PERSONAL FINANCE:You don't have to hear those ominous-sounding radio ads to know that the tax deadline is fast approaching - paying online gives you a breather but it's time to get organised
'WOULD YOU LOOK at those morons, I paid my taxes over a year ago!" The Trouble with Trillionsepisode of The Simpsonsopens with a smug Homer enjoying a news bulletin showing swarms of people scrambling to post their tax returns at the last minute. Homer's schadenfreudeis short-lived, however, as Lisa reminds him that paying taxes is an annual chore. In a panic to meet the deadline, he cuts a few corners – "Marge! How many kids do we have? Oh, no time to count, I'll just estimate! Uh . . . nine!" – only to be found out when his tax return bounces into the IRS's "severe audit" bin.
This cautionary, albeit fictional, tale of falling foul of the tax authorities contains a key message for anyone obliged to file an income tax return (ie, the self-employed and certain PAYE employees with additional income): don’t leave your taxes until the 11th hour.
The “pay and file” deadline of October 31st is fast approaching, and self-assessed individuals have three tasks to complete by this date in order to avoid possible interest and surcharges: file their 2009 income tax return, pay any balance of income tax due for 2009 and pay their preliminary income tax for 2010.
However if you are willing to embrace technology, Revenue will grant you a little extra breathing space – the deadline is extended to November 16th for those who pay and file electronically through the Revenue Online Service (ROS). This is a hugely popular option, with more than three-quarters of all self-assessed individuals availing of it each year.
The case for ditching pen and paper in favour of electronic filing is compelling: not only is the deadline extended, but your return will be processed more quickly, the likelihood of clerical errors is greatly reduced and, perhaps most importantly, ROS will calculate your income tax, income levy, health levy and PRSI bill (once you’ve entered all the necessary information).
“ROS calculates that accurately so you know precisely what amount you need to pay [including] any balance that might be underpaid from the previous year,” says Eugene Lucey, a principal officer in Revenue’s planning division.
Don’t be lulled into a false sense of security by the extended deadline though – procrastinating is even more risky if you’re going down the online route. While it might be just about possible to wrestle a hard copy of a Form 11 return into submission at the last minute, ROS isn’t so forgiving. It takes at least eight working days for the three-stage ROS registration process to be completed, as the passwords that enable you to retrieve your digital certificate must be sent out by post for security reasons.
If, like Pricewatch, you registered for ROS in a previous year but recently switched to a new computer, then you will probably have to go through the registration process all over again because your digital certificate is linked to your computer.
Also bear in mind that you will need to have one of the newer versions of Java software installed on your computer in order to retrieve your digital certificate.
“Also digital certificates have a shelf life; if yours has expired a message should appear on ROS and you will need to log in to renew your cert,” advises Andrew Cullen, president of the Irish Taxation Institute. Technophobes needn’t panic: the staff manning the ROS helpdesk (1890 201 106) will talk you through any difficulties you may have.
It’s vital to remember that the extended deadline only applies if you file and pay your tax online. If only one of these actions is completed through ROS, the extension will not apply.
Paying electronically requires a little forward planning. If you choose to settle your tax bill by means of a Revenue Debit Instruction (RDI), you must complete an RDI form online, and then sign and submit it to ROS using your digital certificate. Revenue advises that this should be done in advance of the payment date. An alternative is to pay by laser card, but make sure to contact your card issuer in advance as a daily transaction limit of, say, €1,500, sometimes applies, which could cause problems.
If you have engaged an accountant or tax consultant to do your taxes, make sure you’ve provided them with a letter of authorisation allowing them to act on your behalf, or else they won’t be able to link in with your records on ROS.
Of course with money tight, many people are considering doing their own taxes this year. About two-thirds of income tax filers use the services of an agent, but almost one-third do not. Joining the DIY ranks could save you hundreds or, in some cases, thousands in annual fees, but is it a false economy?
The biggest risk is that you complete your return incorrectly and underpay tax, because then you are leaving yourself open to the possibility of penalties, interest etc, and pleading ignorance doesn’t wash with Revenue. Therefore if your tax situation is complex, it’s best to engage a qualified tax expert.
If, on the other hand, your situation is straightforward, and varies little from year to year, completing your own return should be feasible enough. However if you’re carrying on a trade or profession, there are a few tricky issues you’ll have to get to grips with, for example, what expenses are deductible for tax purposes, what capital allowances you’re entitled to, and how to calculate your profit, so be prepared to put in some effort.
In recent years a third option, falling somewhere between going solo and engaging a tax consultant, has sprung up, with websites such as paylesstax.ie offering relatively cheap online tax return completion services. Paylesstax.ie offers various price plans, the most expensive of which is €239.
As part of this “check and file” package, your figures and tax form will be checked by a tax consultant and filed with Revenue on your behalf.
A sensible approach might be to engage a tax consultant for a year, then examine their calculations and look at how they completed your return. If you feel confident that you understand their approach, and your circumstances don’t change drastically in the meantime, then try it yourself the following year, and if you need some reassurance, avail of a “check and file” type service for the first year.
Whatever you decide, start organising the information needed to complete your tax return as soon as possible, as this is the most time-consuming part of the whole process. And remember, you don’t have to be as annoyingly perfect as Homer’s neighbour Ned Flanders, who files his return on the first day of the year; just don’t leave it until 11pm on November 16th.
If you can't pay your income tax bill, what should you do?
1Pay any balance of income tax due for 2009 as a priority – once the pay and file date passes, any unpaid income tax for 2009 becomes a debt for collection on Revenue's system. Revenue can act quickly to collect the debt so it is important to clear the balance as far as possible.
2If you cannot clear the 2009 debt in full, contact Revenue's Collector General office to see if you can pay by instalments. However, remember that this is not the soft option, as interest will be charged for late payment at 8 per cent per annum.
3If you cannot pay your preliminary tax for 2010 in full by the deadline you should pay as much as you can, as soon as you can. Your preliminary tax payment can be the lesser of 90 per cent of your 2010 tax liability, 100 per cent of the 2009 liability, or 105 per cent of the 2008 liability (where you pay by direct debit). If business conditions have deteriorated significantly since the beginning of 2010, you may consider basing your preliminary tax payment on 2010 calculations. Clearing the debt as quickly as you can minimises your exposure to interest.
4Even if you can't pay, make sure you file a tax return. Revenue has sophisticated computer systems that can identify when someone who is obliged to file has failed to do so. A surcharge of up to 10 per cent can be charged on late returns and if you don't file at all you can be fined and ultimately prosecuted.
