Hi there from misty Tramore. Great weather for grass growth. The farmers will be happy given the price of fertiliser. Timmy the cat is doing brilliant with his health kick for New Year. He is up to 500 metres on his couch to 1k, he is eating better and is in better form. I didn’t tell him about the Russian military build-up on the border of Ukraine, to keep the spirits up.
It was super to see restrictions lift last Saturday. We were up in Kilkenny for a night away and went to the Hibernian bar for lunch and a few drinks. People were drinking at the bar! We met a lovely couple that got engaged the night before. Mark from Cork and Eileen from Limerick. I asked how long they had been going out. Mark said it was 20 years to which I replied that “you weren’t in a rush, and you gave yourself time to be sure”. I suggested they must have had a wild night of celebrating the night before. Eileen said that Mark fell asleep at half 10 in the bar! We parted ways shortly after, but it is always great to meet new people. I owed my sister a gin and tonic for her 60th birthday, so off we trotted to fulfil my promise. Anyway, enough of my travel log and onto the task at hand.
Last week we had a look at some options with vacant property in your company and whether to sell or change use. In case you missed it see here
This week we are going to look at the way we do things for our Income Tax clients. In 2022 we have decided to change the way we complete our tax return process and when we do it too. The purpose of this blog is to outline the reason for change and why it is the right thing to do. We will
- Set the scene
- What we do now
- Changes we will make
- Why we will change
- Difference for John
Set the Scene
If you file a tax return you have until the 31st of October of the following year to file it. So, for 2021 you must file your return by the 31st of October 2022. If you both pay and file online you will get an extension, usually two weeks, to pay and file. So, we are talking mid-November 2022 at the very latest. You also pay on these dates and what you must pay is
- The balance of your income tax for 2021
- Preliminary tax for 2022
Preliminary tax for the current year is a payment on account to Revenue. The amount you pay is either 100% of your previous year’s liability or 90% of your current year’s liability. In most cases, we recommend to our clients to use the 100% number. This covers them and protects them from possible interest charges. Let’s look at an example.
John Flynn is a company director and has a small side business and two rental properties. His untaxed profit is €30,000 for 2021. His tax liability on that income is €15600. But John has already paid preliminary tax for 2021 of €14000. Assume John pays and files his tax return before the due date his liabilities will be
|Income Tax Liability||2021||€15600|
|Preliminary Tax paid in November||2021||€14000|
|Balance due for||2021||€1600|
|Preliminary Tax [100% rule]||2022||€15600|
|Total due November||2022||€17200|
What we do now
That all looks ok for John but if we look under the bonnet is the engine running smoothly? Say we contact John at the end of July to get the information to do his return. We send out his Income Tax checklist to complete. He is going on holiday for 3 weeks and isn’t back until the middle of August. He is back working but has two staff members, one on holidays and the other on parental leave so is up to his eyes. His manager calls him, and he says it will be the end of September before he gets to us. Dee, our office manager calls him, and he promises to get the information to us by the middle of October. It comes in on the 18th of October. We go through it, and we see that we are missing mortgage interest certs for the rental properties. We call John and ask him to send those on, but he hasn’t got them and must get onto the bank. They tell him it will be two weeks. He will have them in the first week of November. He gets those to us, and we are then able to
- Complete the computations
- Draft and Income & Expenditure account for the small business
- Draft the Income Tax return
- Draft a cover letter setting out the liabilities and payments
- Send the letter and return for e-signing
- Submit the return and
- Process the tax payment
We have achieved the primary goal of submitting John’s return on time. He is tax compliant, so won’t have Income Tax issues that cause problems for tax clearance. And he has paid his taxes in full so won’t suffer interest charges. Plus, he didn’t have to pay any surcharge. If he was late the surcharge would be at least €780 but, given that he is a company director, it would be more. But is John happy and are we happy? John is ok but happy would be a stretch. We are not happy.
Changes we will make
The major change we are making for 2022 is that we are not doing tax returns in October or November this year. We will prepare and file all tax returns for 2021 by the end of September 2022. We will not do tax returns after that date.
We will contact all clients by the end of February to confirm this change. The way we will communicate will also change. We will send out an email to everyone to let them know and we will outline the reasons for the change. We will also send out two links with the email
- A link to complete their Income Tax checklist
- A link to upload documents to a secure portal
Reasons for change
The current system isn’t working for us, and it isn’t for clients either. It’s not working for us because
- Staff stress levels are high because they have a huge volume of work at an already busy time of year
- We are wasting time e-mailing and calling clients to get their information to us. Chasing.
- The time wasted can be more beneficial used elsewhere to help clients. Like taking extra time to review a return and ask questions. This can lead to tax savings.
- Staff are working early mornings and late evenings and some weekends too. They all have families, and this is eating into family time.
Don’t get me wrong we are not afraid of hard work. But we want to work hard when we are at work and not when we should be off. It isn’t working for some clients either because
- By doing things late or last-minute they are rushing and don’t have time to think. It is a case of getting it done and in
- Last-minute equals stress but it can also mean higher tax bills
- Planning and knowing your liability early in the year gives you time to save to pay it.
- Tax savings are possible post year end with pensions by starting one or backdating a payment.
- Clients will be in control. They know what funds they and what they will have after making their payment
- If they need finance to fund a tax liability, they will have plenty of time to get this in place.
- Documents go to a secure location so important documents and information are protected.
- No copying, posting, printing, signing or unnecessary trips for the client
Difference for John
If we look at my friend John and his business enterprise! 2022 will be different. He gets our e-mail with links in the middle of February. He decides getting his 2021 return done early in 2022 is a great idea. He sets time aside on the 18th of March to complete the checklist and upload his documents to the secure portal. We go through everything and request missing documentation. He gets those to us by the end of March. We put everything together and have a call with John to go through his return and we pick up a couple of things on the call
- John spent €2000 on braces for his daughter in 2021
- He has no pension, and he has €10000 saved and wants to use that to start one
After the call we make the changes to his return. These result in:
|Tax saving – dental fees €2000||20%||€400|
|Tax saving – pension €10000||40%||€4000|
|Total Tax saving||€4400|
His tax position for 2021 and 2022 now looks like this
|Income Tax liability||2021||€11200|
|Preliminary Tax paid||2021||€14000|
|Preliminary Tax [100% of 2021]||2022||€11200|
In this case, John is paying €8800 less in tax. He has met all his tax obligations, but he has saved for his future too. He has started a pension. His payment dates won’t change, and he will pay the balance due by mid-November 2022. He is very happy to be so organised and delighted that he has his return sorted so early in the year
Change will be good for clients and us. We don’t miss deadlines for clients and provide an excellent service, but we have room to improve too. This will start this year and clients who buy into it will see the benefits. We are in danger of losing client by changing and if we do, then so be it. We need this for us too. A happy team will give a better service to our clients. Keep us happy and we will return the favour to you. It’s no longer a case of “wake me up when September ends”.
Do you want your tax return and computations to be looked after early in 2022? If so, call Deirdre on 051 396703 or contact us. Tell us about how we can help you.