Our focus is to give you ten last-minute tax tips that could save you some money before the Income-tax deadline.
The idea for this came from a tax meeting I had with a friend, Dash O’Donnell, who has a local business. Dash has a very good accountant but only found out about her large tax bill a few days ago. We will look at
- Stock Number
- Grants
- Medical Expenses
- Pension
- LPT
- Home carer
- Capital Gains Tax
- Preliminary Tax 2022
- Medical insurance
- File on time
Stock Number
Dash sent her draft accounts for the year ended 31 December 2021 to us to have a look at. She has a stock system so can print off a report of her stock cost at that date. My question to her was the value in the accounts the correct value?
Her answer was that she couldn’t use a lot of the stock as it was out of date. She threw some of it out this year. Because of this, the value of some of her stock at the end of last year was nil. An exercise needs to be done to get the correct stock value. Currently, it is €11000. Say the stock value reduces to €9000 her profits will reduce by €2000. At 52% that will be a tax saving of €1040
Grants
In the accounts was a line for other income called “Government Grants” of €22000. There was some uncertainty as to what grants and wage subsidy numbers were in there. If some were grants for restarting, then they are liable to tax if used to pay normal running costs. In 2021 Dash did a revamp of her shop. She spent €14000 of the revamp on specialist lighting, equipment, and new furniture.
Capital allowances of €1750 would be available on the revamp which is €14000 x 12.5%. The tax saving at 52% is €910
Let’s assume that €4000 of the restart grant was for the shop works. The cost of the equipment reduces by the grant amount so the capital allowances number falls to €1250.
| Cost of Equipment for Capital allowances | €14000 |
| Less reduction for grant payment | (€4000) |
| Revised allowable costs | €10000 |
The tax cost of the reduced capital allowances number in 2021 at 52% is €260. But the tax saving of moving income to capital is €2080, being €4000 x 52%. The saving is €1820 (€2080 – €260)
Medical Expenses
“Well Dash have you any medical expenses you can claim, doctors, consultants, prescriptions?” “No, thankfully we are as healthy as horses” Ok great what about any fancy dental work? Well, I got braces done a few years ago. Did you claim that?
And so the conversation went. The cost was €4000, and she didn’t pay it from the business, so wasn’t sure if she could claim it. She can once she gets a form Med 2 from the orthodontist. The tax relief is €800 (€4000 x 20%). She will have a prescription in 2022 so can claim that when doing her 2022 return. The easiest thing is to get a printout from the pharmacy at the end of the year.
You can claim doctors’ and consultants’ fees and other medical costs on the advice of a doctor. But, you can’t claim routine dental and eye care. If you claim costs from your medical insurance provider, you can get tax relief on the amount not paid by them. You put in a claim in 2021 for €3000 to Irish Life. They pay out €1600. The balance of €1400 at 20% is available to claim, provided the expenses qualify.
Big ticket items here are IVF fees which one can claim at 20%. Also, Nursing home and home nursing fees are expensive. Tax relief is available at the higher rate of 40% but you need to be careful and only claim the actual cost to you.
Pension
Like accountants and tax advisors it is a crazy time for your pension advisor. There is always a mad rush now to get a pension contribution in to save tax. While the time is very limited with the tax deadline of the 16th of November looming, you still have time.
Assuming you have an existing pension in place, the aim is to transfer funds to the pension company on or before the 16th. At this stage forget about a cheque and do a direct transfer. Get the bank account details of the pension company from your broker and make the transfer by the 16th. There are three things you need to do
- Funds must be with the pension company on or before the 16th and
- Claim the payment on your tax return
- File your tax return on time
Let’s assume your final tax bill for 2021 is €12000. You make a payment of €10000 to your pension by the 16th and you get tax relief on that at 40%. The tax saving is €4000 so your final tax bill falls to €8000. The preliminary tax requirement for 2022 will be €8000. Outlay before the pension payment is
| Final Tax bill 2021 | €12000 |
| Preliminary Tax 2022 – 100% of 2021 | €12000 |
| Total | €24000 |
The total outlay after the pension payment is
| Final Tax bill 2021 | €8000 |
| Preliminary Tax 2022 – 100% of 2021 | €8000 |
| Pension Payment | €10000 |
| Total | €26000 |
Local Property Tax [LPT]
Just make sure your LPT returns are up to date and all your LPT liabilities are clear. If you get an LPT surcharge on your tax return it is painful and costly. You will waste time sorting out the LPT anyway, plus you will pay on the double as you will have to
- Pay the LPT surcharge on the tax return
- Pay the LPT that you owe on the property
There will be no getting away with this one as the tax law states you must pay both. It can be sorted out online very quickly.
Home carer Credit
This is available to married or civil partners where one spouse is minding a dependent. That spouse or civil partner can have a small income and will get the benefit of either
- an increased lower rate band for that income or
- the home carer credit
Dash’s husband Noel worked part-time for the first two months of 2022 and his income was €3000. He was looking after their two boys Dan and Don. Without the home carer credit Noel would pay tax on this income at 20%. A tax cost of €600. With the credit, he can either get the credit or the lower rate band.
- Tax cost at the higher rate of 40% is €1200 so €600 extra
- Value of the home carer credit for 2021 €1600
The tax saving is €1000. Your accountant or tax advisor will pick this up for you but there is a danger of missing out if you file your own return.
Capital Gains Tax [CGT]
Don’t have FOMO! Don’t miss this as there are a few misconceptions out there. When you sell an asset that is liable to CGT in 2021 you must file a CGT return. That return is part of your Income Tax return for 2021, once you are in the self-assessment system.
One of the misconceptions is that you have paid the tax, so you don’t need to do anymore. If you don’t file a return on time, you will face a 5% surcharge on your tax liability. That surcharge increases to 10% after 2 months of the tax return deadline
To minimise your CGT cost, make sure you claim any
- reliefs you can claim like PPR, 7-year rule and others
- all costs of purchase and sale
- indexation relief if got the asset before 2003
- any losses that you or your spouse/civil partner has
Preliminary Tax 2022
Should you be in a position to do so pay enough preliminary tax for 2022. What is enough? There are three rules but we will focus on two
- Pay 100% of your 2021 liability or
- Pay 90% of your 2022 liability
Most of us advisors will play it safe when we are recommending a preliminary tax payment for 2022. We know what your 2021 liability is and once you pay 100% of that you are good. It makes perfect sense when you know that your 2022 income will be higher.
However, your 2022 income could be lower. Say you sold a rental property and have no rental income in 2022 or reduced income. In this case, it can be more beneficial to pay preliminary tax based on the 90% rule. Or pay none if you have no other income, except salary.
Dash’s final tax bill for 2021 is €22000. Her preliminary tax payment for 2021 was €3000 so her balance is €19000. She is in funds to clear what’s owed for 2021 and pay something small towards 2022. She has €10000 built up in a Revenue Vat account. My suggestion is to put that Vat overpayment towards preliminary tax for 2022.
Revenue won’t give her anything for the overpayment. But they can charge interest of 8% on underpaid tax.
Medical Insurance
You get tax relief where your employer pays medical insurance for you and your family. The maximum tax relief for an adult is €200 and for a child is €100. So, for two adults and three children the most you can get is €700
| Two adults x €200 | €400 |
| Three children x 100 | €300 |
The maximum tax relief is possible once the gross premium is over €1000 per adult and over €500 per child. There are different calculation rules where the employer pays some and you pay some. There is a reduction in the amount you can claim when the policy is in place for part of the year.
When you pay your medical insurance, you get tax relief at source. Say the gross premium is €1300 and the tax relief is €200 to bring the net premium to €1100. You pay the medical insurance provider €1100 so you get the benefit of the tax relief by paying the lower premium.
When the employer pays it, you pay BIK on the gross premium but can then claim the tax relief of €200 through your taxes.
File on time
Like with your CGT return, if you don’t file on time, you will be liable for a surcharge. If we look at Dash and her liability, we will assume she files her return at the end of November.
| Tax liability | €22000 |
| Add a 5% surcharge | €1100 |
| Tax Liability | €23100 |
| Less Preliminary Tax | €19000 |
| Balance to pay | €4100 |
Say Dash didn’t file her 2021 tax return until the 5th of January 2023. Then she is more than 2 months late and her surcharge is now 10% or €2200. The 2 months runs from the 31st of October and not from the 16th of November.
A word of warning to company directors. File your return on time. The surcharge provisions are more penal for company directors that own 15% or more of a company.
Summary
I know this is a bit long-winded and if you got to here, all I can say is well done. These are a sample of 10 last-minute tax tips but there are lots of others too. Some of these came out of my meeting yesterday and others are important to make sure you are not overpaying. It pays to get good advice and have a great relationship with your accountant. You want to know that they are there for you when you need them.
The main outcome of my meeting wasn’t the tax reliefs but the structure of the business going forward. With increasing profits, a company looks a more suitable structure for Dash’s business. Looking at her business there are a few tax planning opportunities not to be missed. A conversation for another day!
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