It's that wonderful time of year again where you get to part with your hard earned cash and hand it over to the good people in the Revenue Commissioners. Or, for some of the luckier folk, you get to get some cash back from them!

The filing deadline for your 2013 income tax return is Friday 31 October 2014. For those of you who file your return and pay on ROS (Revenue's On-line Service), however, you can avail of the extended deadline on Thursday 13 November 2014.

For those of you who have had to submit income tax returns before, you know what it is all about. For those of you who don't know, it is basically the means in which you report any self-assessed income that you earned during the year and calculate the tax payable on it. Basically, it includes any income that you have earned outside a salary which is subject to PAYE such as: 

• self-employment, 
• rental income, 
• foreign income,
• bank interest, 
• dividends etc.
  

Failure to report any self-assessed income to Revenue can result in: 

• penalties for the late filings of tax returns, 
• interest on the late payment of any tax due on the unreported income,
  
• your name published on a tax defaulters list.

In some instances, this income may just need to be reported and no additional tax may arise. In fact, as stated above, some people may often actually even receive a refund of tax which may be due to an under claim of tax credits, a trading loss or a medical expense claim.

If you are in doubt about whether you should be submitting a tax return, leave a comment below or get in touch and I'll be happy to let you know if you need to do so.

The vast majority of us are paid wages by our employers. In most cases, from my experience, people do not know what tax credits are available to them and what they are actually claiming.

I've listed some of the main tax credits available below. There are many others, of course, but you should make sure that you are claiming all available to you. And, don't forget, you can also still make a back-claim for the previous 4 years too.

Personal credit
This credit is available to everyone resident in Ireland. The tax credit available is €1,650 for a single person and €3,300 for a married couple per year. This credit will cover any tax on any income up to €8,250 and €16,500 respectively.

PAYE credit
If you work for someone else, who is not a relation, you are also entitled to a further tax credit of €1,650 per year. The credit is also available to those receiving taxable social welfare payments.

Medical expenses
All qualifying medical expenses can be claimed as a tax credit at a rate of 20%. For example, if you spent €200 in a year on medical expenses, you receive a tax credit of €40.

For dental expenses, they must be non-routine treatments which are listed here.

To claim your medical expenses, you can make the claim on-line through PAYE Anytime or by submitting a Form Med 1 or Form Med 2 (i.e. for dental expenses) to your local Revenue office.

Rent tax credit
Strictly speaking, this credit is no longer available to those seeking to claim it for the first time. However, if you were renting a residential property on or before 7 December 2010, you will be able to claim the credit which currently amounts to €160 per year provided that the rent paid in the year was over €800.

Single person child carer credit
This credit of €1,650 is available to a single parent with a qualifying child living with them.

Home carer's credit
A credit of €810 is available to a married person who principally stays at home to mind a dependant (i.e. a child or older person). The claimant cannot have income in excess of €5,080 in the year and the joint income of the married couple cannot exceed €41,800.

The above are the main credits availed of, however, there are many others including Start Your Own Business Relief, Tuition Fees, Blind persons credit, Age credit credit etc. Most of these can be claimed on PAYE Anytime but also by calling your local Revenue Office.


So, you should check your tax credit certificate to ensure that you are receiving all the credits available to you. If you have any questions on any of these, let me know in the comments below.

I'm sure that anyone who has ever looked for an accountant has typed the above question into Google. I know I have done similar searches when looking for solicitors or even doctors! You will often incur the same answer too......it really all depends on what you want done.

I hope that this can help some of you who are trying to figure out how much they need to budget for their new business.

With accountancy firms, there are essentially three tiers:

1. Big 4 - PWC, Deloitte, KPMG and EY
2. Medium sized firms - Mazars, BDO, Grant Thornton etc
3. Small firms - like me

If you want the combined experience of one of the Big 4 firms, you will expect to pay a nice little price for it. Mid sized firms can also provide a substantial knowledge base at a slightly lower cost. Whereas with small firms, we generally specialise in a number of areas and can provide a personal touch at a substantially lower cost than your bigger firms.

From my experience, the basic cost of a simple tax return is approximately €1,000, €800 and €500 with these firms respectively. Obviously, these costs can vary depending on the level of work involved. 

So, what kind of costs are involved for a small business?

Without trying to make this into a sales pitch, I have outlined below the basic costs involved in the various tasks usually required from a small business in a year. These would be an idea of the costs involved if you were to engage me as your accountant to your business.

Tax registration and accounting set-up
The basic cost of this is approximately €150 - €200 (ex VAT). There would be additional charges for setting up a company, determining VAT rates etc.

Monthly bookkeeping
This really depends on the level of transactions (i.e. sales and purchases) that your business has. On a basic level, it would be approximately €75 per month (ex VAT).

Bi-monthly VAT returns
The preparation and submission of bi-monthly VAT returns, assuming all of the bookkeeping has been done correctly, would cost approximately €80 per return (ex VAT). 

Payroll & PAYE returns
To calculate your employee's net wages, produce payslips and submit your monthly PAYE returns would cost approximately €60 per month (ex VAT). This is based on a maximum of five employees, any additional employees would be a further cost.

End of year accounts
The cost of preparing end of year accounts will largely depend on the quality of bookkeeping throughout the year and whether statutory accounts are required. Again, on a basic level, it will cost approximately €450 (ex VAT).

Income / corporation tax return
Lastly, the end of year tax return. Once again, it will depend on the quality of bookkeeping undertaken during the year but on a basic level, the cost will be in the region of €500 (ex VAT).

Obviously some of these tasks can be carried out by yourself or someone else in your business, such as the bookkeeping and the payroll. This may certainly save you some money on accounting fees but, if not done correctly, it can end up costing you as much if the accountant needs to fix a lot of mistakes. 

The above is also very much a guideline. The only way I could tell you how much the fees are would be to sit down and discuss your needs with you. My initial consultation with a person or a business is always free. I like to get to know potential clients to ensure that we can work well together and let them know what I can bring to the table before I start charging for anything.

Over the last 18 months or so, Ireland has seen a massive growth in new businesses starting up. The Irish Times recently reported that an average of 107 start-ups were formed every day in May of this year. This is an incredible statistic. Obviously, a lot of these start-ups are probably investment from other countries but the growing confidence in those that maybe lost their jobs in the last few years is very evident. It's great to see people taking a chance to make their dreams a reality.

Your product / service

There are plenty of things to consider when you are starting a business. The first, and most obvious, is considering if there is a market for your product or service. You may not be offering something mainstream but that doesn't mean that there isn't a market for it. Do your research on-line and talk to people and you will quickly figure out where some issues may arise. 

Business plan

The next logical step is to develop a business plan. Some people see a business plan as a complete waste of time when you could actually be starting your business. I will admit that the financial projections in most business plans are often based on nothing but there is a huge benefit to be gained. Compiling a business plan will force you into thinking through every facet of the business, be it the number of employees you'll need, the machinery you need or how you intend to attract customers. Your financial projections may not be realistic but by just preparing the plan you are showing commitment to the business and you will have a general idea of where you want it to go.

Structure of the business

As part of the business plan, you will also want to consider the legal structure of this business. Will you be a sole trader? Will you be in partnership with others? Or perhaps you want the business to trade through a company? There are benefits and disadvantages to all of these structures and there is no one-size that fits all. The deciding factors are usually:

1. The costs of setting up a particular structure,
2. If the business wants / needs to attract external investors,
3. The tax advantages / disadvantages, and
4. Personal exposure to liability.

Costs
In general terms, it is very cheap to set up as a sole trader. You just need to register for tax and register your business name. A partnership is similar but may cost a little more if you want to have a partnership agreement drawn up by a solicitor. A company, however, has some registration costs involved and there would be additional accounting fees for compliance with tax and the CRO.

External investment
If you intend to attract external investment from others, it is likely that a company is the way to go. However, it could also be structured as a partnership but it is unlikely that a professional investor would go down that road.

Tax advantages / disadvantages
There are tax advantages to all the different structures. As a sole trader, if you make a loss at the beginning, you can offset this loss against any other income you may have and potentially receive a refund of tax. The same applies to a partnership but the losses are apportioned between the various partners in the business. A company on the other hand has a very attractive tax rate of 12.5% for trading income (vs a top rate of 52% income tax as a sole trader / partnership). Also with a company, there are greater opportunities to tax-efficiently fund your pension.

On the flip side, if you trade as a sole trader or a partnership, all of your profits will be taxed up to a rate of 52% regardless if you take the money out of the business or not. However, if it is a case that you need to extract all profits from the business for your own personal costs, you will still be taxed at rates up to 52% which, in most cases, would make a company a waste of time. For a company to be worthwhile, there needs to be a level of profits that remain within the business and not extracted as salary.

Liability
When operating as a sole trader or a partnership, if something goes wrong and someone takes legal action, they are taking that legal action against you personally and all of your personal assets are on the line. A limited company however, offers limited liability to the shareholders (i.e. they are only liable for the amount of their shareholding in the company). In recent times, however, the corporate veil can often be lifted where the shareholders / directors of the company have acted in a negligent manner meaning that it comes back to them personally again.

It must always be remembered that, when setting up a company, you have certain duties that you must carry out as a director (e.g. always act in the best interest of the company etc.).

VAT & PAYE

Depending on the level of sales that you project for the first twelve months and the product / service you are providing, you may be required to register for and charge VAT to your customers. For services, you must register for VAT if your sales in the next 12 months will exceed €37,500. The corresponding threshold for the sale of products is €75,000.

Even if you don't think you will exceed this amount, it can often be in your best interest to elect to register for VAT so that you may reclaim VAT on your business purchases, thereby reducing your overall costs. This is generally only advisable where the majority of your customers would also be VAT registered.

VAT can be a very complex area. If you are not sure, get advice from a professional.

If you are going to have employees in your business, then you must also register for PAYE. On pay day, you will then deduct taxes from each employees wages and pay that amount over to Revenue. Two pieces of advice I give to everyone about PAYE:

1. Never agree to pay an employee a net amount (i.e. €10 per hour after tax). I say this because, you never know their own personal tax situation. If they were married, their spouse may have all of the tax credits and bands which would mean the gross wage cost to you could be over double what you agree to pay them after tax. Always agree on a gross wage from which tax will then be deducted.
2. As much as possible, make sure that you are calculating the PAYE correctly. It is the employer's responsibility and if it is not done correctly, Revenue generally come knocking on the employer's door, not the employee's. If you are not comfortable with it, get someone who know's what they are doing. It will save you in the long term.

Get cracking with your business

After this, you are probably ready to get your business started. Now it's time to make your orders, get customers on board and get all your marketing work done. 

It's great to see people taking a step and setting up their own business. It can be frustrating at times, of course, but it can also very fulfilling. There will be plenty of things that you can't do or can't do well, everyone experiences it. Recognise these weaknesses and build a team around you to plug those holes. You are much more valuable to your business when you concentrate on your core skills.

Now, it's time to go out there and do it.

If you have any questions or criticisms, just leave a comment below. Would be great to hear some of your thoughts and stories.

Many of us are a little perplexed about the amount of tax that we pay here in Ireland. Trying to work out how the tax on your income is calculated can be very confusing to those who are not dealing with it on a daily basis. 

So, for those who care, let me try to make it easy for you to understand.

In general terms, our income is subject to three different deductions.

1. Income tax
2. USC (Universal Social Charge)
3. PRSI (Pay Related Social Insurance)

So let's deal with each of these separately.

1. Income Tax

We have, for the most part, two different income tax rates in Ireland, 20% and 41%. Generally speaking, the first €32,800 of your income per year is taxed at 20% and anything above this amount is taxed at 41%. There may be adjustments to this amount if you are married and your spouse also has income. For example, as below, an income of €40,000 will have tax of €9,512.

Annual gross income           €40,000

€32,800 @ 20%                      €  6,560
€7,200 @ 41%                        €  2,952
Total tax                                €  9,512

However, most people also have tax credits that they can use to reduce the tax payable. Every Irish resident receives an annual tax credit on €1,650 (Again, this may be increased if you are married). On top of that, if you are not self-employed and work for someone else, you get a further €1,650 tax credit per year. So taking the previous example, the net tax payable would be €6,212.

Tax on €40,000                      €  9,512
Less tax credits:
Personal credit                      €  1,650
PAYE credit                             €  1,650
Net tax payable                 €  6,212

Depending on your own individual circumstances, you may be eligible for other tax credits to reduce the amount of tax payable such as: 

• tax credit for medical expenses, 
  
• single parent tax credit, 
• rent credit etc.

2. USC

The Universal Social Charge is, essentially, another form of income tax. If you earn under €10,036 in a year, you will not pay any USC. As well as that, there are certain types of income which are not subject to USC including social welfare payments, deposit interest etc.

For most of us, there are three rates of USC - 2%, 4% and 7%. The first €10,036 per year is charged at 2%, the next €5,980 is charged at 4% while anything above €16,016 (i.e. €10,036 + €5,980) is charged at 7%. Again, using the example of an annual income of €40,000 per year, the USC deduction would be €2,119.

Annual gross income        €40,000

€10,036 @ 2%                      €     201
€5,980 @ 4%                        €     239
€23,984 @ 7%                      € 1,679
Total USC                             € 2,119

There is no further credits to reduce the amount of USC payable on your income.

There is an additional 3% USC charge on any non-employment income in excess of €100,000 per year.

3. PRSI

PRSI is a form of social security contribution. Everyone's PRSI is primarily used to fund the social welfare payments made by the state to the unemployed, the elderly etc.

The calculation of PRSI is relatively simple compared to the other deductions mentioned above. For most of us it will be a straightforward 4% of our gross income. There are some exceptions to this such as those over 70, those on low wages and some people subject to modified PRSI rates. Going back to our €40,000 example, the normal PRSI deduction would be €1,600 (i.e. €40,000 x 4%).

If you are employed, your employer must also pay additional PRSI on your behalf at a rate of 4.25% or 10.75% depending on your level of gross wages. This amount is payable by your employer and should never be deducted from your wages.

Summary

Pulling our €40,000 gross income example together, we end up with total deductions of €9,931 (Income tax of €6,212, USC of €2,119 and PRSI of €1,600) and, therefore, net pay of €30,069 (Gross income of €40,000 less deductions of €9,931) in a year. In this case, that's an average tax rate of approximately 25%.

Annual gross income           €40,000

€32,800 @ 20%                      €  6,560
€7,200 @ 41%                        €  2,952
Total tax                                €  9,512
Less tax credits:
Personal credit                      €  1,650
PAYE credit                             €  1,650
Net tax payable                 €  6,212

USC
€10,036 @ 2%                        €     201
€5,980 @ 4%                          €     239
€23,984 @ 7%                        € 1,679
Total USC                               € 2,119

PRSI
€40,000 @ 4%                       €  1,600

While this looks at income from a yearly point of view, you can also calculate it from a weekly or monthly perspective by simply dividing the rate bands (i.e. tax band of €32,800 and USC bands of €10,036, €5,980 and 16,016) by 52 (for weekly) or 12 (for monthly) and then multiply them by the current period. 

For example, we are now in June. If you get paid monthly, divide €32,800 by 12 (€2,733) and multiply it by 6 (i.e. June is the 6th monthly period) and you get €16,400. This is the amount of income received in the year so far that is taxed at 20% while anything above it will be taxed at 41%.

If you think that you may have paid too much tax, get in touch with me and I should be able to tell you pretty quickly if you have indeed paid too much and how to get it back. You will need your most recent tax credit certificate as well as your most recent payslip. Don't forget that you can also still receive a refund of any over-paid tax for the previous four years.

Let me know in the comments below if you would like to see any other topics covered.