The past couple of years have been a very hectic time for taxpayers and their accountants/tax advisors with changes to the basis of personal taxation, and the relevant rates and credits, coming thick and fast. For those who pay all or most of their personal tax liabilities through their income tax return, these continuous changes to the tax code have generated many nasty surprises at tax return time.
During tax season 2011, the changes we saw really impacting our clients were:
- High earner’s restriction (probably more correctly called the ‘middle earner’s restriction’ at this stage) in respect of the use of specific tax property reliefs, e.g. accelerated allowances, Section 23 type reliefs, and
- The imposition of the Universal Social Charge (USC) when calculating preliminary tax for 2011
The increased tax, levies and PRSI/USC liabilities generated by these two changes were, for many, completely unexpected and caused much stress and hardship in October and November of last year. For me, this really focussed the mind on that age-old question – why do so many taxpayers leave their tax return to the very last minute ?
The benefits of preparing and filing an early return (and by ‘early,’ I don’t mean the first week in October, as opposed to the last !) are obvious, but worth repeating:
- Firstly, and most importantly, filing an early return does not mean paying your liability early. Assuming your preliminary tax obligations for the year have been met, it is entirely possible to file in March and pay in October.
- Preparing your tax computations early in the year gives you an opportunity to, either plan your cashflow to pay the liability (avoiding those nasty surprises) or, if you are in a refund situation, to secure that refund straight away.
- Giving your tax computations your attention soon after year-end also makes it easier to gather the necessary documentation and use it immediately (as opposed to ‘putting it away somewhere safe’ and then losing it) and also to recall details, which may be extremely difficult to remember 10 months later.
- Reviewing your 2011 tax computations early in 2012 may give you the opportunity to plan your tax liabilities for 2012 in a more efficient way. For example, you may decide that it makes financial and tax sense to make a personal pension contribution but if you realise that in October, will you have the cashflow to do it then? Wouldn’t it have been better to have been paying into the pension fund on a monthly basis throughout 2012 ?
Budget 2012 (announced in December last) did not introduce any changes to income tax rates, credits or bands. However, there have been further changes to the use of tax property reliefs, e.g. Section 23, accelerated allowances schemes and a new property relief surcharge of 5%. On the upside, the increased exemption limit in respect of the USC will be welcome news for some, as will increased mortgage interest relief in certain circumstances.
Given the reality for many of unsteady profits and cashflow, it makes sense to be as prepared as possible. So, why not prepare an early tax return and plan your tax !
Kerri O’Connell, AITI Chartered Tax Adviser
3 February 2012
These comments are subject to Finance Bill 2012, which will be published on 8 February 2012.
The opinions set out above are personal to the writer.