Key Tips for 2014 Form 11 Filings

Olga Miller Tax Director, Warren & Partners

Sinead Scanlan Senior Manager, Warren & Partners

IntroductionCompletion of the Form 11, which is now approaching 30 pages,

is an onerous task for practitioners and taxpayers. With the pay

and fi le deadline of 12 November looming, we outline below the

key changes to the Form 11 for 2014 and other administrative and

practical matters.

2014 Form 11

Section B: income from trades, professions or vocationsTerminal loss relief

The 2014 Form 11 includes a new panel dealing with terminal

loss relief (ss385–8 TCA 1997 refer). Revenue eBrief No.

35/2015 directs the reader to a new Part 12.05.06 of the

Revenue Operational Manual, which sets out (1) the main issues

surrounding terminal losses, e.g. timeframes and calculations, and

(2) the general principles to be considered when assessing when

a trade has actually ceased.

Key points are:

› The relief applies to a sole trader/partner in a

partnership.

› For the relief to apply, the trade has to be permanently

discontinued.

› The relief should be claimed within four years of the

year of cessation.

52 Key Tips for 2014 Form 11 Filings

› Relief is given against trading profits from the same

trade/profession of the last three years of trading,

taking the most recent first. No deduction is allowed

against other income.

› The loss cannot displace any loss relief already given

for losses carried forward from earlier periods.

› No deduction for terminal loss relief is allowable in cal-

culating USC or PRSI (it is an income tax relief only).

Section E: foreign incomeTaxation of offshore funds

Finance (No. 2) Act 2013 provided for an increase to 41% in the

tax rate that applies to income and gains arising to individuals

on certain Irish and offshore funds. Although there have been no

fundamental changes to the offshore fund regime since 2007, the

matter is extremely complicated, and we recommend that you

review the following ITI publications:

› Article in this issue by Ted McGrath

› Niamh Keogh and Leo Sexton, “Taxation of Fund

Investments – Where Are We At?”, Irish Tax Review, 27/1

(2014).

› Jane Florides, “Taxing Funds and Other Investments”,

ITI Annual Conference 2014.

The taxation of offshore funds can be very loosely categorised

as follows:

› Funds located in “good” jurisdictions (i.e. in the EU/EEA

or in an OECD country with which Ireland has a double

taxation agreement):

› Income tax applies at 41%; USC and PRSI do not

apply.

› There is a deemed disposal where the units are

held for eight years.

› Losses are not allowable.

› Funds located in “bad” jurisdictions (i.e. not in the EU/

EEA or in an OECD country with which Ireland has a

double taxation agreement):

› Income tax applies at the taxpayer’s marginal

rate; PRSI and USC apply.

› There is no deemed disposal where the units are

held for eight years.

› Losses are allowable for CGT purposes.

Therefore, when completing the 2014 Form 11, care needs to be

taken to ensure that funds are identifi ed correctly and the acqui-

sition and disposal are reported accordingly.

Section H: annual payments, charges and interest paidInterest relief on loans applied in acquiring an interest in a

partnership

Finance (No. 2) Act 2013 amended s253 TCA 1997, “Relief to

individuals on loans applied in acquiring interest in partnerships”.

The amendment abolished the relief for interest paid on loans

taken out on or after 15 October 2013 (other than loans used to

acquire an interest in certain farming partnerships). In relation to

existing loans, the relief will be phased out over 2014 (75%), 2015

(50%) and 2016 (25%), with no relief available for 2017 onward.

There is some provision for refi nancing if the new loan does not

exceed the balance and term of the existing loan (Revenue eBrief

No. 23/2014 refers), but the “phase-out” provisions will also apply

to the new loan.

As stated above, in 2014 the relief available will be restricted to

75% of the qualifying interest paid for the tax year 2014. When

completing the 2014 Form 11, the gross amount of interest paid

should be included, and it will be restricted to 75% by ROS.

Section I: claim for tax credits, allowances, reliefs and health expensesSingle-person child carer credit

From 1 January 2014 the one-parent family tax credit has been

replaced with a new single-person child carer tax credit. This has

been refl ected in the 2014 Form 11.

The new credit is available to only one individual, with whom

the qualifying child resides for the whole or greater part of the

year. This is unlike the one-parent family tax credit, which was

potentially claimable by both parents and legal guardians if the

child resided with each claimant for at least part of the year.

The primary claimant can relinquish his or her claim to the credit,

making it possible for another carer of the child to avail of the

credit if certain conditions are met. Apportioning the tax credit

2015 Number 3 Key Tips for 2014 Form 11 Filings 53

between parents/legal guardians is not possible: the parents/

legal guardians will have to agree on who will claim the credit.

See Revenue’s frequently asked questions for further information

on the credit.

Medical insurance relief

The curtailment of the relief for medical insurance premiums as

provided for in Finance (No. 2) Act 2013 has been refl ected in

the 2014 Form 11. Inclusion of the medical insurance relief in the

Form 11 applies only where the premium is paid by the employer

(with relief otherwise being given through tax relief at source).

The Form 11 requires signifi cant detail, including the names of the

individuals covered by the premium, whether they are children/

adults and the gross amount of the premium attributable to each

person insured.

David Fennell in “Health Insurance Relief: Post Finance (No. 2) Act

2013”, Irish Tax Review, 27/1 (2014), dealt with the issue compre-

hensively. Revenue Information Leafl et IT5 has been updated to

deal with the matter.

Section J: high-income individuals: limitation on use of reliefsHigh-earners’ restriction

Revenue has issued guidance (Revenue eBrief No. 39/2015

refers) on the correct treatment of excess relief carried forward

under s485F TCA 1997 for jointly assessed couples. Revenue has

confi rmed that the excess relief carried forward under s485F can

be deducted against the income of both spouses/civil partners.

Finance (No. 2) Act 2013 made the following changes to the high-

earners’ restriction (HER) calculation (Revenue eBrief No. 75/2014

refers), which are relevant for the purposes of completing the 2014

Form RR1:

› Exclusion from the HER calculation of the Employment

Investment Incentive Scheme for a three-year period

where the subscription for eligible shares is made

between 16 October 2013 and 31 December 2016 (pre-

viously, the initial income tax relief at 30% had been

subject to the HER).

› Inclusion in the HER restriction of capital allowances

claimed by passive traders when leasing plant and

machinery to a manufacturing trade (with effect from 1

January 2014).

› Changes in the way double taxation relief is granted in

situations where the HER applies.

Section L: capital gainsCGT debt relief

When completing the CGT section of the 2014 Form 11, practi-

tioners should bear in mind the effect of Finance (No. 2) Act 2013

amendments to s552 TCA 1997, i.e. the curtailment of capital

losses to the actual economic cost suffered where there is debt

relief. As 2014 is the fi rst year the rules are in effect, care should

be taken to ensure that the correct information is collated from

clients (refer to Paula Keaney and Emer Dowling, “Debt Release

and Capital Losses”, Irish Tax Review, 27/1 (2014)).

PRSIExtending scope of PRSI for employees

Section 3 of the Social Welfare and Pensions Act 2013 removed the

previous exemption from self-employed PRSI for unearned income

of employees (and former employees) who were subject to Class

A PRSI and had no source of earned self-employed income (i.e.

Case I/II or directorships).

From 1 January 2014, PRSI is chargeable on certain additional

unearned income where:

› the individual is an employee or an occupational pen-

sioner under 66 years of age (where that pension arises

from that person’s own employment or the employment

of his or her spouse/civil partner);

› the unearned income is the only additional source of

income, and it is taxable under self-assessment; and

› the individual is a “chargeable person” for income tax

purposes.

The PRSI of 4% is under Class K and does not give entitlement to

social insurance benefi ts (the taxpayer may separately qualify for

social insurance benefi ts based on PRSI paid on other sources of

income, e.g. employment income).

The amendment applies only to individuals subject to self-

assessment, i.e. it excludes individuals with low levels of unearned

income that are dealt with through the P21 balancing statement.

In 2013 there were certain changes to the PRSI treatment of

unearned income of modifi ed-rate employees (Classes B, C and

54 Key Tips for 2014 Form 11 Filings

D). Please refer to the Department of Social Protection’s 2014

publication “Advance Notice of PRSI Changes for Computer Users”

for further detail.

Administrative Matters

Self-assessmentThis is the second year of the “full” self-assessment regime for

income tax. Practitioners should refer to Tax Briefi ng, Issue 3, April

2014, for details on the completion of the Form 11 self-assessment

panels and to Revenue eBrief No. 59/2014 for a list of frequently

asked questions. An explanatory video can also be accessed on

the Revenue website.

Chargeable personRemember that all chargeable persons must comply with the full

self-assessment regime. Guidance was issued in Part 41A.01.01 of

the Revenue Operational Manual on when an individual is treated

as a chargeable person (and must therefore fi le a Form 11).

Expressions of doubtSection 959P TCA 1997 introduced a number of changes to the

expression-of-doubt facility. Practitioners should remember that

where the Form 11 is submitted via ROS, any supporting documen-

tation regarding the expression of doubt should be submitted via

secure e-mail my enquiries at the time of fi ling the return. The

expression of doubt will be valid only where both the return and

the supporting documentation are submitted on or before the

return fi ling date.

Amending returns and self-assessmentRevenue issued new guidance on amending returns, which

reflects the changes introduced by Finance (No. 2) Act 2013

(Revenue eBrief No. 73/2014 and Revenue Operational Manual

Part 41A.04.01 refer).

Any claim for repayment of tax arising from an error or mistake in

a tax return that is submitted to Revenue after 1 January 2014 will

be valid only where the relevant tax return is amended. If the tax

return was submitted via ROS, the return should, where possible,

be amended via ROS (it is not currently possible to amend the CGT

sections of a Form 11 via ROS).

In addition to the full self-assessment regime, the provisions apply

to returns made under the “old” self-assessment regime, where

the tax repayment claim is made after 1 January 2014.

An amended tax return must be submitted within four years after

the end of the chargeable period to which the return relates,

unless the amendment of the tax return relates to a specific

provision that stipulates a shorter claim period (e.g. s381 TCA

1997, a claim under which can be made only within two years of

the year of assessment in which the loss is made).

Local property tax surchargeThe LPT surcharge may arise when an LPT return is not fi led at the

time the Form 11 is fi led. Before fi ling the Form 11, practitioners

should seek confirmation from their clients that they are LPT

compliant. The LPT surcharge forms part of the self-assessment

panel.

Other Matters

ROS diffi cultiesIf practitioners are experiencing any diffi culties with ROS, they can

refer to the “Hot Topics” section of the ROS Help Centre, which

collates details of ROS issues and possible solutions.

Domicile/residency issuesThe domicile levy return, Form DL1, is also due for submission

by the ROS pay and fi le deadline. It is important to note that the

domicile levy applies not only to non-Irish-resident individuals but

also to Irish-resident individuals (to whom the other tests apply).

From our dealings with non-Irish-domiciled and/or non-resident

individuals, a key point is to ensure that the Residence,

Remittances and Non-Resident sections of the Form 11 are

correctly completed and, in particular, that the non-domiciled box

is ticked where applicable.

ConclusionThe complexity of the Form 11 is growing from year to year, and the

burden on taxpayers and practitioners with regard to compliance

is increasing. It is apparent that there has been a substantial

increase in the number of Revenue aspect queries and other

Revenue interventions in recent years. The key is to obtain the

information in a timely manner to ensure that suffi cient consid-

eration is given to more complex matters before fi ling the Form 11.

2015 Number 3 Key Tips for 2014 Form 11 Filings 55