Tax tips to consider before the end of the year

As the year draws to a close, it's prudent to explore opportunities for potential tax efficiencies. Here are some tips for individuals and businesses to consider:

Maximising the 20% standard rate tax band

If you have a degree of control over your salary income and, indeed, your other levels of income, you should ensure that you (and your spouse were married) are availing of the maximum 20% income tax bands.

For business owners, it may be possible for family members to receive a salary from the business to ensure that tax bands are utilised as efficiently as possible. Please note that there should be substance behind the role of the spouse or family member, and the salary levels should be in line with the market value salary of a similar role within that industry.

Pension contributions

If your business has excess cash as we approach the year-end, employer pension contributions may be made to an employee/director in a tax-efficient manner, whereby the employee/director may not be taxed on the contributions as a benefit-in-kind.

Companies may only claim a tax deduction for pension contributions in an accounting period if the pension payment is actually made prior to the accounting year end of the company. For a company with a 31 December 2023 year-end, in order to claim the pension as a tax-deductible expense, the pension payment should be made by 31 December 2023, as opposed to an accrual in the accounts.

Tax-based investment schemes

If you have invested in a tax-based investment such as the Employment and Investment Incentive Scheme (EIIS) or the Start-up Capital Incentive (SCI), in order to claim the relief in the 2023 tax year, the relevant documentation should be certified by 31 December 2023 at the latest. If you have already made the payment but are experiencing delays in receiving the official certification, you should contact the investment promoter as soon as possible to ensure that you will receive a certificate with a certified date of 31 December 2023 or sooner, to meet the requirement to claim the relief in the 2023 tax year.

Time limit for claiming tax reliefs and tax credits

Revenue has provided a four-year window for a taxpayer to submit a claim for a repayment of tax e.g. a medical expense claim. If a taxpayer has not made a claim for tax relief in the tax year ended 31 December 2019, the taxpayer has until 31 December 2023 to submit that claim; the four-year deadline for claiming reliefs for the 2020 tax year will be 31 December 2024 and so on. Based on the decisions that are published by the Appeal Commissioner, this provision is strictly enforced and claims outside of the four-year window are generally disallowed.

Small gift exemption

The small gift exemption allows Irish taxpayers to receive a gift of up to €3,000 from any person in the current tax year without having to pay Capital Acquisitions Tax. It is also important to note that the €3,000 exemption is per disponer i.e. the person making the gift. Therefore, an individual may receive €6,000 in total from their parents (€3,000 from each) and still be covered by the small gift exemption. As we approach the year end, consideration should be given to ensure the exemption is maximised for 2023 where practically possible.

Capital gains tax timing

If a transaction resulting in a capital gain is carried out between now and the end of the year, any capital gains tax arising is due for payment by 31 January 2024. For cash flow purposes, and subject to commercial practicalities, one may consider deferring the transaction until after 31 December 2023 where possible. If the disposal occurs in the period between 1 January 2024 and 30 November 2024, the payment date for the capital gains tax becomes 15 December 2024.

Vouchers and gift cards for employees

As a motivational measure, employers may consider rewarding staff through the gift voucher incentive. A benefit of up to €1,000 may be provided by the employer to the employee tax-free. If the benefit exceeds €1,000 in value, the full value of the benefit may be subject to tax. Where two benefits are provided, the combined value of those benefits cannot exceed €1,000. The benefit must be a non-cash benefit and is generally in the form of vouchers or gift cards.

Loss claim

Claims for offset of corporate trading losses against trading income and other income should be made within two years of the relevant accounting period end. Companies that incurred losses in a 31 December 2021 accounting year end should consider if a loss claim is required to be made by 31 December 2023. Similarly, an individual may make a claim for loss relief not later than two years after the end of the year of assessment to which the claim relates. Individuals who incurred trading losses in the tax year ended 31 December 2021 should make the relevant claim for offset against trading income and other income (arising in 2021) by 31 December 2023.

Late filing surcharge on income tax and corporation tax returns

The official filing deadline for submission of the 2022 income tax return was 31 October 2023 (extended to 15 November when filing and paying the tax via Revenue Online Service). A late filing incurs an automatic 5% surcharge of the tax due (subject to a maximum of €12,695). Income tax filers should be aware that if the tax return is not filed by 31 December 2023, the surcharge increases to 10%. For taxpayers who have not yet filed their 2022 income tax return, they should consider doing so by 31 December 2023 to prevent the surcharge increasing from 5% to 10% (subject to a maximum surcharge of €63,485).

Company loans

Loans to participators (employees, directors, etc.) may have adverse tax implications and a tax liability may arise for the participator and also for the company. Where possible, the company may consider repaying the loan before the year-end to reduce the tax burden.

Conclusion

If you wish to discuss any of the above points that are applicable to you, please feel free to contact any member of our Private Client Division.