We will look at some key Income Tax dates and how it will cost you if you miss them.
Let us introduce you to Mick and Dick Moody. They are brothers and farm in partnership together. They love their music and have a wedding band called the Moody Blues. Mick has a very relaxed style when it comes to doing his accounts and hates paperwork. It drives Mary mad, and Dick isn’t best pleased a lot of the time either.
Mick’s, other half is Mary, and they are married for over 20 years but 2022 has been rocky. Mick always said there’s something about Mary. That “something about” ended in September 2022, when Mick moved out of the family home. Mary is a capable lady and runs her own marketing company.
Our main areas of focus will be the Key Income Tax dates for
- Filing your Tax return
- Effect of being late
- Why higher?
- Other Issues
- Lessons
Filing your Tax Return
Those in the self-assessment system must file an Income Tax return Form 11. Mick and Dick Moody are self-employed so have to file a Tax return every year. The Tax return filing date is the 31st of October of the following tax year. So, for 2022, the Moodys have until the 31st of October 2023 to file their tax returns.
Revenue will allow an extension to the 31st of October deadline of about two weeks. This is only for those that pay and file online through ROS. For the 2021 tax year, the extended deadline was the 16th of November 2022.
The 31st of October date is not only important for filing returns but it’s also a key payment date. As in you must
- Pay the balance of tax owing for the previous tax year and
- Pay preliminary tax for the current tax year.
The 31st of October is also a key date for other tax returns and making elections as we will see below.
2023 the deadline is looming
2022 was a great year on the Moody farm as the milk price was super and they were milking 150 cows. They had invested quite a bit in stock during the year. Mick is struggling after separating from Mary and has no interest in the books and Dick is in Australia.
It is now October 2023, and the accounts are not done, despite the best efforts of Reg, their accountant. Mick calls into meet stressed out Reg on the 10th of November 2023 with all the paperwork for 2022. Reg is good, but not a miracle worker, and confirms to Mick that it will be the end of November when the accounts are ready.
They meet in early December to sign off the accounts and tax returns. The Moody partnership had a super 2022 and some of the main numbers were
| Tax Adjusted profit before stock relief | €200000 |
| Capital Allowances | €20000 |
| Opening Stock value | €300000 |
| Closing Stock value | €400000 |
Effect of being Late – Dick
Dick is single and he knows that his tax bill will be serious. He made a pension payment of €20000 in October 2023 so at least that will help with the liability. He is dreading meeting the “grim reaper” as he calls Reg. For him it’s worse than looking at Rip.ie. He never liked a lot of lads that were dying in the first place!
He meets Reg in early December, and they go through the numbers and it’s not good news of course.
Reg presents him with two tax computations. The reason is to highlight the impact of being late
On-time Computation
| Adjusted Profit – 50% share | €100000 |
| Less Capital Allowances | €10000 |
| Less Stock Relief | €12500 |
| Taxable Profit | €77500 |
| Less Pension Payment | €20000 |
| Taxable Income | €57500 |
| Tax Liability after tax credits | €12240 |
| Add PRSI & USC | €6136 |
| Total Tax liability | €18376 |
Late Computation
| Adjusted Profit – 50% share | €100000 |
| Less Capital Allowances | €10000 |
| Less Stock Relief | €0 |
| Taxable Profit | €90000 |
| Less Pension Payment | €0 |
| Taxable Income | €90000 |
| Tax Liability after tax credits | €25240 |
| Add PRSI & USC | €7136 |
| Total Tax liability | €32376 |
| Add 5% surcharge | €1619 |
| Final Tax liability | €33995 |
Being late has resulted in Dick paying an extra €15619 in tax. His tax liability is 85% higher than it should be. Pretty startling numbers and he isn’t a happy man.
Why Higher?
It was 85% higher for Dick because of Pension, Stock relief, and the late filing surcharge.
Pension
Dick is 54 and can put 30% of his earnings into a pension and get tax relief. Based on a taxable profit of 30% of €77500 he could put in €23250. Dick paid €20000 in October and as that was less than €23250, he could claim the amount in full. It is possible to backdate a pension payment made in the current year into the previous tax year. But to do that you have to make sure
- You make the pension payment before the tax return filing date and
- You claim it in your tax return before the tax return filing date
While Dick made the payment before the filing date, he didn’t claim it on time. As a result, Revenue won’t allow a deduction for the payment in his 2022 Income Tax return. He will have to wait and get the tax relief in 2023.
Stock Relief
Stock relief is available to a person who carries on a farming trade. There are different rates for young farmers and those in registered farm partnerships. The usual rate of stock relief is 25%. It applies to the increase in value of the trading stock at the end of the accounting period from the start of that period.
You see from the above numbers that the closing stock value in the Moody’s accounts was €400000. The opening stock number was €30000. Stock relief is 25% of the increase in value which comes to €25000. This reduces the farming profits of the partnership by that amount.
But to get stock relief you must claim it in writing on or before the tax return filing date for the relevant tax year. As they didn’t claim it on time Revenue won’t allow the claim. You claim this on the tax return by completing the correct section in the accounts extracts.
Late filing surcharge
You saw from the “late computation” above that Dick must pay a late filing surcharge of 5%. The surcharge is 5% of the tax liability if the return is less than 2 months late. That surcharge rises to 10% if you are over 2 months late.
If Dick’s Tax return for 2022 wasn’t filed until January 2024, then his final tax liability would be
| Tax liability | €32376 |
| Add surcharge 10% | €3238 |
| Total | €35614 |
Be careful on this date. The two months kick in from the 31st of October and not from the extended deadline in mid-November. You don’t want to be doing Tax returns on New Year’s Eve.
For Mick, the late filing surcharge will be even more penal as Mary is an owner-director of her company. Once she owns more than 15% of the company, she is a “proprietary director”. Surcharges for such directors are higher. The surcharge applies to the tax before deducting any PAYE paid on the salary earned.
Other Issues to watch out for
Those in a partnership must file a partnership tax return called a Form 1 firms. Again, this must be filed on time. Failure to file this on time could lead to Revenue applying a surcharge on partners involved. This is even in the case where the individual partners file their tax returns on time.
For farmers who avail of Income averaging, they must elect to apply this basis of assessment. They must do this within 30 days from the date the assessment issues for the tax year. It would be normal practice to claim this on the tax return so if you did this you would still get it. When everything is a rush to get accounts and taxes done these things can get lost
Local Property Tax [LPT] is a complete bogey when it comes to filing tax returns. We insist on our clients completing an Income Tax checklist to see if all their LPT obligations are up to date. In most cases they are, but in rare cases, the client thinks they are, but they are not. Not having LPT up to date can result in a 10% surcharge. This is a double whammy for taxpayers in that they will have to pay the surcharge and pay the LPT liability anyway.
Lessons to Learn
Being late has been costly for Dick. €15000 costly and it would likely be more for Mick. Let’s assume they have to come up with an extra €30000 in tax. And what if they don’t have the funds to pay it? Then they will either have to borrow it or enter into a phased payment arrangement with Revenue. Both options will incur interest, so the impact is getting even more expensive.
The adage of “fail to prepare then prepare to fail” rings very true here. They could change how they do things and look at
- Trading through a limited company
- Cloud Accounting
Limited Company
As they are investing to grow the business trading through a limited company is an option. Profits would be taxable at 12.5% with Mick and Dick taking a salary from the company for living expenses. This should leave more money in the company for further expansion in stock, machinery, or land.
Cloud Accounting
Leave their accountant look after their bookkeeping. Get set up with Xero so their accountant can import bank statements and send all invoices to Dext. They can get their accounts done during the year so the final accounts will be easier to put together. This can work very well once you have buy in from the business owner. It is a game changer and will save money over the long term.
Getting things done early has a value and leads to good business practice. Being late costs you time and that can lead to you suffering from the Moody Blues.
Pay no more than you have to and get your tax returns filed on time, every time. To find out more, Start here
