Income Tax on €20,000...??

Butterkup

I was looking at the following page...
http://www.revenue.ie/budget/budget2006/income_06.htm#1

If a single person earns €20,000 from self employment would I be correct in thinking the tax is as follows...

€20,000 x 0.20 = €4000
- € 1,630 (single person tax credit)
= €2370 TOTAL TAX


Would I also be correct to think that if someone is a PAYE employee then their tax would be as above but also minus the PAYE credit of €1490

€20,000 x 0.20 = €4000
- € 1,630 (single person tax credit)
- € 1,490 (PAYE tax credit)
= €880 TOTAL TAX


Does this mean that a PAYE employee pays less tax on €20,000 than someone who is self employed?
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Kinetic^

Butterkup wrote:

Does this mean that a PAYE employee pays less tax on €20,000 than someone who is self employed?
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Yes coz they get the PAYE credit.

midget lord

I didnt reply to this because it was posted in the middle of the morning, i dont think buttercup will be around to reap the rewards of free tax advice.

Butterkup

I am around...

seamus

Butterkup wrote:

I was looking at the following page...
http://www.revenue.ie/budget/budget2006/income_06.htm#1

If a single person earns €20,000 from self employment would I be correct in thinking the tax is as follows...

€20,000 x 0.20 = €4000
- € 1,630 (single person tax credit)
= €2370 TOTAL TAX

Yes, but you must also take into account that a self-employed person can claim back all work-related expenses, and they need only pay income on the remainder (i.e. on their "profit").

You'd be surprised at what you can claim as expenses when you're self-employed. Let's say, using the above example, that you spent €2,500 on a new laptop this year, which you use for your business. You will then pay absolutely no tax at the end of the year.

ballooba

Fixed assets like laptops have to be depreciated over their useful lifetime. i.e. You can't write off the whole value in one year.

(Just showing that I did learn something in 3 years of Accounting lectures)

kluivert

If you where clever and self employed and you take subsitence and travel expenses that you are allowed to take, +5000e say, which goes to the p+l which reduces taxable profits and reduces the tax bill.

This option is not available for most EE's although i know of individuals who do avail of this option.

If your self employed and have a car, why not claim capital allowances on the car that an EE cant do. Theres nothing wrong with this.

If your self employed and and married and the other spouse doesnt work, take them on as an EE with a minimum wage of 19000e which is a saving of 22% (I know the sceanrio is a single person).

seamus

ballooba wrote:

Fixed assets like laptops have to be depreciated over their useful lifetime. i.e. You can't write off the whole value in one year.

(Just showing that I did learn something in 3 years of Accounting lectures)

D'oh! Of course. Well, add on stuff like stationery and fittings and "client lunches" and stuff, and you could easily make up that €2,500.

Of course, for self-employment to be worth it (in Dublin at least) you'd want to be making a good bit more than €20,000, and in any case, you can't just "make up" expenses so you don't have to pay any tax.

midget lord

You can write a laptop off immediately.


What seamus said is the major difference.


For instance if you use your car for business purposes then you can claim the petrol expenses or a mileage rate against your income. Other expenses include your phone, and stationery, part of your esb & gas bills if you work from home and a host of other related expenditure. Also if you attended any further education courses you can get rid of that too. Just as a mock-up consider this:


Income 20,000

Expenses:
Light & Heat 520
Motor 1,040
PPS* 520
Computer Exp 260
Education 2,000
Sundry 260

Profit 15,400

Taxed @ 20% 3,080


Less Personal 1,520 (assuming your single with no children)
Rent relief 1,270 (assuming you rent)

Tax payable €58 (i.e. 290@20%)

Prsi @ 3% €462


Total Payable €520


There are several things to note on that mock comp, such as the arbitrary nature of several of the expenses. Also your PRSI is at 3%, if your net profit goes above 20,800 in 2005 then it moves to 5%.

If you need to know anything else just ask



*PPS = Printing, postage & stationery

Butterkup

Thanks!

Oh yeah, I was thinking about PRSI being 5%, but from what you mentioned it's 3% if below €20,800

midget lord

Indeed.


If you are looking at doing the basic comp yourself then this may come in handy:

http://www.revenue.ie/publications/leaflets/infolef7_a.htm.

Butterkup

I presume the further education courses would have to be related to the business?

I imagine it wouldn't be possible to claim on a F.E. course in flower arranging, for example! (Unless you were a florist, of course...)

lomb

u cannot write off the laptop immediately, u write 12.5% on a straight line method for 8 years unless u sell or dispose of it, in which u can then account the real loss on it, ie 50% in year 1
self employed have one hugh advantage, the 10% prsi unlimited levy that an employer pays for u on all you paye income doesnt exist on self employment.
this means an employer will pay u less than u are worth, in order to pay the 10% levy.
eg paye earner 'earns' 100000, the employer has to pay 10 grand to the revenue a year, so probably pays him 90 grand instead in order to pay the 9grand to the revenue that its costing him in levys.
if u are self employed u dont pay this 10%

midget lord

lomb wrote:

u cannot write off the laptop immediately, u write 12.5% on a straight line method for 8 years unless u sell or dispose of it, in which u can then account the real loss on it, ie 50% in year 1

:rolleyes:


Good man.


You can write off a laptop immediately if you choose to do so. This is an issue that a lot of people have diffculty coming to terms with. If you capitalise something (i.e bring it to the balance sheet) then you must claim capital allowances on it and at 15% rather than the 12.5% you mention. But the decision on whether to capitaise something is down to the person reporting.

lomb

midget lord wrote:

But the decision on whether to capitaise something is down to the person reporting.

i doubt that somehow, u are flying in the face of known economics and tax law of the last 100 years. sure why not write the cost of your premises off, or your car, ah feck it, write everything off.
in the usa, there is a 100% capital allowance, and in the uk until 2 years ago, there was a 100% write off for high tech in the uk, like laptops but now that is gone unfortunately.
in the uk today its 40% in year one and something like 15% on a REDUCING balance.
in ireland its 12.5% straight line for 8 years not 15%
if u can provide me a link to your way of doing it, fair enough, ul save me a fortune, otherwise, i dont envy u come audit time, 250% penalty:(

midget lord

Because there are Financial Reporting Standards setting out how fixed assets should be dealt with. Its pretty obvious that your premises or your car are fixed assets, and as such such be treated per FRS 15.

In this situation the writing off of a laptop is is again, company policy. Beside a laptop could well have an economic live of 1 year, especially with heavy usage.

In relation to "poor me at audit time" i dont think buttercup will be having an audit any time soon. A) He/She is a sole trader and when he/she does eventually incorporate she needs to hit €1,500,000 turnover to require an audit.


Full details for this type of return can be obtained here http://www.revenue.ie/forms/trg2004.pdf. Whether or not you claim capital allowances on something depends on whether it is deemed to be capital expenditure.

kluivert

Seriously lads, this is a tax issue as per the tread and not an accounting issue. Capital allowance of computer equipment is 12.5% SL and this not be changed.

FRS 15 deals with Fixed Assets, have a read. Boring and not interesting.

The useful economic life is the period of time from which a company can derive an economic benefit from the assets. This is determined by the directors of the company and REVIEWED by the AUDITOR. Should there be a DISAGREEMENT the auditor should make the auditor report which reflects this disagreement.

In Irish we have a principles based approach to auditing and accounting rather than the rules type base that the amercians take which have proven defective over the last couple of years. This principles based approach allows the director of the company to decide the UEL of the asset.

lomb

kluivert wrote:

Seriously lads, this is a tax issue as per the tread and not an accounting issue. Capital allowance of computer equipment is 12.5% SL and this not be changed.

FRS 15 deals with Fixed Assets, have a read. Boring and not interesting.

The useful economic life is the period of time from which a company can derive an economic benefit from the assets. This is determined by the directors of the company and REVIEWED by the AUDITOR. Should there be a DISAGREEMENT the auditor should make the auditor report which reflects this disagreement.

In Irish we have a principles based approach to auditing and accounting rather than the rules type base that the amercians take which have proven defective over the last couple of years. This principles based approach allows the director of the company to decide the UEL of the asset.

the long and the short of it, is that u can put whatever u want on the balance sheet, u cant allow the laptop against tax at 100% even if your balance sheet shows it written off. there is a difference between accounting and taxation. hence there are allowable expenses and disallowable expenses for a tax return. the tax isnt calculated on the profit/loss figure at year end, but is based on the profit/loss figure and to this are subtracted disallowed expenses for taxation purposes like 100% of a laptop.
if u are aware of any other treatment for tax purposes i stand to be corrected.

JackieChan

midget lord wrote:

In relation to "poor me at audit time" i dont think buttercup will be having an audit any time soon. A) He/She is a sole trader and when he/she does eventually incorporate she needs to hit €1,500,000 turnover to require an audit.

Buttercup could be chosen at random for an audit.
How many random audits take place each year?

JC