As a business owner what can I do to help reduce my tax liability for the coming year?

The Return of Income and Gains for all Chargeable Persons is due by 31st October for people who file their Return of Income in paper format. The vast majority of people now file their Return electronically and the due date for those taxpayers, returning the 2015 Income and CGT Tax Return due date is extended to Mid November 2016. It should be noted that in order to be entitled to avail of this extension, the payment of taxes must also be made electronically. The majority of Chargeable Persons are either self-employed people or company directors who own more than 15% of a company.

I have set out below a number of the more common issues that business owners ought to be aware of. This is not an exhaustive list and business owners should seek professional advice from a Tax Consultant where they are unsure of the appropriate tax treatment of income or reliefs in their own specific circumstances.

Pension Contribution
Payments to personal pensions or PRSA’s that are made by the due date for filing the 2015 tax return can be relieved against the 2015 income tax liability. No matter whether you’re an employer or an employee, pensions remain one of the most tax efficient investments you can make.  Premiums paid by an employee to a Revenue-approved pension scheme, or by a self-employed person under a Retirement Annuity Contract (RAC) are allowed as an income tax deduction in the calculation of an individual’s income tax liability.

This is why the pension deduction is so valuable - it gives relief at the individual’s top rate of income tax.   Of course there are restrictions.  The maximum allowable deduction depends on both your age and your earnings, and there are special rules for calculating the earnings limits The relief is at the Taxpayer’s marginal rate of tax and is particularly valuable where tax is saved at 40%.

Maximising Tax Relief & Credits
The first steps to take are to ensure that you have established and quantified all of the reliefs to which you are entitled for 2015. The number of reliefs has reduced significantly over the past few years. Some, like Health Insurance and Mortgage Interest are now relieved at source so no specific claims is necessary. There are still some reliefs however where a specific claim is needed. The most common one is health expenses. These are available at the 20% standard rate but Nursing Home fees and the costs of employing a person to care for an incapacitated person in their home are relieved at the taxpayer’s marginal relief rate.

Not all medical and dental expenses are relieved however and those that do not qualify tend to relate to routine dental and ophthalmic cost as well as certain cosmetic surgery costs. Ensure that you can produce evidence of the expenses claimed if called upon to do so by the Inspector of Taxes. They do not need to be submitted with the Return but are expected to be available if selected for verification by The Inspector of Taxes.

Payment of LPT by the due date for filing Income and CGT Returns
Taxpayers should be aware that there is a provision for applying a surcharge to the Income Tax liability for 2015 where LPT is unpaid by the time the 2015 Tax Return is submitted. This can be very expensive and the surcharge will be up to 10% of the Income Tax and Capital Gains Tax liability for 2015, irrespective of the actual LPT liability. The surcharge will be revised when the LPT is paid after the Return Filing date. An LPT surcharge will still apply but this will be limited to the amount of the LPT liability. This provision makes the non-payment of LPT potentially very costly and LPT penalties for late filing of the LPT return itself will apply as well as the surcharge consequences as set out above.

Third Level Fees
Going to third level, or funding someone going to third level?  You may be able to claim tax relief at 20% for tuition fees paid for yourself or another person in respect of third level colleges, as long as the fees are fully paid.  The relief applies to tuition only – it does not cover examination or registration fees.

Capital Gains Tax Compliance
There is always a risk that the 2015 Capital Gains Tax details could be overlooked when completing the Return of Income and Gains for 2015. This is due to the fact that the liability would have been calculated and discharged in December 2015/January 2016 but the actual details of the gain are only due to be submitted in October 2016.

If you need help with filing your returns please contact George Skelton at 053 9170507 or email gskelton@rda.ie