Do you need to file a tax return?

Once again the October income tax deadline is looming.  Income tax returns for 2020 income will need to be filed with Revenue by the 31st of October 2021.  This can be extended to mid November 2021 for those using Revenue’s online system.  The individual is responsible for firstly identifying it they need to make a return, and secondly actually making it.

So how do you know if you need to file an income tax return?  The short answer is you do, if you were in receipt of self-employment income, and you were trading or commenced trading during or prior to 2020.  If you commenced trading during 2021 then you will not need to get your first return in until October 2022.

It’s not just self-employed people who may need to file a return.  Many PAYE taxpayers assume that they don’t have to file a tax return as all of their tax from employment is deducted at source.  However the range of people who have to file a return is much wider than just the self-employed.  The following are examples of some of the groups of people that would fall into the self-assessment category.

You will need to file an income tax return if you are a director of a limited company and you own more than 15% of the share capital.  This is still the case even if you are not employed within the company, or if the company is non-trading.  Normally if your only income is from the company, and payroll has been run correctly, you won’t have a tax liability.

Landlords are another group of people that need to file a tax return.  Some might assume that if they make a loss renting out their property then they don’t need to do this, but unfortunately that’s not the case.  Without filing a return, Revenue won’t know if you’ve made a profit or loss, so whichever it is, the return will still need to be filed.  Also, not filing a return when you have a loss could be detrimental, as it could mean that you miss out on carrying that loss forward to off-set against future profits.

Another common area that often falls through the cracks is foreign interests.  If you have any foreign income or other foreign financial interests, you may be required to file an income tax return.  Some examples of foreign income would be pensions from another country, dividends received from companies outside of Ireland, interest on foreign investments etc.

If you do have a requirement to file a tax return and don’t do this by the deadline, there can be expensive consequences.  When a return is filed at any point beyond the extended November deadline there will be a surcharge of 5% of the tax liability for the year (before any payments).  Where the return is more than 2 months late this surcharge is increased to 10%.

There is an extra pitfall for company directors who file their returns late, as the late liability will be calculated on the total income tax liability, even though it might already have been paid.  For example, a proprietary Director with a tax liability of €15,000 would have paid his liability through the PAYE system during the year.  If he were to file his income tax return 3 months late, he could incur a surcharge of €1,500 even though there is no actual tax liability outstanding.

If you’re not sure whether or not you need to file an income tax return, get in touch with us.  We can talk through your situation and let you know what you need to do.

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