Act Now To Avoid 10% LPT Surcharge on Income Tax Returns
As the Pay & File Deadline approaches, we are bringing you an urgent reminder that your clients may face a 10% Surcharge on their income tax return if they have not yet complied with their Local Property Tax (LPT) obligations.
This may come as an unpleasant surprise for clients, and it can be quite onerous, as demonstrated in the examples below. However, there is still time to avoid this LPT Surcharge by talking to your clients now and making sure that they:
1. File their LPT return, and
2. Pay, or enter into an arrangement to pay, any outstanding LPT and Household
before their income tax return is filed.
If these actions are taken before the income tax return is filed, no LPT Surcharge will apply (provided the income tax return itself is filed on time). If you believe that the LPT position of a client needs to be regularised, this should be addressed well in advance of the income tax filing deadline, to avoid unnecessary complications.
In TaxFax two weeks ago, we brought information to members about new Revenue guidelines on the LPT Surcharge which had just been published. The guidelines revealed some tricky situations and we approached Revenue for clarification. This has now been received. Care needs to be taken in the following situations:
1. Clients who are filing an income tax return but also have PAYE income, and
2. Clients who have capital gains tax (CGT) as well as income tax liabilities in
Here is how the LPT Surcharge will apply in these cases:
1. Client filing an income tax return but also has PAYE income
Take the situation where this taxpayer files his/her income tax return on time but has not filed his/her LPT return.
Revenue advises us that this taxpayer will have had the LPT (based on the Revenue Estimate) compulsorily deducted from his/her wages.
Notwithstanding this fact, an LPT Surcharge of 10% will also be applied to his/her income tax return, with:
no credit for LPT paid through the compulsory deduction at source, and
no capping of the LPT Surcharge until such time as he/she files their LPT Return.
Details of how the LPT Surcharge will be calculated in these circumstances can be seen here.
2. Clients who have CGT as well as income tax liabilities in their returns
Where a client’s return has both an income tax liability and a CGT liability, Revenue has said that the 10% LPT Surcharge will be applied to both the income tax liability and the CGT liability.
The general rule is that where an LPT Surcharge arises on a return, that LPT Surcharge will be capped at the amount of the LPT liability once the taxpayer subsequently files their LPT return and pays their LPT liability.
However, where an LPT Surcharge arises on a return with both an income tax and a CGT liability, you need to look separately at the income tax element and the CGT element to determine what cap applies. This is a complex calculation and it is best illustrated by way of an example.
Companies filing corporation tax returns where a second tax head is involved, e.g. CGT, will face a similar calculation.
PAYE Exclusion Orders
In response to members’ requests, we raised with Revenue the issue as to whether LPT can be paid via deduction at source from salary where a PAYE Exclusion Order is in place. Revenue has said that, in these circumstances, a P2C can not be provided to an employer and that the LPT payment cannot be made via salary deductions. However, alternative payment options are available to the property owner, including direct debit, single debit authority, or payment by credit card/debit card.
If the property is jointly owned the co-owner may elect to be the designated person and payments may be made by them through deduction at source from their earnings or occupational pension – assuming that the co-owner meets the criteria for deduction at source.
Talk to your clients NOW about LPT
Even though your clients may know that they are responsible for complying with their own LPT obligations, they may not be fully aware of the consequences of the LPT Surcharge.
There is still time for your clients to avoid an LPT Surcharge on their income tax returns, provided they file their LPT return, and pay, or enter into an arrangement to pay, any outstanding LPT and Household Charge well in advance of their income tax return being filed.
For more on the LPT Surcharge, read Revenue’s Guidelines or access our dedicated LPT webpage.