Rental Income is taxable under the Irish tax system. Therefore, if you receive income from the renting out of a property or part of your principal private residence in Ireland then you must file an annual tax return in accordance with the rules of the self-assessment system.

Tax is charged under Schedule D Case V in respect of rents from any premises or easements in the State. If you have taxable rental income it will be taxed at your highest tax rate by adding it to your other income e.g. PAYE Income.

The 3 Step Approach

The following is a 3 step approach to the calculation of the taxable rental income for each property:

Step 1

Calculate the gross rental income from the property.

Rental income is computed on the basis of the gross amounts of rents receivable – i.e. when the landlord becomes entitled to it.

Step 2

Calculate the total deductible letting expenses for offset against the rental income computed at Step 1 above.

Expenses associated with the rental income and which are wholly and exclusively incurred are tax deductible on the accruals basis i.e. for the actual period to which they relate.

The following are examples of legitimate property related expenses which are allowable deductions:

• Rent payable by the landlord
• Rates on the property
• Service charges (e.g. water/refuse etc.)
• Management Fees & rent collection costs
• Legal fees for the drawing up of lease etc.
• Accounting fees for the preparation of a rental income account
• Advertising fees for securing tenants
• Insurance against fire and public liability etc.
• Maintenance e.g.  Cleaning & general servicing, painting etc.
• Registration fee with the Private Residential Tenancies Board
• Mortgage Protection Insurance paid in the year
• 75% of the interest on monies borrowed to purchase or improve the property. The amount is restricted to the interest actually incurred for the period during which the property is actually let. Also, the landlord must have complied with the registration requirements of the PRTB.
• Costs of any un-reimbursed services provided to tenants
• Repairs e.g. mending windows & doors, damp and rot treatments
• Sundry Expenses such as phone, admin. etc.

 Step 3

Calculate any wear and tear allowance for an additional offset against the gross rental income computed at Step 1.

The wear and tear allowance can be claimed on the cost of furniture and fittings at the rate of 12.5% over 8 years. This would include furniture, electrical appliances, central heating, carpets etc.

The deduction of the expenses (step 2) and the wear and tear allowance (step 3) from the gross rent receivable (step 1) will give you the rental surplus or deficit for the property for the year.

Other general points: 

1. If there is a rental loss for the year, then this loss may only be carried forward to reduce rental income of future tax years.
2. Everybody in receipt of rental income must declare details of that income to the tax office.
3. A very valuable method of income which could boost your personal finances is the Rent a Room Relief. Income from the renting of room(s) which does not exceed €10,000 in any calendar year is exempt from tax. This equates to €833 per month.
4. Two noticeable provisions announced in Budget 2013 will see (i) employees paying PRSI on any rental income from 2014 and (ii) the abolition of the NPPR also in 2014.

Note – The information in this article should be treated as a guide only. If you would like further assistance with the preparation of rental income accounts or on any other matters, please contact Tommy in TW Business Solutions on 086-8191629 or by email at personal@tommywalsh.ie

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A report compiled by the Joint Oireachtas Committee on Finance in 2011 concluded that up to €350m in tax relief could be going unclaimed each year – of which a staggering €50m alone is expected to be in respect of unclaimed medical expenses.

In order to address the issue of the significant amount of cash not being claimed by taxpayers, this article is a guide to claiming tax relief for health or medical expenses – one of the most likely expenses for which a taxpayer can claim relief for.

Who can claim?

An individual can claim tax relief for most unreimbursed medical expenses incurred for themselves and on the behalf others.

The claim must be in respect of unreimbursed medical expenses i.e. expenses not recovered from any other source e.g. under a medical insurance policy, excess on the drug payment scheme etc.

Examples of expenses qualifying for tax relief are:

•  Costs of doctors and consultants fees
• Drugs and medicines prescribed by a doctor
• Diagnostic procedures (X-rays, etc.) carried out
• Specialist dental work (e.g. crowns, bridgework etc.)
• Transport by ambulance
• Maintenance or treatment in a hospital
• Care in a nursing home
• Routine maternity care
• Expenses incurred on any medical, surgery or nursing appliance
• Physiotherapy or similar treatment
• Orthopaedic bed or chair
• Hearing Aids
• Wheelchair
• Educational Psychological Assessment on a qualifying child
• Speech and language therapy for a qualifying child
• Certain travelling and home expenses for kidney dialysis patients
• In vitro fertilisation treatment
• Cost of gluten-free products for coeliacs
• Orthoptic or similar treatment
• Dietary products for diabetics
• Treatment received abroad may also qualify

When can I make a claim?

A claim for medical expenses should be made at the end of the tax year in which the expenses were incurred. So a claim in respect of 2012 can be made in early 2013.

Are there any time limits regarding making a claim?

All tax relief claims must be made within 4 tax years of the expense being incurred. Therefore claims can still be made for 2009 and subsequent years.

At what rate is the relief given?

Since 2009, tax relief in respect of medical expenses is limited to the standard rate of tax. There is an exception in the case of certain nursing home expenses for which tax relief can still be obtained at the marginal rate.

How do I go about making a claim for medical expenses?

-         Completing a Form MED 1

Whilst you don’t send your medical receipts, it is imperative that you retain such expenses for 6 years as Revenue may investigate your claim.

-         Completing a Form MED 2 for specialised dental expenses.

-         It is also possible to submit a claim online via Revenue’s PAYE Anytime service.

Example of a Medical Expense Claim

In 2012, Sean incurred the following medical expenses:

-         5 visits to his GP @ €50 each

-         1 Consultation Fee @ €200

-         12 Monthly Prescriptions capped @ €132 re DPS

The total medical expenses incurred by Sean in 2012 amount to €2,034 (being €250 + €200 + €1,584). As none of these expenses are reimbursed, Sean can claim tax relief for €407 (€2,034 @ 20%) for 2012 by completing a Form MED 1 or by submitting claim online via Revenue’s PAYE Anytime service.

The above article is for guidance purposes only. If you want assistance in making a claim for Medical Expenses, you can contact Tommy at TW Business Solutions on 086-8191629 or alternatively email personal@tommywalsh.ie

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In the current economic climate, the application of the saying ‘Cash is king’ has never been more appropriate.

It is essential that effective cash management practices are in place in order to manage cashflow more vigilantly than ever before. This consistent management of cashflow is necessary if a business is to continue to meet its financial commitments. The cash that flows in and out is essentially the lifeblood of any business. The reason most businesses fail is due to a lack of cash.

The following are a list of some of the key cash management tips:

1. Prepare a cash management plan

The preparation of a cash management plan is the essential starting place. It is the classic road map analogy – it begins with identifying the place where we are in the current moment and ends with the place we need to get to. The plan gives direction to the business by setting out how the business will get to the required destination.

Once prepared, it will be necessary to review and assess the plan on a regular basis in order to monitor it closely so as to compare the actual cashflow against projections.  This will allow informed decisions to be made by the business owner.

2. Address potential cashflow problems

The drafting of an accurate cash flow projection will identify any future period(s) in which a shortage of cash will arise. It is vital that such cashflow problems are foreseen so that the business can be proactive about taking steps to address the situation. Arrangements for credit from banks and suppliers can be prepared well in advance in order to address the temporary shortfall. By identifying the anticipated pressure on the cash flow of the business allows for early intervention.

3. Efficient trading stock management

A strategy for efficient stock management is vital to reduce cash flow hold-ups. Stock can be converted into cash by reducing the level of any excess stock on hand. It is important to identify and maintain the appropriate level of stock in order to meet customer demands.  This presents real opportunities for freeing up cash.

Attempts should be made to turn any slow moving stock items into cash by reducing the price and having a certain area to display same. This would be even more important for goods which are coming close to their best before date.

A review of the product mix is also important in the context of any efficient stock management system. Sales reports will identify the popular stock items and the slow moving stock items. This will allow for more efficient purchase ordering and prevent having dead money tied up in stock.

4. Credit Control

The main area of a business in which cash tends to become locked-in is in the area of Debtors, thus credit management is critical. The current climate is not a time to be taking on more debt.

I summarise some of the main points here:

-         If the credit sale is to a new customer, make sure the customer completes and signs a credit application form therefore collecting as many details as possible and whereby you can initially stress your credit terms. It is also important to run credit checks.

-         It is necessary to have an efficient and effective credit control policy. Ensure your customers are aware of the credit policy specific to them as regards their credit terms and credit limit.

-     Invoice early and often – make sure to issue and send all sales invoices on time, every time to your customers. The invoice should clearly state and reinforce the credit terms. It is also advisable to include your bank details on the invoice. Also, all sales invoices issued should contain a Retention of Title clause to the effect that all goods remain your property until paid for in full.

-    Follow up on invoices issued by calling to confirm receipt of the invoice and to ensure that there is no issue or dispute with it. This can help prevent delays further down the line.

-    Having issued the invoice early and followed up on receipt of same, it is important to maintain communication with debtors at the due date. Remember, the sales process is not complete until you are paid so it is important to collect funds due from customers. You should make the process of receiving monies from your debtors as easy as possible.

-     Issue statements and reminders to customers.

-   If payment is not received by the due date, follow up immediately by email and or phone. If payment is still not forthcoming, use collection services or legal action when necessary.

-     Review the credit policies for your customers. Are they making payments within their credit terms? Have you applied credit limits to their accounts? Are credit stops in place where necessary? It is the business owner/manager’s decision to extend credit. Where a customer has a continuous history of late payment, it may be necessary to change the credit terms of even consider withdrawing credit supplies to that customer. Supply on a cash on delivery basis (c.o.d.) as an alternative.

-     Finally, bear in mind that the older the debt becomes, the lesser the chance the business has of receiving it.

5.  Surplus Assets

- Does the business have any surplus asset(s) (e.g. truck) which it is not using? It might be possible to dispose of same and realise cash.

6.  Consider having an invoice discounting facility

Invoice discounting is where a lender provides cash advances against your outstanding invoices. The lender can provide access to cash of up to 85% of the value of the invoiced debt. The main advantage of having an invoice discounting facility is that it allows sales to be converted into cash quickly thus easing cash flow problems. The main disadvantage is the costs associated with the facility – be aware of what is essentially a high interest charge.

7.   Introduce cost improvement programmes

In the current economic climate, it is essential that all costs are kept under control. All costs should be reviewed on a line by line basis with a view to establishing if they can be reduced. It is vital not to lose control of your costs. Don’t be afraid to ask for better terms and get quotes from other suppliers.

8.  Tax Liabilities

It is essential to pay all tax liabilities as they fall due to avoid interest and penalties. It is best to be proactive in terms of engaging with Revenue.

In some cases, it is possible to get Revenue agreement to go on an annual scheme for VAT and/or PAYE/PRSI so to spread the tax liabilities over the year.

From a cashflow point of view for VAT, your business might qualify for the “cash receipts” basis. The advantage of accounting for VAT on this basis is that VAT is not payable on sales invoices until such time as you receive payment. VAT is still deductible on purchase invoices in the normal way.

To be eligible for the “cash receipts” basis, your business must either:

-         Have an annual turnover of less than €1m

OR

-         90% of its sales is to unregistered customers.

Also, where there are currently tax liabilities outstanding with Revenue, it may be possible to reach agreement with Revenue to pay the liability over a number of years. Revenue have formalised this procedure by requiring the taxpayer to complete a Phased Payment Application form (PPA1). It will be necessary to demonstrate an ability to pay the outstanding tax liabilities and to commit to pay future liabilities as they fall due. The backup documentation required by Revenue depends on the total amount of the outstanding liabilities.

9.  Preserve cash by maximising credit terms from your suppliers

Check on the credit terms that your suppliers will extend to you. Most suppliers allow 30 days but it may be possible to extend this to 60 or 90 days preserving cash in your business.

Along with seeking to extend credit terms, inform your suppliers that you are introducing a cost improvement programme and are reassessing your cost base.

In some instances, the business when making a purchase must weigh up more flexible payment terms from one supplier against the cheaper costs of another.

© Tommy Walsh 2012

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