Cash strapped local businesses advised to box clever with their 31st October Income Tax deadline approaching.
Cashflow is the single biggest problem facing SME businesses today, and any reduction in your tax liabilities will be most welcome. The 31st October deadline for returning your 2010 Form 11 is looming and with it the payment of any outstanding Income Tax liability for 2010 plus the Preliminary Tax liability for 2011. Darragh Beagan of newly formed TaxRelief.ie outlines some basic guidelines that you should consider.
The most common method of calculating your 2011 Preliminary Tax is basing it on 100% of your 2010 liability. Therefore if you can reduce your 2010 tax bill by the 31st October, you can also reduce your 2011 Preliminary tax, thereby boosting your immediate cashflow on the double. You pay income tax on your business profits, not the wage you draw from the business. The lesser the profit, the lesser your tax liability. You or your accountant can only calculate your profits on your up to date books and records. Needless to say, make sure you have recorded all your income and expenses correctly for the year. Be sure and talk to your accountant and make sure he/she knows of your full personal circumstances as regards claiming all relevant tax reliefs and credits.
The second option of calculating your Preliminary Tax is to base it on 90% of your 2011 Income Tax bill. In this instance you or your accountant may need to make a well educated guess. A misjudged calculation may lead to additional interest charges. No one knows your business better than you do. If you know your income has dropped significantly since last year, tell your accountant. A quick glance over your turnover and books and records will enable him/her to advise you on a more appropriate Preliminary Tax figure to pay for 2011. Why over pay your Preliminary Tax now and wait months to have any overpayment refunded when your business needs the cash now? Do however err on the side of caution to avoid the possibility of those interest charges.
Darragh has a few further words of caution to anyone feeling swamped by all the deadline hype and panic… Please, please consult your accountant before you agree to make a lump sum investment in a pension. A wonderfully sweet phone call from your pension provider telling you all the tax you are going to save by writing him a cheque has all too often ended in tears. From a tax point of view, putting further money into a pension fund is most beneficial if you are paying tax at the marginal rate of tax, i.e. 41%”. He illustrates his point:
A €5,000 lump sum pension contribution will save you €2,050 tax in 2010 and can also reduce your Preliminary tax requirement for 2011, by a further €2,050, a total of €4,100. Whereas a standard rate taxpayer (20%) only saves €1,000 on their 2010 bill and another €1,000 on their 2011 Preliminary Tax. A pension provider will not know the rate of Income Tax you pay, your accountant does! So you need to weigh up the pros and cons of putting the money away, the tax you’ll save, providing for your retirement and the risk attached. Please don’t swallow the cheesy sales gags!”
TaxRelief.ie has just launched this month and if anyone is concerned over their tax affairs or has a question they would like answered, you can contact Darragh through their website (www.taxrelief.ie) and complete the online enquiry form. Alternatively you visit their facebook page, you can email him directly on firstname.lastname@example.org, or by telephone on (087) 6390200.