Bookkeeping and Tax Update

Transcription

1 Bookkeeping and Tax Update Bar Council CPD October 2007 Frank Keane, Partner Cormac Doyle, Manager MKO Partners Contents 1. Books and Records 1. Set up and Maintenance 2. Preparation of Accounts 3. Accounting for Professional Services Withholding Tax 2. Basic Tax Compliance 1. Income Tax Registration, Filing and Payment 2. VAT Registration, Filing and Payment 3. Tax Planning and Tax tips 1. Income tax credits 2. Income tax deductions 4. Wealth Management 1. Portfolio Approach 2

2 Books and Records Set Up and Maintenance Invoice Book Show VAT number on each invoice Sequential number on invoices Show net amount and VAT charged Receipts Book Show net amount of invoice, VAT charged, and PSWT withheld Reconcile to bank account regularly Expense Book Date, amount and purpose VAT reclaimed? Use Excel or Accounts Package Preparation of Accounts Prepare a set of financial statements Income & Expenditure accounts Various notes to the accounts Audit not necessary however a Revenue audit is possible so it is essential to prepare accounts and keep accurate books and records

3 Accounting for PSWT First thing keep your F45 s they are as valuable as money! PSWT will apply to net of VAT (before) amount on your invoice Account for income on a gross, inclusive of PSWT basis (i.e. regross any fees to which PSWT was applied) but net of VAT Account for income on a receipts basis not invoices raised Subject to Income Tax on gross amount of receipt with credit for PSWT deducted at source Basic Tax Compliance Income Tax Tax Year 1 January to 31 December If accounts are for a different period then use these profits as basis of tax for the tax year Example: Accounts year ended 30 June 2007 profits for this a/c period used as basis for taxation for 2007 tax year Registration (Form TR1) Obliged to register for income tax as a sole trader Assessable person Obligations: Filing Obligation File Income Tax Return (Form 11) by 31 October of year following year of assessment (e.g. 31 October 2007 for 2006 tax year)

4 Income Tax Payment/Preliminary Tax Obligations By 31 October in a year of assessment (e.g. 2007) you must pay: Preliminary tax for that year (2007) being: 90% of expected liability for that year (2007); or 100% of previous years liability (2006); or 105% of pre-preceding years liability direct debit (2005) Balance of tax due for previous year (2006) Taxable Income Computation Aspects Taxable income is based on grossed up (i.e. PSWT) fees received (i.e. actual receipts, not invoices raised) VAT exclusive amounts used if registered for VAT Deduction for expenses incurred wholly and exclusively for purposes of your trade Tax credit available for PSWT applied at source Income Tax - Example Example Note that VAT & PRSI ignored Received fees of 80,000 for Net of PSWT at 20%. Expenses of 10,000. Turnover - 100,000 (i.e. 80k*100/80) Expenses - ( 10,000) Taxable Income 90,000 20% = 6,800 41% = 22,960 Total Tax = 29,760 Less: Tax Credits-Single = 1,760 Tax Payable = 28,000 Credit for PSWT = 20,000 Income Tax Due = 8,000

5 Value Added Tax (VAT) Registration (Form TR1) Can elect to register Obliged to register if sales/turnover exceeds, or is likely to exceed, 35,000 in any continuous 12 month period Filing and Payment Rate 21% on invoices/receipts VAT periods are every 2 months (e.g. Jan/Feb and Mar/Apr) VAT due on difference between VAT on invoices where received and VAT on expenses (refund if VAT on expenses higher) Returns and payment due by 19 th of month following VAT period (e.g. 19 th March for Jan/Feb period) Depending on level of income it is possible to file VAT return yearly Cross Border Services Land and buildings conveyance place of supply 4 th Schedule services possibly take advice!

6 Tax Planning and Tax Tips Income Tax Credits Make sure you claim everything you are entitled to, no matter how small! Personal Credit - 1,760 Home Carer Credit (conditions) Mortgage Interest - 1,600/ 3,200 (1 st time buyer) available if not allowed at source check with your bank Rent Credit max (under 55) Medical Insurance should be at source Service Charges - 80 (up to 400 paid) Income Tax Deductions/Exemptions Subscriptions to legal journals/publications Fees for further education courses/qualifications Medical Expenses keep records! Tax relief at up to 41% Doctors bills, maternity bills, physio, prescriptions etc Pension Max out your RAC every year, it is the most tax efficient saving you will do your money, roll up tax free Childminding 15,000 exempt if up to 3 children minded in the home Advisors fees allowable as a tax deduction (41%) If you are unsure ask your advisor!

7 Pension - example tax saving Ms. A 07 earnings allowed for RAC (Revenue Approved Contribution) Allowable pension contribution at 29 yrs old Cash Cost of contribution Net Tax refund (reduction in tax 41%) If Ms. A had 1.5k excess cash, by moving it into a pension in 07 she would save 615 in tax This 1.5k fund will grow tax free 10,000 1, Wealth Management A Personal Audit Objectives & Needs 1. Savings Objectives and Needs 2. Protection Objectives and Needs 3. Post Retirement Benefits (Pensions) Objectives and Needs 4. Investment Objectives and Needs 5. Mortgage / Borrowing Objectives and Needs 6. Taxation Advice

8 Portfolio Approach UNDERSTANDING YOUR NET WORTH Your practice Cash Investments Risk diversification is the key to a balanced portfolio Deferred Salary (pension) Property family home, investment, business Retirement Annuity Contracts (RAC s) Contribute to Pension Scheme Cannot be cashed before retirement Under 30 Up to15% of net relevant earnings (NRE) % of NRE % of NRE % of NRE % of NRE % of NRE Income Tax fully allowable at highest rate

9 Saving and the Danger of Inflation Sterling , ,000,000 You need 1 Million in 1999 to buy what 77k bought in k left in a Current a/c in 1959 was still worth 77k in 1999! Inflation kills the purchasing power of money over the long term, so You need a return above inflation to maintain your money before creating wealth Lender * Source: Barclays Capital - Cost of living data Property: renegotiating mortgage Renegotiating a 400,000 over 20 years can save you 18,834 in interest Total interest Total interest on 400k over 20 years Rate 15 Oct 07 AIB - Tracker 4.75% 224,063 AIB - Variable 5.10% 242,897 Review your lender s rates and consider moving lender or to a Tracker Mortgage

10 Gearing: Using the Bank s Money Increases your Return Mr. A has 150k buys house for 500k - 350k loan Ms. B has 50k buys house for 500k - 450k loan Both house values rise 10%, both people make 50k (ignoring loan interest costs) Mr. A s 150k made 50k a 33% return Ms. B s 50k also made 50k a 100% return If Mr. A used the same aggressive gearing as Ms. B, 150k would have bought 3 houses giving Mr. A a possible 150k profit on 150k. Summary ACCOUNTING/TAX Keep accurate books and records Keep F45 s very important!! Preliminary tax and filing deadline N.B. Make sure you claim all credits and deductions you are entitled to If VAT scares you speak to a professional! FINANCE Check the mortgage rates you have Borrow Money to multiply gains (leverage) Use a portfolio approach - diversify Invest in property through Syndicated Investments (if you don t have the knowledge)