Income Tax and Investment Property – Why Place it on the Long Finger?

The phone call

One lunch time while sitting down to have a well deserved cup of freshly ground coffee, my phone rang. I answered it and I started a conversation with a young man who was obliviously uncomfortable with the whole idea of dealing with a tax advisor. Let’s call him ‘M’!

M had come to me as a referral from existing income tax client. He owned an investment property and didn’t know how to deal with the tax situation. He searched on the internet and visited all the chat rooms and got a list of different answers as long as his arm. The pinnacle came when a colleague from work, some years older than himself heard about his situation and informed him that, “he’d have to pay a bucket load of tax…” Of course, this response led him to a number of sleepless nights until a friend (my client) gave him my number and told him to go and have a chat with me.

The above is a classic situation of numerous phone calls that I receive. Where people have worried themselves and missed numerous hours of sleep worrying about a situation that can be rectified (almost!) by a phone call to a friendly tax advisor or accountant. The hardest thing is making that call!

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Business Formation Part 3 – Limited Company

We are now at the final part of the 3 Part series covering the main options open to anyone wishing to start a business. This option is to form a Limited Company.

There are number of types of limited company but the most common one is a company limited by shares. If the company is a limited liability company, the shareholders’ liability should the company fail is limited to the amount, if any remaining unpaid on the shares held by them. A company also requires 2 Directors and a Company Secretary although one of the directors can undertake the secretarial role. Many start-ups are slightly apprehensive about the procedure involved in forming a company but we can remove this worry by doing everything for you. The process usually takes a week from start to finish. We can also complete the required registration for taxes that all companies must carry out before they start to trade.

The main advantage of a limited company is that it is a separate legal entity from the individual directors. In other words, the company is distinct from the directors and the shareholders. It may be more suitable for certain types of business than others. On the flip side the administration costs are higher as an annual return must be made to the Companies Registration office and there are also Corporation Tax filing obligations. We would advise that you speak to a professional adviser such as ourselves to ensure that you can make the best decision for your business.

This concludes the 3 part series on the options available to anyone looking to set up a business. We hope you found them useful and should you have any questions, please do not hesitate to contact Robert or Ciarán at our office in the centre of Dublin.

Business Formation 2 – Partnerships

In Part I we looked at the option of starting up a business as a Sole Trader. In this second of three articles we now look at Partnerships and whether this may be the most attractive form of Self-Employment for Start-up businesses.

A Partnership is formed when two or more people join together to engage in an economic enterprise. It can be seen as a number of Sole Traders joining together to start a business. It is usually defined by a partnership agreement that sets out such items as the number of partners, the percentage of the partnership owned by each person and various other rules by which the partners should abide. We would recommend that you find a solicitor who can draw up a Partnership Agreement for you as it is a very important document. It should be stressed that a Partnership is NOT a Limited Company and each partner is jointly and severally liable for the debts of the Partnership. In other words, if a partner accumulates debts on behalf of the partnership and is unable to repay them, then all other partners are liable for these debts.

The main advantage of a Partnership is that it removes the fear of “going it alone” that worries many would be entrepreneurs. For example, if you are a mechanic and would like to set up in conjunction with a friend/ former work colleague, Partnership could be a structure to allow you to start up a business together. You would register the partnership with both the CRO and the Revenue (using a TR1 form, similar to a Sole Trader) The administration costs are lower than for a Limited Company and there are less regulatory requirements. However these lower costs need to be balanced against the greater risk to which a partner will be exposed. We would advise that you speak to a professional adviser to ensure that you understand both sides of the debate and can make an informed decision.

In Part III we will look at the final option available to business start-ups, the formation of a Limited Company. In the meantime if you have any questions, please don’t hesitate to contact the office.

Business Formation Part 1 – Sole Traders

Contrary to what many people might think, there are still significant numbers of people setting up new business ventures. For example, in the week ending March 30th, CRO statistics show that 335 Limited Companies were formed and 254 Business Names were registered. Whilst this is much less than was the case in, say 2007, it nonetheless indicates that there are many people out there who are either making the leap to self-employment or that there are self-employed people setting up new ventures.

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Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010

On the 1st February 2011 the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 came into law.

Seven days later on the 7th February two men became the first couple under Irish law to be registered as civil partners.

So, where does this leave the happy couple from a tax point of view?

At present, nothing has changed and at the time of writing, they will still be treated as single persons and possess single tax allowances and credits. The change legislation has been drafted however, but the tax changes have been deferred until the formation of the new government, which, as it happens, is today! So as we listen from our new offices on Nassau Street to the chanting of the Social Party marching with their new members to the Dáil, we await the passing of this long awaited bill to give equal rights to all. It’s not perfect but it’s a big step in the right direction.

We are eagerly awaiting more information on the changes from the Departments of Finance and as soon as they are available we will pass them on. If you, the reader needs to speak with us in person, we would be delighted to sit down and talk you and your partner through it.

Go n-eírí an bother libh le chéile.

 

2010 Self Assessment Income Tax

If you are Self Employed, you may have noticed recently that there has been some debate as to whether the October 31st deadline for the submission of 2010 Self Assessment Income Tax Returns (Form 11, Form 11E and Form 12) should be brought forward to September 30th 2011.

In the end the idea was scrapped, but not before it had worried a lot of people. Whilst it would have been good news for accountants and tax advisers such as ourselves who haven’t enjoyed a break during the October Bank Holiday weekend since God knows when, it would have been bad news for everyone else as they would have had a month less to get their 2010 Self Assessment Tax Returns completed and submitted to the Revenue Commissioners! They would also have a month less to find the money required to pay this bill. Hence, the proposal caused much worry before it was eventually shelved.

As the old saying goes, “Forewarned is Forearmed”. By having your 2010 Self Assessment tax Return completed earlier this year, you will ensure that you meet the revised deadline and thus avoid any penalties for the late submission of returns. From a cash flow perspective it will also allow you to budget for the amount you will be required to pay. For example, if you have your return completed now and find that you will be required to pay €4,000 to the Revenue Commissioners in October 2011, you can put away €500 per month for the 8 months between March and October inclusive and avoid the last minute scramble that most Self Assessment taxpayers are familiar with to find the money required to pay their tax bill.

If you would like to stay in control of your personal tax requirements, please don’t hesitate to contact the office to discuss your 2010 Self Assessment Income Tax Returns (Form 11, Form 11E and Form 12). We offer a professional, friendly reliable service and all staff are fully qualified accountants. We do not employ any unqualified or part-qualified accountants so you can be confident that the person who produces your Income Tax Return is fully qualified to do so. Our fee structure is fully transparent and agreed upfront with each individual client so there will be no surprises. By taking this approach, we believe that we can generate long term relationships with our clients and that they will not hesitate to refer new clients to us.

VAT 3 Returns

All VAT Registered persons, whether they are Sole traders, Partnerships or Limited Companies and who are required to submit a VAT Return for the period 1st January 2011 to February 28th 2011 (VAT 3 Form) have until March 19th to submit this return.

This VAT Return details the VAT charged on their Sales (Output VAT) and the VAT paid on their Purchases (Input VAT). They are also required to disclose the amount of Sales of Goods to other EU countries, together with Purchases from Other EU countries.

By subtracting the Input VAT from the Input VAT, the amount of VAT to be paid/ refunded is calculated. This payment must be made by March 19th. In the event of a repayment, there is an option to have the amount refunded to your bank account or to have it offset against other Tax Liabilities, e.g. Employers Returns (P30).

Depending on a taxpayers circumstances this is often a good idea as by leaving money ‘on account’, it will reduce future liabilities. For example, if you are an Employer and you often struggle to make your P30 payment it may be a good idea to request the Revenue Commissioners allocate a VAT refund to your future PREM liability.

If you have any queries, please don’t hesitate to contact the office and we will be happy to advise you. All our staff are fully qualified accountants as we don’t employ trainees. This ensures that the quality of our advice is second to none.

Payroll for Employers

If you are one of the many people who had problems with your payroll in 2010 and wrestled with the calculation and submission of your 2010 P35, the good news is that the start of the Tax Year is the time to ensure that these problems do not reoccur in 2011. By putting a proper system in place at the start of the Tax Year, you will ensure that you avoid any of the problems associated with payroll as the year progresses. If on the other hand, you wish to enrage even the most timid of Employees you should make some mistakes in the calculation of their payslip. This is a sure-fire way to cause friction with your Employees. An Employee who thinks that he/she is being ‘done’ on their salary will not be a happy and productive part of your team.

The good news is that there are 2 possible solutions that we would recommend to this problem:

  1. Purchase some Payroll Software and learn how to use it properly. If you contact the office, we will be glad to recommend our preferred product. It is not expensive and does everything you will require from a payroll system. We also recommend that you take a training course in using the Payroll Software, regardless of which product you purchase. If you are new to payroll and purchase software without taking a training course, you may as well buy a printer and refuse to buy ink for it. It won’t work properly and will lead to both problems and frustration.
  2. Outsource your Payroll Services: As accountants, we believe that self-employed people should focus their energies on what they do best and find others to provide whatever other skills are required to run their business efficiently. At Robert King & Co we can offer a professional, cost-efficient payroll service to all Employers, regardless of size. We deal with all aspects of payroll from the calculation of payments to employees and the issue of payslips, to the submission of all Employers filing obligations with the Revenue Commissioners. Payslips can be issued in paper or in electronic format. We will also deal with the documentation of Employees who join or leave during the year. For a quotation, please don’t hesitate to contact the office.

Regardless of which option you choose, we cannot emphasise strongly enough the importance of using a proper system for your payroll. It will also ensure that your submissions to the Revenue are correct and will satisfy the requirements of any checks or audits you may be subjected to. Payroll is an essential component of the financial management of your business and without a great investment of time or money, it can run smoothly and without any headaches. Businesses have enough to worry about at the moment without adding to the list.

P60 and Income Levy Certificates

When an Employer finalises their 2010 P35 for submission to the Revenue Commissioners, they should also issue the 2010 P60 and Income Levy Cert to each employee who was on the payroll at year end. There is a legal obligation to issue both a P60 and an Income levy Cert to every Employee and these documents should be issued as soon as the P35 is completed. If you are using Payroll Software, a P60 and Income Levy Cert should automatically be generated as part of the Year End process.

A P60 shows the Gross Salary earned by each employee during 2010 and the amount of PAYE & Employees PRSI deducted, together with the class/ classes of PRSI paid by the Employee during the year. Total PRSI paid during the year is also shown and by deducting the Employees PRSI from this we get the amount of Employers PRSI paid during the year.

Any employees who were on the payroll at the start of 2010 but have left during the year will have received a P45 on leaving and will not receive a P60. For Employees who joined the payroll during 2010, their P60 should contain the total Gross Salary and Deductions for all employments during 2010, provided that the details of their previous employment were properly entered on the payroll system when they were added to your payroll. If you are unsure about this, you should check with your accountant.

Employers Year End Return (P35)

By now (January 25th 2011), Employers should have submitted their final P30 for 2010 to the Revenue Commissioners. This P30 was due to be received by the Revenue Commissioners no later than January 15th. Whilst some employers file Monthly P30s and some avail of certain exemptions that entitle them to the Quarterly P30 filing option, both groups were due to file their final P30 for 2010 in January 2011. Having filed these final P30s for 2010, the final Employers return that is required for 2010 is the 2010 P35 which must be received by the Revenue Commissioners on or before February 15th. Failure to file a P35 by the deadline will incur a penalty. This P35 Return is a summary of the entire payroll for the Employer for 2010 and is broken down by Employee to show:

  • Gross Salaries paid
  • PAYE deducted
  • Employees PRSI deducted
  • Any other deductions made from payroll, e.g. PRSAs
  • The PRSI Class(es) paid by each Employee during the year (commonly referred to as the ‘Stamp’)

The P35 Return also calculates the overall amount payable by an Employer to the Revenue Commissioners for 2010.  In theory, this should equal the amounts paid with the individual P30s that were submitted during 2010. If there is a shortfall, this payment must be submitted along with the 2010 P35 Return. This facility gives the Employer the opportunity to correct any errors that may have been made during the year. If you are using Payroll Software, the P35 will be automatically created for you as part of the Year End run. The most common errors in generating a P35 Return are incorrect or missing PPS numbers.

As mentioned earlier, there are penalties for those Employers who do not file their P35 by February 15th so you should ensure you do not miss this filing deadline. It is also worth noting that if there are any changes to the 2010 Payroll after the P35 has been paid, e.g. the payment of a Bonus, it is possible to file a revised P35 Return. This is known as a Supplementary P35.