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Guide to Pay & File

You could face stiff penalties over money earned on the side, or from Airbnb, unless you pay tax owed on those earnings in time, writes Louise McBride

This year’s tax return deadline is fast approaching – and if you’re one of those who thinks that tax returns have absolutely nothing to do with you, check that this is truly the case. Many people don’t realise they have to file a tax return – while there are others who chance their arm and choose not to file a return in the hope they can avoid paying tax on money earned on the side.

Failure to file a tax return when you need to could cost you dearly though – there are stiff penalties for people who don’t pay their taxes correctly and on time. So don’t make the mistake of thinking that it is just the self-employed and small businesses who must file a tax return this year – anyone earning money which cannot be taxed in the normal way must usually file a return and pay whatever tax is due.

Here are some of the main reasons why you, the ordinary-person-on-the-street, might have to file a tax return in the next few weeks.

Airbnb

Airbnb, the online accommodation service that allows people to make extra money by renting out their properties, has become a handy earner for many Irish people in recent years. There are concerns that a number of those who have earned money from Airbnb have not declared – or paid tax on – that income. Indeed the Revenue Commissioners has written to about 12,000 people to warn them to include money earned from Airbnb in their tax returns. These letters were sent on foot of information received by Revenue from Airbnb.

The average Irish Airbnb host earned about €3,500 in 2017 – though some hosts earned much more than that.

Money earned as an Airbnb host is taxable income – so it is important to declare such income to Revenue and pay any tax due. You pay income tax, PRSI and the Universal Social Charge (USC) on Airbnb income – and the rate of income tax paid depends on whether your total earnings require you to pay tax at the 40pc or 20pc rate.

You might not have to file a tax return for Airbnb income if you’re a PAYE worker and the profit earned as an Airbnb host is no more than €5,000 a year. You must still, however, come to an arrangement with Revenue to pay the tax due. “If you’re a PAYE worker, you may be able to adjust your tax credits and rate band to pay the tax due through the PAYE system – if the net Airbnb income is less than €5,000 for a tax year,” said Norah Collender, tax technical manager with Chartered Accountants Ireland. “In such cases, you should contact your local tax office or use Revenue’s online self-service system, MyAccount to have the tax liability coded on to your tax credit certificate. You will have less take-home pay as the Airbnb tax bill is paid off.”

Should you be unable to pay the tax due on your Airbnb income through the PAYE system, you must declare that income in a tax return and pay whatever tax is due. Self-employed people, for example, must file a tax return for any Airbnb income earned. So too must anyone who has earned a profit of more than €5,000 – or a gross income of more than €30,000 (regardless of profit) – from being an Airbnb host.

The tax rules around Airbnb income can be confusing. The accommodation provided through Airbnb is often short-term in nature (as it is often provided to tourists, holidaymakers and other visitors). You do not qualify for rent-a-room relief (the scheme which allows you to earn up to €14,000 a year tax-free by renting out a room in your home) if letting out a property to short-term guests. Therefore, you won’t qualify for relief under the rent-a-room scheme if your Airbnb guests are only short-term.

The tax treatment of Airbnb income depends on whether or not the income arises in the course of a trade. “Generally speaking, for the income to be considered trading income, the property or room would be expected to be available for rent on a frequent and regular basis, rather than on a once-off or occasional basis,” said a spokeswoman for Revenue.

The extent to which you can write expenses off your Airbnb tax bill – and therefore reduce the amount of tax you must pay on that income – will depend on whether your Airbnb earnings are deemed to be trading income, or not.

“Expenses relating to the trading activity and a portion of expenditure on fixtures and fitting used for the trade can be offset against the income from the Airbnb activity,” said Collender. “However, an individual who got a one-off or occasional Airbnb payment is not treated as operating a trade and the extent to which these individuals can offset expenses against Airbnb income is more restrictive than for an individual operating a trade.”

Some of the expenses which you may be able to write off your tax bill if you are only an occasional Airbnb host (and therefore not running a trade) include commission paid to Airbnb, cleaning fees, and the cost of breakfast provided to the guests. However, the costs of insuring or maintaining the property would not be tax-deductible.

HOUSE SALE

When you sell a house, you must declare the sale of that property to Revenue – even if it was your only home for the years that you owned it or if no tax is due to be paid on any profits made from the sale. Should you have sold a house in 2017, you must declare that sale to Revenue before this year’s tax deadline.

If the property you sold was not your principal private residence (PPR) for the entire time that you owned the property, you may have a tax bill to pay – as Capital Gains Tax (CGT) must typically be paid on any profit earned from the sale of such a property.

You may be able to reduce or eliminate your CGT bill if the property was your main residence for any of the time you owned it – as you will be entitled to a tax exemption for the years that the property was your PPR.

Furthermore, there is a personal CGT exemption that allows you to earn the first €1,270 of your profit (or €2,540 if you are married and the property was held jointly) free of CGT.

Any CGT due on a property sold in 2017 must however have been paid by mid-December 2017 (if the property was sold between January 1 and November 30, 2017) – or by the end of January 2018 (if the property was sold in December 2017). So if you have not yet paid the CGT on a property sold in 2017, you are late paying your tax. “If the tax wasn’t paid, get it sorted as soon as possible and submit a 2017 tax return by November 14,” said Collender.

You do not have to pay CGT on profits earned from a house sale if that house was your main residence while you owned it (as long as there is no more than one acre of land around the house).

NIXERS

Income earned from nixers – such as grinds, gardening or plumbing jobs on the side – is usually taxable and must be declared to Revenue. There are a few exceptions to this rule: a bean an ti, for example, does not have to pay tax or file a tax return on money earned from the hosting of Gaeltacht students in her home.

Check if tax must be paid on earnings not taxed in the normal way, and if you must file a return.

Should you be a PAYE worker earning some money outside the PAYE system, you may not have to file a tax return if the money earned is below certain limits – as long as you come to an arrangement with Revenue to pay the tax on the extra earnings through the PAYE system.

Handy pointers for 2017 tax return

The Deadline

The deadline for paper-based tax returns is October 31, 2018 but if you’re filing your return online, the deadline is November 14. You must be registered with ROS (Revenue Online Service) to be able to file your return online. It could take a week or two to get registered with ROS, so if you haven’t done so already and are planning to file your return online, register as soon as possible.

Exempt income & tax returns

Even if you earned income in 2017 which is exempt from tax, you may still need to file a tax return for that income and declare the tax-exempt income in your return. This, for example, is the case with the rent-a-room relief scheme. Never assume that any income you earn is tax-free — always check with Revenue if income earned is taxable and if you must file a return for it. Income earned from taking a foreign student into your home can be tax-free — as long as you qualify for rent-a-room relief. You must still file a return to declare that tax-free income though.

Paternity and Maternity Pay

Maternity and paternity benefit are liable to income tax — but not to PRSI or the Universal Social Charge. So should you be self-employed, remember to declare any maternity or paternity benefit you received in 2017 in your tax return and to pay the tax due on that benefit. PAYE workers who get paternity or maternity pay do not need to file a tax return as Revenue should have already adjusted their tax credits and bands to ensure that tax was paid on the benefit.

Tax Return Forms for house sale

Self-employed individuals who sold a property in 2017 must declare that sale in the Capital Gains Tax (CGT) panel of their tax return form (Form 11). PAYE workers however can file their CGT return on the form CG1.

Tax Return Forms for Airbnb

As this year’s tax return deadline is for the 2017 tax year, it is income earned as an Airbnb host in 2017 which must be declared by the end of this month (or by November 14 — if filing the return online). “If you’re a PAYE worker and have Airbnb income in 2017 which you didn’t sort out through the PAYE system by having your tax credits and rate band adjusted, then you have until 14 November this year to file a Form 12 and pay over the tax due on the income,” said Norah Collender of Chartered Accountants Ireland. “The form is complex so don’t put off completing it until the day of the deadline.”

Self-employed people can use the Form 11 to declare any income earned through Airbnb. “If you are frequently getting an income from Airbnb, you need to complete the section dealing with trading income,” said Collender. “If you only got a one-off or infrequent payment from Airbnb, you should complete the section of the return dealing with fees and commission earned from sources of income other than employments or directorships.”

Should you have earned money as an Airbnb host prior to 2017, and never declared or paid tax on this income, contact Revenue soon to settle your tax bill for that income. You are likely to face interest and penalties for late payment of tax but failure to settle your tax bill now could see you face much tougher tax penalties in the future.

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