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 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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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.

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.

Employers P35 Return

If you’re an accountant, February 14th isn’t all about flowers and chocolates. It’s an important day for Employers because it’s the last day before the deadline (15th February) for the submission and payment of the 2010 P35 Returns to the Revenue Commissioners.

What is a P35?

A P35 Return is the annual summary of all amounts (Income Tax, Employers and Employees PRSI together with the Income Levy) payable by an Employer to the Revenue Commissioners for the 2010 tax year. These are listed by Employee and the total amount on the P35 Return should equal the sum of the P30 Returns submitted during 2010. Any shortfall in the amount paid during the year is to be paid with the P35 Return. The P35 return also gives the Revenue the required information about each individual employee and will correspond with the P60 form, together with the Income Levy Cert that is issued to each employee at this time.

The P35 Return can be submitted in paper format or electronically via ROS. In order to avail of the electronic submission facility, you must be registered with your accountant as a ROS client. Registration is straightforward and can be done very quickly. We recommend electronic submission of the P35 return, and all other Revenue tax forms, as it ensures you beat the deadline and there are no issues with delays in the post etc. A late submission of a P35 Return will automatically result in a fine.

The most common mistake relating to the failure to submit a correct P35 Return is the use of incorrect PPS numbers for Employees. If a PPS number is invalid, the P35 Return will be rejected by ROS so it’s a good idea to check all employees PPS numbers well in advance of the submission date.

As always, if you have any other queries re the submission of your p35 Return, please don’t hesitate to contact the office.

Managing Your VAT to Improve Your Cash Flow

In today’s market where cash is king it’s important to have a greater control over your cash flow and to look at ways to improve it. One way to improve cash flow is to look at your system of recording and paying VAT.

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Income Tax Deadline… What are you waiting for?

October 31st 2010 is the deadline for the self employed, Directors and people declaring other forms of income outside of PAYE, for example, Investment rental properties!

The reason why I’m writing this article is as follows, I have been a practicing accountant for over eight years and every year I am baffled by the amount of people that come to me in a panic on or around the 31st Oct, needing to complete their tax returns from the previous year. Yes, you read correctly, from the previous year!

This means that the 31st Oct 2010 is the deadline for all worldwide incomes to be declared to the Revenue Commissioners for the year ending 31st December 2009. Therefore, you have ten months to get your act together.

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