Temporary income tax relief for the self-employed individuals carrying on a trade or profession
The tax measures announced as part of the Government’s July Jobs Stimulus are now signed into law and are set out in the Financial Provisions (Covid-19) (No. 2) Act 2020.
On 6 August 2020, Revenue published details on a range of tax measures contained in the Act. Included in this was detail on tax relief for the self-employed who will incur losses in 2020 as a result of Covid-19.
Self-employed individuals whose trade or profession was profitable in 2019 but who incur losses in 2020 can claim to have those losses, and certain unused capital allowances, carried back and deducted from their profits for the tax year 2019.
How to make the claim
Individuals may make this claim for income tax relief by amending their Form 11 tax return for 2019.
A €25,000 limit applies on the total amount of losses and capital allowances that an individual may carry back, and an additional limit applies where the individual is subject to the High-Income Earner Restriction.
An individual who incurs, or who reasonably expects to incur, a loss during 2020, can accelerate the timing of the income tax relief by making an interim claim based on an estimate of the amount of the relief that will be available to him or her. An individual will be able to revise his or her interim claim as the year progresses, including increasing the claim where it is estimated that the loss will be greater than previously expected.
To be eligible to make an interim claim, an individual must:
- have filed the Form 11 for 2019,
- be compliant with all obligations under tax legislation in relation to the payment of taxes and the filing of returns
- Note that individuals that avail of debt warehousing and/or agree a phased payment for outstanding debt that does not qualify for warehousing will be treated as having complied with payment obligations relating to tax covered by those arrangements
- and, make a declaration that he or she has incurred a loss, or reasonably expects to do so, in 2020.
Option for farmers
Additionally, these measures provide an option to farmers to step out of income averaging for the tax year 2020, notwithstanding that the farmer may also have stepped out of income averaging in one of the four preceding tax years. This means a farmer can elect to pay tax based on the actual profits for 2020, rather than on averaged profits. A farmer may wish to do this if the actual profits for the year are lower than the average profits which would otherwise be assessed to tax. Where a farmer makes such an election, tax due on the average profits that would have been taxed in 2020 is deferred.
Further guidance is available from Revenue here
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