Getting a Spanish tax refund

There aren't many nice things about being a tax accountant. It's not a great ice-breaker at parties and you sometimes feel a bit like a dentist or a doctor delivering bad news when you have reckoned up someone's liability and have to tell them. But then there are those lovely occasions when your client gets some money back and you get the "shoot the messenger" syndrome in reverse ("hug the messenger"?) because they are so surprised and grateful.

This scenario is particularly rewarding when you have come up with the idea that got the tax refund in the first place and the recent Spanish tax reporting season threw up some good examples of this.

Refunds can only occur when someone has paid too much tax during the year and they have submitted an annual tax return after the year is over which proves as much: the Agencia Tributaria will credit their bank account with the difference. What I mean by "paying too much tax during the year" is that the Spanish government take automatic retentions of tax from people's income as it arises and, as this is done on a flat rate taking no account of people's personal circumstances, too much can be taken. Examples of such retention payments taken by the government are:

- % deductions of bank interest

- retentions from salary (like PAYE in England)

- deductions from dividends paid by companies

- retentions paid on self employed earnings

- rental income retentions

The most common reason why people find they have paid too much out in retentions is that they have low income overall compared to their personal allowances (tax free income allowance). This often happens when people start work or start a business part way through the year so they get a full year's personal allowances to use against a part year's income. Also a married couple can claim the higher Spanish married couples allowance when only one of them is earning.

Such refunds are one good reason why it can often pay to do a tax return particularly if you take advantage of all the allowances available to you. There are allowances such as for young children (under 3) and against rent paid that can lead to a tax refund in the right circumstances.

Anyone wanting more details of how the Spanish tax system works should check out the Advoco page Spanish Income Tax 2010.