New income tax measures to help sole traders respond to the impacts COVID-19 is having on their businesses and cash flow were announced as part of the July Jobs Stimulus
Self-employed individuals may now use losses incurred in 2020 against profits of the same trade in 2019. Such losses would normally only be available to carry forward against future profits.
Certain unused capital allowances may also be carried back to 2019.
These measures may reduce the amount of income tax payable on 2019 profits. But, they are not deductible for USC or PRSI purposes and there is a total limit of €25,000 on the amount that can be carried back.
There is also an option to accelerate the use of losses and unused capital allowances by making an interim claim for estimated amounts before the end of the tax year. A best and reasonable approach are essential.
To be eligible to make an interim claim, certain conditions must be satisfied; most notable is that the individual must be fully tax compliant. There are also specific time limits for making an interim claim.
The amount of the interim claim will need to be monitored for any revisions needed. This may include increasing or reducing the claim. There are also time limits for making revisions.
An excess interim claim can incur an interest charge, the amount due and payable will depend on the reason for the excess claim and the timeliness of correcting the excess.
Unused capital allowances
Certain unused capital allowances in 2020 may be carried back and set off against 2019 profits. Apportionment may be required if the businesses accounting period and the tax year are not aligned.
The total amount of losses and unused capital allowances that can be carried back is subject to a limit of €25,000. If the individual has more than one trade, the limit of €25,000 must be applied to the total losses and unused capital allowances.
If the High-Income Earner Restriction is applicable, an additional limit applies.
How to make a claim?
An interim claim can be made on the Form 11 tax return either at the time of first filing that return or at a later stage by amending the return. There are specific fields on the return to be completed.
Similar to an interim claim, a final claim should be made by amending the Form 11 tax return.
Measure for farmers
For farmers adversely impacted by COVID-19 there is the option to step out of income averaging for 2020. This option is available to farmers who have already used their option to temporarily step out of income averaging. Certain conditions must be satisfied and an election must be made on the Form 11 tax return.
These new income tax measures were first announced as part of the government’s July Jobs Stimulus Package. They are legislated for in the Financial Provisions (COVID-19) (No. 2) Act 2020.
Contact your Grant Thornton adviser now to discuss your eligibility and how we will assist you in availing of these measures.