In light of recent tax reductions, your 2023 Form 11 tax return, as well as your preliminary tax for 2024 should be lower than before, bringing a bit of welcome relief. Every year at this time, you’ll often find self-employed individuals, landlords and their accountants frantically gathering necessary documentation to decrease their tax obligations. Although this preparation could have started much earlier, many tend to postpone it to the last moment.
Alan Purcell from the accountancy company, CloudAccounts, advises acknowledging what you owe in February and establishing a plan in response to commonly observed reluctance. From his experience, many don’t consider it or organise a payment plan ahead of time. In fact, some only get in touch on October 30th and 31st each year.
Brendan Allen, a tax consultant based in Carlow mentions that this year’s tax return process is familiar, but raises concern about the number of queries individuals are expected to answer. He highlights that Form 11 now comprises over 900 questions throughout 74 pages. However unpleasant, completing it and settling the payment is a requisite. Brendan recommends compliance as he believes that sticking to the rules is substantially cheaper.
Bear in mind that your 2024 preliminary tax is also due. It can be determined using either 90% of this year’s tax, 100% of last year’s tax or 105% of the tax two years back. Alan mentions that this preliminary tax often confuses people. Some may end up paying larger amounts based on their previous year’s tax, leading to significant discrepancies in amounts. His general advice is to stick with 100% of this year’s tax unless there is a dramatic change in income.
The deadline for filing online is Thursday, November 14th, whereas paper filings have to be in by October 31st. Be mindful of the consequences of missing these deadlines. File your returns and avoid penalties.
If you are an individual working under the PAYE scheme who earned in excess of €5,000 from non-PAYE income streams (or a gross of €30,000), a Form 11 will need to be filed. For those not meeting this criteria, a Form 12 should suffice and it’s also applicable to PAYE workers who wish to claim allowances such as the rent tax credit or expenses related to health.
On the other hand, proprietary directors are required to complete a Form 11 regardless of their earnings.
A sizable improvement referenced by Purcell is the automatic inclusion of personal tax/earned income credits for those that qualify. This decreases the likelihood of people overlooking this beneficial credit.
Revenue also requests filers to acknowledge whether their business income is inclusive or exclusive of VAT. Intentionally engineered to align with the Revenue’s increased intervention on individuals crossing the VAT threshold without formal registration, this should remind those impacted to register for VAT.
Remember, starting from the 1st of January 2025, following the recent budget, the VAT registration limit for services will elevate to €42,500. However, this is not applicable for your 2023 tax return.
Allen asserts, “Incorrect VAT can jeopardise your business, therefore, the more individuals that remain outside of the VAT realm, the better.”
Taxpayers must recall the 2023 Budget announced in October 2022 when submitting their 2023 tax return. The brighter news is a reduction in the tax load during that period.
The tax band for regular rate increased by €3,200 reaching €40,000 (or €49,000 for couples), making it possible for taxpayers to enjoy the lower 20% tax rate on a larger portion of their income.
Additionally, the upper limit for the 2% USC band had a rise of €1,625 leading to €22,920.
The assortment of tax credits has been elevated, inclusive of the remuneration income tax credit that pertains to individuals incapable of claiming the PAYE credit. The rise included the remuneration income tax credit being augmented by €75 to a new total of €1,775. In addition, the Domestic Caregiver’s tax credit had an increase of €100, equating to €1,700 in total.
Rent-paying independent workers now have the eligibility to claim the rent credit which presently stands at a rate of €500 per year. Notably, in 2024, due to the budget planned for 2025, this figure shall be amplified to €1,000 for preliminary tax considerations.
Individuals earning offshore interest are reminded to disclose it. Purcell has observed several instances of Revenue interventions with individuals possessing accounts like De Giro or Trading 212, which are based abroad.
As for landlords, to jog your memory, the previous fiscal year’s budget implemented a fresh relief for them which is valid from 2024 to 2027. Regrettably, as tax returns for 2023 are currently being filed, landlords are unable to exploit this benefit for this year’s return. However, Allen highlights that it can be employed to reduce the current year’s preliminary tax, 2024, which is also expected in this year’s return along.
What precisely is this new Rental Income Relief for Residential Premises?
Primarily, a stipulation exists: for you to take advantage of the relief, your property will be required to maintain its rented status for a period of four years following your initial claim. Therefore, if you were to claim this relief in 2024, for instance, and proceed to sell the property in the following year, the benefit will be retracted. Moreover, if the property’s usage alters – such as transforming it into a holiday rental – this could also result in its retraction.
You must also comply with the local property tax regulations, as well as being registered with the Residential Tenancies Board or having an agreement with a local authority. Please note that you can’t claim this relief when renting the property to immediate members of your family or relatives, despite them paying rent.
The proposed tax relief, offsettable against a £3,000 rental income at the standard 20% rate in 2024, would enable landlords to reduce their tax bill by £600 in that year. As an incentive for landlords to remain in the market, this tax relief will be increased to £4,000 in 2025 resulting in a £800 saving, and to £5,000 in 2026 and 2027, offering a relief of £1,000. Consequently, a landlord could anticipate saving £3,400 over the four-year period.
Note that this relief can only be claimed once, irrespective of the number of properties owned.
However, Allen contends that the relief is sub-par and somewhat skewed. He notes that the recently increased rental credit of £1,000 for renters outstrips what landlords stand to benefit. Allen insists that the modest £600 tax credit is unlikely to be the deciding factor for those contemplating entering, or staying in, the rental market.
According to him, the exodus of landlords from the market overweighs newcomers. As a solution, he suggests treating rental income on equitably with other business incomes so landlords can offset more expenses against their tax liability and can also claim other benefits such as entrepreneurial or retirement relief. Allen lauds the extension till 2027 that allow pre-renting costs up to £10,000 to be deductible, especially for inherited, but possibly rundown, properties. He remarks that this allowance is “extremely beneficial” in enabling such homes to enter the rental market.