First time to file a tax return?
IF IT IS your first year or two in business, chances are you will be fairly new to the self assessment tax return system. Local TaxAssist Accountants note what you need to know to ensure you get to grips with your obligations and on time?
Make sure you are registered for tax
Roy Finucane explains more.
“Lots of people believe they can wait until the Revenue Commissioners contact them before they have to file a tax return. This is not correct. It is your obligation to notify revenue and to file a tax return for any year in which you are a sole trader. You are liable for tax from the day you start trading however the way the self assessment system works means you do not file and pay your tax until October of the year after you start trading.
“In fact, new businesses can avail of an even longer grace period in which to file and pay their taxes without incurring penalties. So if for example you started a business in 2011 you have until October 2013 to file your return and pay your tax liability. It isn’t always advisable to avail of this delay however as you may find yourself with a sizeable bill covering a large period of time. Filing early should ease your cashflow and your peace of mind!
What you will need in order to file
“You will need to keep records of all transactions in and out of the business since you started trading. It may seem like a big job to get all this information together but as a starting point you will need the following:
• All sales invoices for the period
• All purchases invoices for the period
• Business bank statements and business credit card statements
What if I miss the deadline?
“If you miss the deadline you may be subject to a surcharge. A surcharge of 5% of the tax applies where the return is late but filed within two months of the deadline. This increases to 10% where the return is filed more that two months late. The surcharge is calculated on the tax charge before taking account of any payments on account.
There is a relief for you first years tax return where no surcharge will apply provided it is filed within twelve months of the filing deadline. So if you started business in 2010 you will avoid the surcharge if you file your income tax return by the 31st October 2012.
If you do not file a tax return you may also be prosecuted by Revenue’s enforcement section.
Common mistakes
Not claiming some relief for working at home
If you carry out some of your business from your home you may be entitled to claim for a portion of the home expenses you incur. However, it is important that this is reasonable to the amount of work carried out at your house.
Including the gross sales price
If you are a VAT registered business only the net sales price is included in the accounts. Likewise a VAT registered business can reclaim VAT on purchases so the expenses included in the accounts should also be net of VAT.
Not claiming for travelling expenses
You cannot claim for the cost of travelling to your normal place of business or for your lunch expenses. However, if you have to travel away from your normal place of business you can claim a deduction for the expenses incurred. It is important to keep receipts to back up these expenses.
Not offsetting losses in against other income
If you incur a loss in your business this loss can be set against other income you have or income of your spouse. This is a valuable relief and can result in you receiving an income tax refund. However, this is an optional relief so you will not be given this automatically. You must make a claim to receive it.
Not splitting income with spouse
In many situations both the husband and wife work in the business together but all the income is allocated to one spouse. This can mean that they are losing out on the increased bands that are available to married couples.
Not claiming capital allowances for machinery bought
If you buy machinery for your business or a motor vehicle you can claim tax relief on this cost. The tax relief is spread out over 8 years. So if you buy a van for €16,000 you can claim a tax deduction of €2,000 per year for the next 8 years. If you buy certain energy-efficient equipment you can claim a full tax deduction in year 1. A full list of the qualifying energy-efficient equipment is available on the SEAI website – www.seai.ie
Roy Finucane, is an accountant at TaxAssist Accountants on Roches Street, Limerick.
