A short guide to preliminary tax
As a self-employed individual in Ireland, understanding preliminary tax is crucial. This tax is an estimate of the amount you'll owe for the current trading year, covering income tax, Pay Related Social Insurance (PRSI), and Universal Social Charge (USC).
When is Preliminary Tax Due?
Preliminary tax is typically paid when you file your tax return for the previous year. So, for example, when filing your tax return for 2023, you'll also pay preliminary tax for 2024.
Exceptions:
First Year of Trading: If this is your first year in business, you won't need to pay preliminary tax for that year. However, you'll still need to file your tax return by the usual deadline.
Who Has to Pay Preliminary Tax in Ireland?
· All self-employed individuals in Ireland are required to pay preliminary tax, regardless of their income level.
· Any individual who receives Non PAYE income such as rental income ( in relation to landlords), foreign pensions, dividends, short-term letting income etc.
How it works?
Under the self-assessment system, you’re obliged to pay and file your taxes by 31 October each year or if you submit your return on ROS, by 14 November.
Unless this is your first year in business, you must do the following on or before the tax filing deadline:
File your tax return for the previous year
Pay any balance of tax due for the previous year (actual tax liability less preliminary tax paid)
Pay preliminary tax for the current year.
Calculating Preliminary Tax
Estimating your tax liability for the current year can be tricky. To simplify this, you can choose one of the following methods:
90% of the Current Year's Tax: This option is suitable if you expect your income to decrease significantly.
100% of the Previous Year's Tax: This is often the easiest and most straightforward approach for most businesses.
105% of the Previous Year's Tax: This option is available only to those who pay their taxes via direct debit.
Paying Preliminary Tax
You can pay preliminary tax through Revenue Online Services (ROS) using a debit or credit card, a ROS Debit Instruction (RDI), or a direct debit instruction
Late Payment Penalties
Failure to pay preliminary tax on time can result in penalties, interest, and surcharges. It's essential to pay on time to avoid these additional costs.
Tips for Managing Preliminary Tax
Estimate Early: Start estimating your tax liability well in advance to avoid last-minute surprises.
Set Aside Funds: Consider setting aside a portion of your income each month to prepare for the preliminary tax payment.
Seek Professional Advice: If you're unsure about any aspect of preliminary tax, consult with a tax professional.
Remember: Preliminary tax is an important aspect of self-employment in Ireland. Understanding your obligations and planning ahead can help you avoid unnecessary penalties and ensure compliance with tax laws.
If you need any further support or advice on your prliminary tax, feel free to get in touch.