4 Year Rule
We may not get to Portugal this year, but a touch of Portugal is stopping by this weekend. An Azores high I understand. Fry an egg on the bonnet of the car stuff, but not my own car of course! Scorching temperatures on the way. People grappling for the last packet of burger buns in the Lidl aisle and dusting down the barbie. Bring it on please as it will be a very welcome change. Plus, the Euros are starting. So, we will have sun, football, burgers and throw in a few beers it’s all sounding very fantastic.
I will sprinkle in a bit of tax to make things even more exciting! Over the last two weeks, we looked at Bookkeeping is an investment in your business.
This week we are going to look at the four-year rule. We will look at;
- What is it
- Why is it important
- Compare with Revenue
- Action required
What is it?
It’s a rule in tax law that means a taxpayer can only go back 4 years to claim a tax refund. So, if you are due money back from Revenue you can claim for the last 4 tax years. As we are now in 2021 you can make tax refund claims for
If you think you have a refund for 2017 you have until the end of this December to get it. Come 1 January 2022 you will not be able to claim a tax refund for 2017, as you will be outside the 4 year timeframe. To make a claim you will need to submit a Tax Return. Those of us who are
- Self-employed – sole traders or partners in partnerships or
- Have investment income like rents, dividends, share options or
- Company Directors that own more than 15% of the company
must file an Income Tax return every year called a Form 11. We are in the self-assessment system. If we don’t file our Tax returns, we are subject to surcharges, interest, and penalties. But there are hundreds of thousands of PAYE workers who don’t have to file tax returns, but they can submit one. The form they use is a Form 12 and you can submit this form online through myAccount. See here to sign in or register.
It can be the case that those who are in the self-assessment system are due refunds too. They can also go back 4 years.
Why is it important?
If you gave a loan of €1,000 to a family member, would you want it back? In most cases, the answer is yes. So, if you overpaid Revenue by €1,000 you will want that back too. Securing a tax refund, especially a chunky one, brings great joy and potential treats too! You could get over to Portugal or Spain after all.
Often the tax error or overpayment happens over a few years, so you may have overpaid in other years too. Some of the most common credits and expenses unclaimed that we see when we take on clients are
- Homecarer credit
- Medical insurance credit
- College fees
- Medical expenses
- Nursing home fees and employing a carer
- Personal Pension contributions
Unclaimed tax credits or expenses over 4 years can be significant. Often taxpayers know they are due money back for a variety of reasons but don’t go about getting it. This could be a case of putting it on the long finger or not knowing what to do. Or the dreaded what if I end up owing them money!
To find out more on tax credits and reliefs click here for a link to the Revenue website
We do a weekly training slot with our team that helps to keep them up to date when talking to our clients. Yesterday we looked at some Tax Appeals cases on this.
- The taxpayer was a proprietary director [owns more than 15% of the company]
- He was due an Income Tax refund for 2012 because of medical expenses
- He also had Capital Gains Tax [CGT] to pay for 2012
- He filed an Income Tax and CGT return for 2012 in 2017
- He didn’t get the Income Tax refund as was outside 4 years and
- He had to pay a 10% surcharge on his CGT as his return was late
- Even though he submitted a med 1 form the medical expenses weren’t allowed as no tax return was made on time
- 2012 Tax return submitted in 2017 showing over €8k of a refund
- The taxpayer had a brain injury
- No refund given as outside the 4 year timeline
- Incapacitated Child Credit claimed on a tax return in 2015 for a child born in 2003
- The condition was difficult to diagnose until the child was over 8.
- So, it was impossible to make an earlier claim
- Revenue would only allow the claim for 2011 and onwards
- Refused claims before 2011 as outside the 4 year rule
You will see that the last two cases involved a large element of hardship for the taxpayers. There is no relief for hardship cases, unfortunately. This is something that Revenue should look at.
If you want to read more on these cases you can find them on the Tax Appeals Commissioners determinations
How long can Revenue look back?
More than four years.
Once a tax return is a “full and true disclosure of all material facts” Revenue will not go back further than 4 years.
It highlights the importance of getting your tax returns right. If there are errors or omissions on your tax return, then it is not a full and true disclosure. This means Revenue can go back as far as they like if you haven’t declared all your income or asset disposals etc.
For a look at our previous blog on how much Revenue know about you see here
Preparing and filing your taxes can be daunting for many people. Others are quite comfortable doing their returns. If you shy away from doing tax returns because of fear and complexity, get help from your tax advisor. If you know you are due money back, then make sure you claim on time by completing a return for the year in question.
Navigating the choppy waters of the tax world can be difficult. Knowing that your taxes are up to date is a comfortable and secure feeling. Getting a refund is the gravy on top.
Need help with your Taxes? If so, Start here. Tell us a bit about you and how we can help