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(5) Tax: Back to Basics

By Richard Fitzgerald, QFA TMITI

The Basics

Despite what many people may think, Ireland is not the worst country in the world for taxing its citizens. Generally people who are employees have their taxes calculated and paid for at source by their payroll department. This is called the PAYE or Pay As You Earn system. Where income in excess of 3,174 is received outside of your PAYE income then you will be required to submit annual returns. If the figure is less than 3,174 and this amount is coded into your tax credits then you are not required to submit a return.

Also, despite the tax changes in recent budgets there are still a wide variety of tax allowances and credits that we're entitled to, which many other countries don't offer. This has the effect of reducing the amount of tax we pay and therefore increases the amount in our pockets every time we're paid.

The most important document you receive (besides your payslip) is your "Tax Credit Certificate," which you should receive from Revenue at the beginning of each year. The reason it's important is because the amount of tax you pay is calculated from it. Learning to understand this document is the first place you should start if you want to save money and pay less tax. The top part shows your tax credits. These are amounts of money which are tax free each year. If you're married and Jointly Assessed (more on that later), you will see your spouse's credits beside yours.

The second part is called your "Tax Rate Bands" or what used to be called your "Standard Rate Cut Off Point." In other words, this is the amount you can earn each year at the lower (currently 20 per cent) tax rate. Anything above this amount is taxed at the higher rate (currently 41 per cent).

Exemption limits

For the tax year 2014 you are exempt from paying tax if your earnings (from all sources) are under the following levels:
If over 65 and single or widowed you can earn up to 18,000
- If over 65 and married you can both earn up to 36,000

Bear in mind that there is a "marginal" tax rate applied to individuals and couples who earn marginally more than the above levels. However, it only applies if you are over 65 years of age.


Call it social engineering, if you will, but the fact is that in Ireland married couples can currently pay less tax than two single people, depending on their incomes and how their credits and allowances are allocated. However, the new Civil Partnership Bill aims to address some of this imbalance. The reason for the imbalance is that married couples who are either Jointly Assessed (the default) or Separately Assessed for taxes can allocate or share credits and tax rate bands between them.

In some cases, the tax saving per year has been as much as 1,890 so it's worth investigating. In either case, you should always make sure you tell Revenue when you get married as it has other tax implications. Remember though, Revenue will treat you as still being single in the first year of your marriage. In the following year you can seek a "year of marriage review," which calculates your taxes as a married couple and amends your taxes by way of a refund usually.

There are three ways a married couple can be assessed or treated for tax in Ireland. They are:

Jointly Assessed: This means the couple is treated as one for tax purposes. Only one tax return is required and tax credits and allowances can be shared between spouses.
Separately Assessed: This is the same as Joint Assessment except that each spouse can submit their own tax return separately, and be treated as separate individuals for tax purposes.
Separate Treatment: Not very common as essentially each spouse is treated as being Single and no sharing of allowances or credits is allowed.

In 2010 in Ireland, a single person can earn up to 32,800 at the 20 per cent tax rate while a married couple can earn up to 65,600. However, one spouse can give the other a maximum of 9,000 of their tax rate band meaning the other spouse can earn up to 45,400 at the lower tax rate. They can also allocate their personal tax credit to the other spouse.

Single parent?

If you're a single parent, which includes a separated spouse for example, who has the children stay with him or her throughout the year (i.e. they don't have to be living with you full-time), then you may be entitled to the Single Parent Tax Credit and increased Tax Rate Band up to 31 December 2013. This means you receive an additional tax credit of 1,650 and an increase in your tax rate band of 4,000. However, you should be aware that if you are living with another person "as husband or wife" you are not entitled to these. From 1st January 2014 this credit has been replaced with the Single Person Child Carer Credit and is available only to the Primary Carer who has custody and maintains the child for a period of at least 6 months. The tax credit and rate band increase remain the same.

Paying less tax

I'm sure by now you're keen to know how you can pay less tax. Well, now that you know how you are taxed, you should have a complete review of your taxes carried out every year. You can do this yourself or you can hire a professional tax adviser. It's a matter of investigating what credits or allowances you entitled to and making sure you get them coded into your Tax Credit Certificate. After all, this is what your payroll department use to tax you every time you're paid so it's vital you get it right. By the way, if you see a deduction on your payslip you don't fully understand, then ask!

While we can't guarantee refunds for every client, we do find that it's worth talking to an expert to at least get peace of mind that your taxes are in order. This should mean those envelopes with the Harps on them don't cause any panic.

(4) Should I register for VAT?

By Richard Fitzgerald, QFA TMITI

Value Added Tax (VAT) is a minefield for many people when starting a new business and it's something we are asked about by our clients on a regular basis.  Most ask us how they can avoid it!  The purpose of this article is to give a brief overview of VAT, and to explain why it actually may be a good idea for businesses to voluntarily register for VAT. 

What is VAT?
VAT is what's called an "indirect" tax, in that it's not levied directly by Revenue.  It's up to businesses to charge, collect and pass the tax on to Revenue.  This is quite clever since it means we're all really unpaid tax collectors for the government! 
Generally it's the final consumer of the product or service who suffers the VAT, and can't claim a VAT refund from Revenue.  Businesses that are VAT registered can usually claim a VAT credit for VAT they have suffered from other VAT registered businesses (or individuals who are sole traders).  
When the VAT return (Form VAT3) is processed by Revenue, the result is simple; if the VAT on your purchases is greater than the VAT on your sales you are due a refund.  Otherwise you need to pay Revenue the difference.

Why should I voluntarily register for VAT?
There are a few reasons in my opinion but the first simple answer is so that you can claim a credit for the VAT suffered on your purchases.  Bear in mind however that the purchases must be "wholly and exclusively incurred in the furtherance of trade" meaning the item purchased must be a valid business expense.
Every business owner knows cash is king right now, so being able to get a refund from Revenue is a potential boost to any operation. 
Secondly, in my opinion it adds a level of professionalism to show your clients and suppliers that you are VAT registered.  If you offer professional services of any kind I would personally suggest you register for VAT, even if you are under the thresholds.
One final point I should make is that VAT is a high risk tax.  Revenue penalties for VAT fraud or evasion are extremely punitive.  For example from December '08 the fixed penalty for failing to register for VAT is 4,000.  You must also keep proper books and accounts, otherwise additional penalties may apply.

What are the VAT thresholds?
Currently in Ireland you are required to register for VAT if you provide, or believe you will generate turnover from the provision of services to the value of 37,500 in any continuous period of twelve months.  This increases to 75,000 for the sale of products.

Which basis do I register for?
If at least 90% of your turnover is from providing goods or services to unregistered persons or your annual turnover is not likely to exceed 2,000,000 then you may choose to register for the "cash receipts" basis of accounting for VAT.  This would be the preferred basis for start-up businesses in our experience because it means you are only liable for VAT on sales when you actually receive the payment.
The alternative is the "invoice accounting" basis.  This could be a drain on cash flow for a start-up since you would be liable to pay the VAT when the invoice is issued, yet the client may not pay you for several months.
What VAT rate should I charge?
Briefly, there are four main tax rates in Ireland. 
 Exempt examples include certain financial, medical and educational providers.  They don't charge VAT on their sales and are not entitled to claim VAT on their purchases.
 Zero the main example is providers of food and drink.  They actually charge a 0% VAT rate and are entitled to claim VAT on their purchases.
 9% - introduced on 1st July 2011 focuses on the hospitality sector and includes hotel lettings, cinema admission, printed matter and hairdressing.
 13.5% - two examples are building services and photography.  They charge a reduced VAT rate and can claim VAT on their purchases.
 21% - simply put, this rate is applied generally to all goods and services that don't fit into any of the above categories.
There's no straightforward answer to which rate you should charge I'm afraid as it really depends on what products or services you are selling.  Most of us will fall into the 21% category though it is possible to have a mix of rates, depending on what and how you supply the goods or services.

What about VAT returns?
In a nutshell if you're VAT registered you generally need to submit your Form VAT3 return by the 19th day of the month following the end of the VAT period, which are typically two calendar months each.  So, for the VAT period 1 beginning of January to the end of February  - your return must be received by Revenue by the 19th of March if posting it, or by the 23rd of March if filed online using the Revenue Online Service (ROS).
You may be allowed to file a monthly VAT return if you are in a permanent refund position, which of course could be very helpful for cash-flow.  Conversely, you may also file an annual return if you have a low VAT liability.  Traders who opt to pay by Direct Debit may also avail of this facility.

How do I register for VAT?
VAT registration is done using the following forms
 Form TR1 is used to register an individual, partnership, trust or unincorporated body
 Form TR2 is used for registration if trading as a company.
 We would always recommend you seek expert advice when registering for VAT as  mistakes may be costly. 
A good tax adviser will be able to analyse and understand how your business works and should advise you the time to register, the basis and rates to charge most appropriate to your business.

(3) Recently Married?

By Niall Grant, ACA, AITI

Did you get married last year?  If so then congratulations!  You may also be due a tax refund from Revenue.  If you were married last year then Revenue treat you and your spouse as two single people in the year of your marriage, whether you like it or not!

What can you do about it?

Well, we recommend that you have what is termed a "year of marriage review" carried out by Revenue so that they review your taxes for the previous year.  Since you were both treated for tax as two single individuals Revenue will check to see if you suffered any additional tax than you should of as a married couple.

If you paid more tax than you should of then Revenue may issue you with a refund.  If you would like more information or assistance with this to see if you're eligible for a refund then give us a call today on 01 8527784, we'd be happy to help.

(2) Do you Own Shares?

By Bryan Farrell, AITI

Did you know that in Ireland if you make a profit on the sale of an asset (called a Capital Gain) such as stocks and shares the you must currently pay CGT (Capital Gains Tax) at a rate of 33% on your profit.

However, each individual has a personal annual CGT allowance of 1,270 per person. This means you can make a profit on the sale of say IBM or AIB shares of 1,270 each year and not have any tax liability. You must however submit a tax return.

For specific advice and more information call us now on 1850 88 2424.

(1) Medical Expense Refunds

By Richard Fitzgerald, QFA TMITI

Did you know that in Ireland you can actually claim back taxes for up to 4 years? This means that if you have approved medical expenses that are unreimbursed from 2010 to 2013 (4 years prior to the current year 2014) and remember you can claim for qualifying medical expenses paid by you for any individual. The kinds of medical expenses you may claim for include

Non routine dental expenses (such as crowns, braces, root canal etc) - ask your dentist for a signed Form MED2 Prescription medicines (ask your Pharmacist for a statement for each year) - up to 100 per calendar month
Physiotherapy treatment (if referred by your GP)
Treatment in a hospital Doctors or Consultant's fees
Diagnostic treatments such as X-Rays
Speech Therapy for qualifying children

Also remember that the "excess" per family of 250 no longer applies (since 2007) so the full unreimbursed amount may be allowable for a tax refund. You may also claim for medical expenses incurred for any person, not just your immediate family. You do not have to submit receipts to Revenue but spot-checks are becoming more frequent and you must retain your receipts for a period of six years from the date of the expense.

Remember, unlike other tax advisers we never take a cut or percentage from your refund cheque. You get to keep 100% of the amount, no matter how much it is.

The average refund for our clients in 2013 was over 800. If you'd like us to check if you're due a refund call one of our qualified tax advisers today on 01 8527784.


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