Tax reliefs only @20% of total amount

littlewopper

Hi Guys,
Just have a quick one on the Tax relief’s available to tax payers.
Does anybody know why a tax payer is only entitled to 20 % of the value of a Tax credits?.

By example flat rate expenses for a Plumber is €177 p/a, however on a Plumbers Tax credit certificate only 20% of the is applied (€35.4) - Why are the rates not quoted as the actual value on revenue.ie ??
This principle is also applied to mortgage relief, waste relief etc.

Is this just another way for the government to male you think there not robbing the tax payer blind or am I being to cynical of the excellent people that run our country?

relax carry on

littlewopper wrote: »

Hi Guys,
Just have a quick one on the Tax relief’s available to tax payers.
Does anybody know why a tax payer is only entitled to 20 % of the value of a Tax credits?.

By example flat rate expenses for a Plumber is €177 p/a, however on a Plumbers Tax credit certificate only 20% of the is applied (€35.4) - Why are the rates not quoted as the actual value on revenue.ie ??
This principle is also applied to mortgage relief, waste relief etc.

Is this just another way for the government to male you think there not robbing the tax payer blind or am I being to cynical of the excellent people that run our country?

You may wish to try to understand how the PAYE system works. It's pretty easy once you put a little bit of effort in as its just basic maths.

http://www.revenue.ie/en/personal/faqs/how-do-i-work-out-my-tax.html

It works with two sets of figures. The first is your rate band which is the figure you can earn at the 20% rate of tax. Anything above that is charged at 41%.
So say you earn 25000 which is under the 32800 rate band; that means you are charged at the 20% rate on the 25000 meaning you should pay 5000 Euro tax. Except, we then move onto the second part of the system, tax credits and tax reliefs.

Tax credits like the personal and paye credits are deducted in full from your tax due. So with the example above, it would be 5000 minus the personal tax credit of 1650 and the PAYE of 1650 gives 1700 euro to pay. If you want to reduce this further you can claim tax reliefs like flat rate expenses if applicable to you.
Reliefs are given at either the standard rate of tax (20%) or the higher rate of tax (41%). You would need to check each relief to make sure what rate its granted at.

So with the example above, if you claimed the flat rate expense of 177 Euro it can be granted at 41% if you were charged tax at the 41% rate. However in the above example you were only charged the 20% rate so you can only get the relief at 20% (35.40 euro) This is deducted from the 1700 tax due figure to give 1664.60 tot due for the year on 25000 Euro.

The below links will help you some more but you, like everyone else who is taxed under this system, needs to try to understand it.

http://www.revenue.ie/en/tax/it/leaflets/it11.html

http://www.revenue.ie/en/tax/it/leaflets/it1.html

littlewopper

Thanks alot 'relax carry on' for the words of wisdom so far,

....Im still not completley clear - are you saying -The rate of Tax relief is given based on the type of Tax credit, in this example its only available at 20% of the amount €177 ie €35.4... so why does revenue say you can get Tax relief on €177 when the end user will only ever get €35.4 tax credits ...The rate of relief is never going to be given at 41% even if income is above €32800 for example an income of €40K.

I think it would be clearer if revenue said 'If you claim X tax relief you will get Y tax credits'...????

barneystinson

littlewopper wrote: »

Thanks alot 'relax carry on' for the words of wisdom so far,

....Im still not completley clear - are you saying -The rate of Tax relief is given based on the type of Tax credit, in this example its only available at 20% of the amount €177 ie €35.4... so why does revenue say you can get Tax relief on €177 when the end user will only ever get €35.4 tax credits ...The rate of relief is never going to be given at 41% even if income is above €32800 for example an income of €40K.

Flat rate expenses increase the standard rate cut off point.

So, if you earn 40k, and your cut off point is 32,800 (and assuming your only tax credits are personal 1,650 and PAYE 1,650), then you will pay 6,212 in tax.

If you claim flat rate expenses of 177 then you get a tax credit of 34.20, AND your standard rate band is increased by 177, to 32,977. So on your 40k of income you now pay 6,139.43 of tax.

This is 72.57 less tax, which is 41% of 177...

So in summary what's happening is:
1. The increase in SRCOP ensures you only get taxed at 20% on the amount of the flat rate expenses.
2. The tax credit (at 20%) means no tax is then paid on the amount of the flat rate expenses.

Simples