Revenue rule change eases pressure on taxpayers to file returns

People earning small sums outside the PAYE tax net will no longer have to file a full tax return this October following a change in the rules covering who is subject to the self-assessment regime – and they’ll also save money.

The move makes it easier for PAYE workers to earn up to a new higher threshold without being subject to the full rigours of having to file a Form 11 with the Revenue Commissioners.

The change was first signalled in Finance Act 2015, and kicked in on January 1st, 2016, but has only come on to people’s radars now as they prepare their 2016 tax returns ahead of the October 31st deadline.

Typically, if you pay tax in the PAYE system, you are not obliged to file a tax return at all. However, if you have additional earnings, such as interest on bank deposits, consultancy work, rental income, share dividends, a foreign pension or trading income from a source such as Airbnb, you must declare this income to the Revenue by filing a Form 12, and paying any income tax owed on it.

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If that income is above €3,174 in the year, you must not only file a longer, and more complex, Form 11 but you must also pay PRSI at a rate of 4 per cent on these earnings.

The change

Now, however, Revenue has increased the threshold to €5,000, reducing the number of people who will have to file a Form 11.

The Form 12 is quicker and easier to complete. It’s also cheaper as you don’t have to pay PRSI non-PAYE income. In addition, Form 12 offers broader payment options. If you can’t pay off the amount owing in full, the Revenue can lower your tax credits for subsequent years to get their money.

Unlike self-assessment Form 11, using Form 12 avoids the need to pay preliminary tax.

For Pat O’Brien, director of people advisory services at EY Ireland, the decision to exempt more people from the requirements of a Form 11 is likely a “pragmatic” move on the part of the Revenue, as it may not make sense to have thousands of PAYE workers, with small amounts of additional income, subject to self-assessment.

“It keeps things simple for Revenue and the taxpayer,” says Mr O’Brien, noting that another advantage for taxpayers of avoiding a Form 11 is that they won’t be subject to the penalties and charges that traditionally go with late payment.

Form 11

But taxpayers who have previously filed under Form 11 will have to continue doing so – even if you earn less than €5,000 in non-PAYE income.

So, if you had income of €3,700, above the threshold, in 2015 and and you have the same income for the 2016 tax year – but it’s now below the threshold – you will still have to file a Form 11.

But landlords with significant rental income – though possibly little taxable profit after allowable expenses – are now more likely to face tighter examination. Till now, if your gross income exceeded €50,000, you were deemed a “chargeable person” and had to complete Form 11 even though your taxable income might be below the €3,174 figure. That threshold has now been lowered to €30,000, bringing more people into the net.