Proprietary directors need to ensure that they meet the tax filing deadlines as late return submission can result in significant unforeseen liabilities.

Where an individual is a proprietary director i.e., owns more than 15% of the share capital of a company he/she is obliged to file a tax return under the self-assessment regime.  In this regard a tax return must be filed by 31 October following the end of the tax year so for the 2012 year the filing deadline is 31 October 2013.

Where a tax return is not filed on time a surcharge of up to 10% of the tax liability will be due – this is the rule for anyone assessed to tax under the self-assessment regime.  However the position is slightly different for proprietary directors in that their surcharge is calculated without any deduction for PAYE tax already paid.

Example – proprietary director, single, only income is proprietary director salary of €40,000:

Taxed as follows:

€32,800 @ 20% = 6,560

€7,200 @ 41% = €2,952

Total    = €9,512

Less PAYE paid €9,512

Tax liability €0

Normally in this situation there would not be a surcharge as there is a nil tax liability, regardless of when the return is filed.  However for a proprietary director the surcharge (where the return is filed more than 2 months late) would be calculated as €951.  This is 10% of total tax liability of €9,512, as surcharge is calculated before a deduction for PAYE paid.

As you will see it can be very costly to miss the tax filing deadline therefore we would recommend that returns be completed sooner rather than later.