What doctors should know about income tax

With the Halloween deadline for paying and filing tax returns looming close, it is important to be familiar with the details on how income tax works

Returns for 2018 are due for filling by 31 October 2019. However, for those who are filling and paying through Revenue’s Online system (ROS) an extended deadline of 12 November is available.

This deadline also marks the date to pay any balance of income tax due for 2018, together with preliminary tax for 2019.

The self-assessment in Ireland places an obligation on the individual to file a return, calculate the tax liability, and pay the tax due. The return must be filed before the deadlines outlined above to avoid a surcharge. The surcharge amounts to 5 per cent of the amount of tax payable for the period subject to a maximum surcharge of € 12,695, where the return is filed less than two months after the deadline. Otherwise if the return is filed more than two months after the deadline, a surcharge of 10 per cent is imposed to a maximum of € 63,485. Preliminary tax due for the year 2019 must be also paid if interest charges of 0.219 per cent day are to be avoided. Preliminary tax must represent 90 per cent of the individual’s actual liability for 2019 or 100 per cent of the final liability in 2018.

What is my taxable income?

Your 2018 income tax return should include details of all income earned by you in that year. This will include employment, profits made during the year as a sole trader and any other income such rental income, deposit interest, dividends, foreign income, HSE income, etc.

Please be aware if you are Irish domicile and resident, your income tax must include all sources of income. In other words you will be taxed from all sources anywhere in the world. Failure to comply with this requirement could lead to avoidable penalties and interest.

Whether your income is taxed at the standard rate (20 per cent) or the marginal rate (41 per cent) will depend on your standard rate band.  The standard rate band for 2018 for a single person is €34,550; however, this will increase if you are jointly assessed with your spouse or you are a one parent family. It is important to note that you may be entitled to certain tax credits and reliefs, please see some of the current reliefs available:

Education fee: Are you a student doctor? Do you have children in college?

Married persons: Have you recently got married?

Uniform expenses:  (Subject to certain conditions)

Medical and non-routine dental expenses: Up to 20 per cent of these unclaimed expenses can be refunded.

Permanent health insurance

Claim tax relief in certain work expenses

Revenue has arrangements in place to allow employees to claim tax relief in certain expenses.  The employee must incur and pay for these expenses in order to perform the duties of their employment, and the costs must be directly related to the nature of their employment.

In limited circumstances, other expenses of employment can be claimed if you run them up “wholly, exclusively and necessarily” as the rule puts it.  But this can be very difficult to establish to revenue’s satisfaction. 

Doctors can qualify for a flat-rate deduction of €695 to cover the maintenance of white coats and medical instruments and their subscription to the Irish Medical Council provided certain conditions are met.

Why a pension could be your best decision

Let’s start with the good news, we are living longer than ever before. Latest statistics suggest that men and women in Ireland can expect to live to 81.5 years on average. There’s no downside to a longer life, right? Consider this — longer life means we will need to provide ourselves with an income for a longer period of time post-retirement.

We might quip about kids paying for our nursing homes, but we all know that it is our own responsibility to provide for our own retirement.

Pensions remain the most tax-friendly investment available. Income tax relief at the highest rate of tax that we pay is on offer up to a certain percentage of our annual income depending on our age – up to 30 per cent for people aged 50 and over or 25 per cent for people between 40 to 49 years old but all capped to an income of € 115,000.

Any individual, business owner, employee, member of a partnership etc could make a pension contribution, which must be paid prior to the deadline. Don’t forget these payments will have a double effect, reducing your actual tax bill and reducing your preliminary tax for the following year.

Making a pension contribution payment

You don’t need to make recurrent payments for your pension, the only condition is that the pension contributions must be paid before the October/November deadlines, there are different schemes in relation to pensions, we will have a more detailed discussion regarding these at a future date.

In conclusion the incentive to save for retirement is one which should certainly be considered as a means of reducing your tax bill but even more importantly as a tax efficient way in which to build up your pension pot for retirement.

Before making your pension payment it is also very useful for you to obtain crucial information of what fees and charges are actually contained in your existing pension policies to ensure the tax relief you get now is not eaten up in fees and charges later on.

When it comes to dealing with Income Tax, I always advise my clients to get their information in early to their accountant. Once your liability has been calculated you will then have time to consider the correct approach in terms of pension payments, etc, and ensure all available reliefs have been claimed.

Mr Paul Redmond (CPA,QFA, FAIA) is Managing Partner of RDA Accountants Limited. He is a member of the Institute of Certified Public Accountants. He is also a Fellow of the Association of International Accountants and a qualified financial advisor.