Tax Returns

Upon filling in the TR1 form to register as a sole trader, who will have the choice to register for a number of

Income Tax – this is the tax payable on the profit generated from your business.

The rates of tax are silimiar to that applicable to a PAYE individual ie same tax bands apply.

However, with the tax credits you loose the ability to claim the PAYE tax credit as you are now self employed. Offsetting this is the ability to write off all business expenses against your income.

Sole Traders must submit a Form 11 annually, which calculated the income tax payable.

This is due by 31st October of the following year. Preliminary tax for the current year is also payable by that date. This process can be completed through a process known as self assesement.

Main Features of Income Tax Self Assessment

The Self Assessment system was introduced for people who do not pay all of their income tax under PAYE. This document gives an introduction to this system and Preliminary Tax liability.

Self-Assessment effectively applies for Income Tax purposes to:

  • The self-employed (i.e. people carrying on their own trades including farming, professions or vocations),
  • Persons receiving income from sources where some or all of the tax cannot be collected under the PAYE system,(e.g. profits from rents, investment income, salary paid by a company not resident in the state, foreign income/pensions, fees, profits from share options/schemes etc.)

Under Self-Assessment there is a common date for the paying of tax and the filing of tax returns i.e. 31st October. This system which is known as “Pay and File”, allows you to return and pay the balance of tax outstanding for the previous year at the same time. Under this system you must:

  • Pay Preliminary Tax on or before the 31st of October each year.
  • Make your Tax Return after the end of the tax year but not later than the following 31st of October. This is known as “Specified Return Date”
  • Pay any balance of tax due for the previous year on or before 31st October
  • Pay any Capital Gains Tax on disposals made between 1st January and 30th September of the current tax year

What is Preliminary Tax?

Preliminary Tax is an estimate of the income tax payable for the year. In calculating Preliminary Tax the taxpayer should remember that it includes PRSI and Health Contributions.

The amount of Preliminary Tax paid for any year is not less than the lower of:

  • 90% of the final liability for the current tax year
  • The final liability to tax for the immediately previous year (100% Rule) or
  • 105% of the final liability for the pre-preceding year where the Collector- General is authorised to collect tax by direct debit.

When and how must Preliminary Tax be paid?

Preliminary Tax must be paid on or before the 31st of October every year. You can pay your preliminary tax as follows:

  • you can have the amount specified deducted directly from your bank account by completing the Single Debit Authority on the pay-slip
  • you can pay your preliminary tax through the Revenue On-Line service (ROS)
  • you can pay your tax through Bank Giro, therefore making the payment through any bank
  • you can pay it by direct debit

What happens if Preliminary Tax is not paid on time?

If Preliminary Tax is not paid by the 31st of October or if the amount of Preliminary Tax paid is too low, an interest charge is applicable. The rate of interest is just under 10% per annum.

Will notification of the obligation to pay Preliminary Tax Issue?

Yes. If the taxpayer is on the Revenue Commissioners’ records as a liable taxpayer they will receive a Notice of Preliminary Tax. This Notice will set out what the Inspector of Taxes considers may be the Preliminary Tax liability for the year. Remember, however, that there is a responsibility to pay Preliminary Tax – even if a notice does not issue. No Notice will issue, if the taxpayer is not on the Revenue Commissioners’ records or the Inspector has told them that they need not make a return. If circumstances change and the taxpayer considers himself or herself to have a liability for any tax year, it is their responsibility to ensure that they pay Preliminary Tax for that year even though they will not have received a Notice.

What to do if notice of Preliminary Tax is received?

Remember that the Notice received from the Inspector serves mainly as a reminder of the obligation to calculate and pay Preliminary Tax. If the Preliminary Tax on the Inspector’s Notice is too high or too low, taxpayers can and should substitute their own calculated Preliminary Tax liability. If this is not done, the Inspector’s figure must be paid and there is no right of appeal against this amount. Taxpayers should therefore calculate their Preliminary Tax liability (including PRSI, Health Contribution and Levies), making sure that the figure satisfies the minimum 90%, 100% or 105% Rules.