A year has gone by quickly and once again the income tax deadline is creeping up on us. If you are experiencing financial difficulties and are worried about being able to pay your income tax bill, here is our advice on what you should do.
1. FILE YOUR TAX RETURN WITH REVENUE ANYWAY
This is extremely important. One of the worst things that anyone in financial difficulty can do is simply not file their tax return and plan to deal with it sometime in the future. If you do not file your tax return on time, you will automatically be charged a late filing fine. If you are less than 2 months late in filing your tax return, your total tax bill will be increased by 5% as a late filing penalty. If you are more than 2 months being late, your tax bill will be increased by 10% as a late filing penalty.
In addition to this, if Revenue do not receive your tax return, it is likely they will commence enforcement action against you. This ultimately leads to them estimating the amount of tax that they think you may owe and sending the Revenue Sheriff out to collect it from you. Aside from the unpleasantness of that situation, other consequences of this are additional charges being levied against you to cover the Revenue Sheriff costs. You may also be entered on the Revenue’s risk list which will increase the likelihood of having all your tax affairs scrutinised and possibly subjected to a full Revenue Audit review.
If you are not paying your tax bill in full, you cannot avail of the online 14th November filing date extension, so you must ensure that you file your tax return before 31st October.
2. PAY AS MUCH OF YOUR 2016 TAX LIABILITY AS POSSIBLE
As you should be aware, when you file your tax return you are required to pay both the balance on your 2016 tax return and also preliminary tax for 2017. Many people this year are struggling to pay both. If you cannot meet both liabilities, then you should prioritise settling your 2016 tax liability before worrying about your 2017 preliminary tax.
3. CONTACT REVENUE REGARDING A PAYMENT PLAN FOR THE BALANCE OWED ON YOUR 2016 TAX BILL
After you know how much you can pay towards your 2016 tax bill before the deadline and also what the remaining balance will be, the next step is to contact Revenue as soon as possible to try and arrange a payment plan for the remainder. This is known as an “installment arrangement”. In simple terms this is an agreement with Revenue to pay the balance to them in monthly installments over an agreed period of time. In order to agree an installment arrangement with Revenue they may request backup documentation to support your position, but generally they are willing to work with taxpayers who are in difficulty and who are pro-active in trying to deal with it by contacting Revenue.
The first step is to make contact with Revenue and outline your situation. It's important to ensure that whatever arrangement you make with Revenue, it must be realistic. There is no point in over-committing yourself to monthly payments which you think you cannot afford. Whatever arrangement you make with Revenue, you must make sure that you can keep to it. Also bear in mind that during this time you will also be expected to not fall behind with other taxes that may become due whilst you are in an installment arrangement. So you must ensure that you also factor this in when negotiating your monthly installment arrangement amount. You cannot simply ignore other tax liabilities whilst you are in an installment arrangement for another tax liability.
4. PAYING 2017 PRELIMINARY TAX
Although it is a requirement to pay 2017 preliminary tax at this time, there are no late filing penalties for not doing so. Instead the worst case scenario is that you will be charged interest for late payment of taxes. If cash flow is tight therefore the best thing to do is firstly pay your 2016 tax bill and then pay whatever amount, however small, that you can towards your 2017 preliminary tax. You can then make further payments towards your 2017 preliminary tax bill as you have monies available to do so.
The quicker that you can make further payments towards your 2017 preliminary tax, the lower any potential interest charges will be. We do recommend that you try to meet your 2017 preliminary tax bill as soon as you can. This is both to minimise potential interest charges and also to avoid a situation where the 2017 tax return deadline arrives and you have not paid a sufficient amount on account for 2017. This will lead to a situation where you may find it difficult to pay both your 2017 tax bill and also your 2018 preliminary tax which will then have become due.
In relation to potential interest charges, bear in mind that they are not charged automatically, so it is possible that you would never be charged interest for late payment. Interest charges are roughly in line with most standard bank overdraft interest rates. However to ensure that you are not charged any interest, or to minimise potential interest charges, you should pay as much preliminary tax as you can, as soon as you can.