WITH the 2020 income tax deadline approaching, early planning in relation to your 2020 tax liability and 2021 preliminary tax obligations is vital in order to save an unexpected surprise in October and November. After a number of false starts faced by the equine sector due to disruptions to the normal calendar of events, some clarity is finally beginning to return, therefore planning for your income tax liability will ensure that your future trading needs will not be impacted by an unexpected income tax liability.

With this in mind, early planning and discussion with your accountant/ tax advisors will ensure you are satisfying the income tax filing requirements while minimising anticipated cash flow in satisfying your 2020/2021 income tax requirements.

Preliminary tax

In addition to paying any outstanding income tax liabilities for 2020, preliminary tax for 2021 is also due by October 31st, 2021 (extended to November 17th, 2021 where filed and paid online). It may be beneficial to explore each of the three options which may be available to you in the run up to the tax deadline to determine which will leave you in a more beneficial position from a cash flow perspective.

Cash flow impact

Due to Covid-19 pandemic, you may be in a situation where your profits/taxable income for the 2020 tax year are reduced in comparison to previous years. If you find yourself in this position, paying preliminary tax based on 100% of 2020 income tax liability may be the best option for you. However, you should also look at 2021 on an actual basis to consider the cash flow impact fully.

The 105% of 2019 option has a number of conditions to meet before being available, for example, it only applies where you pay by direct debit and does not apply if your 2019 tax liability was nil. It is an option only worth considering where your liability was significantly lower in 2019. However, you are potentially pushing a cash flow issue down the road to 2022.

As noted above, the deadline for the submission of your 2020 income tax return is October 31st, 2021 which is extended to November 17th, 2021 for those who choose to both file and pay online.

This should not be considered an extension for taxpayers as early calculation and interaction with your tax advisors ensures that you have sufficient time to plan and address cash flow considerations.

Capital Gains Tax

WITH the Capital Gains Tax payment deadline for 2021 less than a month after the extended ROS deadline for income tax returns, it is important that you get your affairs in order promptly to avoid any interest charges on late payments. This also ensures that you do not get a nasty surprise in the lead up to Christmas.

For any gains on disposal made between January 1st and November 30th, 2021, the payment date for any capital gains tax liability arising is December 15th, 2021.

Where a payment is late and an agreement is not in place with Revenue, interest applies at a rate of 0.0219% per day of late payment.

For disposals between December 1st and December 31st, 2021, be aware that the payment deadline is January 31st, 2022.

Stock relief

A relief which taxpayers should be aware of when seeking to improve the quality of their stock which has the additional benefit of potentially reducing their tax liability is stock relief.

Stock relief allows an additional deduction of 25% (increased to 100% in certain circumstances) to be claimed by a taxpayer where their value of their stock has increased at the year-end in comparison to values held at the start of this accounting period. Not only will this assist in reducing the income tax liability for the tax year but in addition the preliminary tax payable for the following year.

Succession planning

IN addition to our short-term planning options noted above in relation to your income tax, succession planning while less spoken of, is a long-term planning option which can ensure taxpayers minimise tax liabilities arising when seeking to pass their businesses onto the next generation. We are all aware of the potential tax reliefs that are available to individuals who dispose of business assets.

However, people are less familiar with the tax reliefs that may be available to the individuals who are acquiring the business assets. One such relief is Agricultural Relief.

The purpose of this relief is to encourage the productive use of agricultural land and to prevent the sale or break-up of farms in order to pay any CAT liability.

Agricultural relief applies in respect of both gift tax and inheritance tax. It operates by reducing the taxable value of agricultural property by 90%.

To qualify for the relief, an individual must satisfy the below:

  • The property/assets received must be agricultural property at date of death or date of valuation.
  • The beneficiary must satisfy the “farmer test”.
  • The beneficiary, must satisfy the ‘active farmer’ requirements.

    • With the ever fluctuating prices of land and property now may be the time to consider an asset transfer to best avail of the tax reliefs available.

    For any queries or if you would like any specific topics discussed, please email conor.phelan@ie.gt.com.