The fiscal year end in the Republic of Ireland has been 31 December for a number of years now. That means that individuals’ income tax returns are based on a year to 31 December. Companies and businesses (including sole trades and partnerships) may have their own accounting year end, although in most cases these are also 31 December.
A number of tax mitigation techniques can be used when coming up to an accounting year end or a tax year end. We set out some of the main ideas here.
You may have some control over your level of taxable income in a year (for instance where you can decide appropriate salary or dividends paid to you by a company under your control). In such cases you should ensure that both you and your spouse (and perhaps also your children), where appropriate, are availing of the fullest extent of the 20% income tax rate band (€33,800 for 2017 and €34,550 for 2018 for single individuals).
If you are due a refund for 2013 – for instance due to unclaimed medical expenses, pension contributions or college fees or due to overpaid PAYE on receipt of a termination payment – then the deadline for making an income tax refund claim is 31 December 2017. The deadline for 2014 refunds is 31 December 2018.
If you have personal trading losses, you may be able to offset them against other sources of income for tax purposes. A claim to offset 2015 losses must be made by the end of 2017. The deadline for 2016 losses is 31 December 2018.
Tax based investments – such as EIIS investments – should be made and certified as appropriate prior to the year end in order to avail of income tax relief for the year.
Capital Acquisitions Tax
The small gift exemption – whereby up to €3,000 can be paid to any number of beneficiaries with no CAT arising on the payment – is a useful tool as part of an overall succession planning strategy. When spouses, children and grandchildren are included as part of these smart gifting arrangements – combined with utilising the maximum relief every year – significant sums can be passed on to loved ones over a period of time. Coming up to 31 December, plan to make such gifts both before and after the year end.
Capital Gains Tax
If a transaction resulting in a large capital gain is going to occur, give some consideration to deferring it to a new tax year or accounting period.
Where you have realised chargeable gains in a tax period, consider crystallising transactions which trigger a capital gains tax loss or make nominal value claims. In order to be useful, these transactions should take place within the relevant tax year.
Business Year End Strategies
You should always ensure that you arrange your business’ affairs at the accounting year end to defer income and accelerate allowable deductions to as great an extent as possible – where income can be reasonably put back to the new year, you should consider doing so; accelerate planned expenses such as repairs, pension payments, bonus payments and the acquisition of capital items that carry with them capital allowances (especially energy efficient machines that carry 100% capital allowances in year one). Gift vouchers up to a value €500 can be paid to employees once a year tax efficiently.
Some specific items are worth keeping in mind when looking at year end strategies:
- Your 31 December 2013 corporation tax return should be long submitted by now. In any event, if your company is entitled to a corporation tax refund for 2013, Revenue will refuse it if the claim is not made by 31 December 2017. 31 December 2018 is the deadline for refunds for the year ended 31 December 2014.
- Generous R&D credits must be claimed within 12 months of the year end and this is strictly imposed.
- There is a two year deadline for offsetting trading losses against other income.
- Ensure that any dividends which are required to be paid to avoid a close company surcharge are paid within 18 months of the company’s year end.
- If loans are made by a company to its participators and the loan is in place at the year end, a tax charge arises. Give consideration to having such loans paid off in advance of the year end – there may be strategies which allow for relatively easy ways to achieve this outcome.
The strategies outlined above are some general, practical ideas to save tax or defer tax when a year end is looming. Hopefully they also illustrate the significant benefits that arise from thinking about your overall tax strategy and simply sitting down with your tax advisor to discuss your tax strategy. We at Baker Tilly Hughes Blake are always happy to have that conversation with you. The ideas above are, of course, guidelines only, and specific advice should be sought in each case.