Take an axe to tax

There are a number of tax reliefs you can claim and the savings you make by availing of them are not to be scoffed at

WITH ANOTHER austerity budget on the way, one which might herald the advent of property tax and water charges, taking advantage of any tax reliefs currently available is critically important.

For the self-employed and those needing to file tax returns annually, October is a time of grappling with paperwork and hoping the bill is lower than you expected.

But PAYE workers should also take the opportunity to consider how they might reduce their overall tax burden. Here are some tips for both self-employed and PAYE workers alike.

DON’T MISS THE DEADLINE

For those required to file annual tax returns, missing the deadline is the most basic of errors, but one that many regularly make, even though the costs of doing so can be significant.

If you miss the first deadline but get your return in by the end of the year, you will be charged €12,695, or 5 per cent of the tax due, whichever is the lesser. If it’s later then that however, the penalty rises to the lesser of €63,485 or 10 per cent of your tax bill. So make sure you file on time. This year, the deadline for those wishing to pay online is November 15th, or October 31st if you do so by post.

But remember that it can take some time to file and pay online via the Revenue Commissioner’s system ROS, so even if you’re not ready to file yet, check that everything is in place to do so. Should you forget a password, or should your digital certificate be out of date, you might need to communicate with the Revenue by post which can take time.

DON’T PAY YOUR TAX BILL WITH A CREDIT CARD

It is now possible to settle your tax bill by paying with a credit card via ROS. However, doing so incurs a charge of 1.49 per cent, which can see the total size of your tax bill increase.

Apart from the levy, it’s also not the most economical way of settling your bill if you’re short of funds. For example, if you pay your €10,000 bill with a card that charges interest at 20 per cent and you don’t have the funds to cover it, you could be looking at a total bill of more than €50,000 if you manage to make just the minimum repayment on your card each month.

A better option would be to discuss your situation with the Revenue or your accountant and try and come to a more favourable agreement.

DO GET YOUR BINS OUT FOR THE LAST TIME

You can claim back up to €80 a year by claiming tax relief on the cost of your bin or service charges. Relief is given at the standard rate of tax, 20 per cent, which means that a typical household can expect to get €40 back, given average charges of €200 a year.

The relief will be abolished from this December, so it’s worth availing of while you still can. Remember, you must have paid your charges on time to qualify for this relief.

To claim, account for it in your tax return or use the Revenue’s PAYE Anytime service.

DON’T FORGET ABOUT PENSIONS

As chartered accountant Tommy McGibney asserts, pension relief is “one of the few big ticket tax reliefs that still attract 41 per cent” so it makes sense to bump up your pension this year. If you pay tax at the higher rate, you can look forward to a €10,000 investment for just €5,900 in cash.

However, with money tight it may not be so straight-forward, which is one of the reasons why pension contributions have fallen so much of late.

“You need to spend the money to save the money,” says McGibney.

LEARN ABOUT FLAT RATE EXPENSES

If you’re new to a job you may not be aware that you might be entitled to claim an additional expense based on the nature of your profession.

The expense applies to a wide range of professions – although is weighted towards the public sector – and offers a relief towards costs incurred from working in the profession, such as the costs of buying a uniform or class-room equipment.

Airline cabin crew, for example, can apply for relief of €64 a year; rising to €153 for electricians; €518 for teachers; €695 for doctors; €750 for freelance actors; and €2,476 for musicians in the national orchestras. For the full list see iti.ms/Xxcddt.

DO CARRY FORWARD YOUR LOSSES

The bad news is that you may have had to swallow significant losses in recent years, but the good news is that should you make any gain in years to come, these losses can be used to offset any capital gains tax, which is now a hefty 30 per cent.

As McGibney points out, if you are in line for a gain this year, looking back to all previously unused losses – Eircom shares anyone? – can help reduce your tax bill.

And if you’re still holding onto AIB and Bank of Ireland shares, crystallising that loss might substantially reduce your CGT charge.

“If you keep loss-making shares in perpetuity, you can’t use that loss, so there isn’t much point in sitting on a share portfolio that has lost a substantial sum, while on the other hand you have a CGT charge,” advises McGibney.

Of course, if you expect the aforementioned bank shares to return to their former glory, you can always go back into the market and rebuild your portfolio pretty much at the price you sold at, given that share prices are so stable at the moment.

Remember however, that you can’t offset any losses from rental income on other forms of income. While you can use any losses you might incur on a property to help reduce taxable income on another property, it won’t help reduce taxes on your PAYE income, for example.

Similarly, a loss on a property abroad, can’t be used to offset rental income from an Irish property.

DO YOUR HOMEWORK IF YOU’RE AN “ACCIDENTAL LANDLORD”

If you’re one of the thousands of people who got caught out by the collapse of the property market and ended up as a landlord, you might still be coming to terms with how much tax on your rental income you need to be paying.

While there are a variety of expenses you can claim to reduce your tax bill, including 75 per cent of mortgage interest, letting and redecoration expenses, it’s important not to overstate them. (See the Revenue’s form IT 70 for a full list.)

“You need to be sensible about it,” asserts tax adviser Brendan Allen, adding that if you are “too aggressive” in your listing of expenses, you might hear from the Revenue looking for a detailed explanation.

One expense that Allen routinely finds that landlords don’t claim is the 12.5 per cent wear and tear allowance. This allows you to offset 12.5 per cent of the cost of the furniture and fittings in your property against your tax bill.

And remember that additional expenses, such as registering with the Private Residential Tenancies Board (€90) and the second home charge (€200) are not tax-deductible.

And if you haven’t yet registered with the PRTB, it might be time to do so. As Allen notes, he has seen Revenue disallow mortgage interest relief from landlords who have failed to register.

Given that this register is now a public document, it is easy for Revenue to cross-reference it.

DO CONSIDER A REVIEW

If you forgot to claim for certain reliefs in previous years, remember that you can still apply to the Revenue.

However, there is a time limit of four years, so don’t delay any further if you think you might be in line for a refund.

Possible reliefs you might have missed include the aforementioned bin charges, medical expenses, tuition fees, income protection policies or trade union subscriptions.

DON’T FORGET YOUR TAX RETURN PENSIONERS

Last year, thousands of pensioners were left dismayed when they found out they had been under-paying tax.

But this year, as McGibney warns, any single person with an income over €18,000, or a married couple whose income exceeds €36,000, are liable for tax. So, if you get the state pension and a small additional income, you probably don’t have to worry, but should your income exceed this, you might need to file a tax return, depending on how your other income is taxed, before October 31st.

While McGibney acknowledges that a tax return form can be “intimidating”, he notes that many pensioners, higher earners in particular, might actually find that they will end up reclaiming tax, rather than paying it.

DON’T IGNORE HEALTH INSURANCE RELIEF

Given the soaring cost of health insurance premiums, if you are keen on keeping your private cover you might need all the help you can get.

Tax relief is available on health insurance contributions at the standard rate of tax, 20 per cent. If you purchase your own cover, then you won’t need to do anything, as it is offered at source. So for example, a health insurer will sell you a policy that costs €1,000 for €800.

If however, your employer pays all or part of this, then you may not be availing of this relief. And given the cost of health insurance, it can be significant.

For example, if your employer typically pays €2,000 a year for cover for you and your family, you will be entitled to a relief of €400. Back-date this over four years, and you might be in line for a little wind-fall of about €1,600.