “pre-letting expenses” incurred on a property that’s been vacant for 12 months or more.

“A cap of €5,000 per property applies and the relief is subject to clawback if the property is withdrawn from the rental market within four years. This relief is available to the end of 2021,” Devereux points out.

Any common mistakes?

McGinley says a common error people make when filing their returns is not completing the “extracts of accounts”, which is a summary of your financial statements.

“Many people are unsure how to fill this out and leave it blank. Revenue use these figures to compare profitability, salaries, expenses against information they have on file and against industry standards. Failure to complete this section may increase your chances of getting an audit,” she says.

Other issues arise when people incur a loss, but fail to report it, and when they believe that because income is taxed elsewhere, it doesn’t need to be reported in Ireland. This can particularly arise when people have foreign properties, says McGinley.

“If you are tax-resident in Ireland, you owe tax on your worldwide earnings. Foreign-sourced income may also be taxed in that other country and you may be able to claim a credit for these taxes against your Irish tax bill, reducing or eliminating any further Irish tax on the income,” she advises.

What about preliminary tax?

As mentioned above, preliminary tax may be more of an issue for taxpayers this year.

Consider a self-employed person who had a tax bill of €30,000 in 2015 and 2016, and paid that amount in preliminary tax last October for 2017. But now that they’ve completed their accounts, they may find that the tax for 2017 is actually €45,000, so they will need to pay the additional €15,000 for 2017 at the end of this month, plus preliminary of €45,000 for 2018.

“So their actual payment has jumped from €30,000 to €60,000 in just 12 months,” says Devereux.

To combat potential hefty interest payments, it’s important then to pick the right approach when calculating preliminary tax.

Picking the first option, based on 90 per cent of current (ie 2018) liability, “is the option most likely to lead to underpayment” says Devereux. “It is most often used by those who through their own personal circumstances know they will have a reduced income and liability,” she says.

For the more risk-averse, the second option, of paying 100 per cent of the previous year’s bill, can be a prudent approach, as it eliminates the potential for an underpayment and any associated penalties in the following year.

Finally, you can choose to pay 105 per cent of tax paid for the year before the preceding year – or 2015 for this year’s returns – which can be helpful if this was a low amount and you’re stuck for cash.

However, there are limitations to this approach.

“We would stress that this option is only available where preliminary tax is paid by direct debit and does not apply where the tax payable for the pre-preceding year was nil. Anyone hoping to avail of this option would need the direct debit in place by the end of this month at the latest,” advises Devereux.

It’s important to get the right approach. As McGinley points out, Revenue charges interest at a rate of 0.0219 per cent per day on incorrect preliminary tax, or about 8 per cent a year.

And they are now much more likely to send you a bill for it.

“In the past Revenue were slow to apply interest to underpaid preliminary tax, especially where the amounts involved were quite low. There has been a marked increase in recent times, however, of Revenue enforcing these powers and applying the interest charges,” she says.

But a lower rate of tax will also apply to tax for 2018. The lower rate of USC, for example, was cut, down from 2.5 per cent to 2 per cent in last year’s budget, while the threshold for this level of USC also rose, up from €18,772 to €19,372, and the 5 per cent rate of USC dropped to 4.75 per cent.

According to Devereux, for a single earner on €35,000 a year, these changes will see a fall in USC of about €90 a year – or €1.73 a week. A higher earner on €75,000 a year will see a USC cut of €178 a year, or €3.42 a week.

Those who are self-employed will also benefit from a greater tax credit, which can be used to offset their taxable income, as the earned income credit increased by €200 from €950 to €1,150.

“This was good news for the approximate 17.4 per cent of Irish workers who are self-employed,” says Devereux.

Do I need to file this year?

If you have recently secured a new income stream, you might be wondering – or fearing – whether or not this income should be taxed.

Typically, if you have non-PAYE income of €5,000 or more in a year (that’s up from €3,174 previously), you are what’s known as a “chargeable person”, and will be required to file a Form 11.

“Every year, new people join the self-assessed tax category and this year is no different,” says Devereux, pointing to people such as bloggers, Airbnb hosts and those who participate in the “gig” or “sharing” economy.

According to Devereux, other people who may need to file include anyone who has received income which is not coded into their tax credit certificate, such as those receiving an income from renting out a property; those who have received dividends from shares; those who have received income from casual childminding duties; and anyone who has opened a foreign bank account during the previous year.