Tax on Payments?

whoknowsthis

Could I get some help on this. In 2009 I did some consulting work for a startup company. I wasn't working at the time and rec'd no other income. I didn't expect to be paid as the company was experiencing financial difficulties. However, the company has started trading and this year I rec'd €4000 in payments from the company for the work done in 2009. I am working as an employee for another company now.

I am not registered for VAT as I am below the threshold. If I include the €4000 in my 2010 income it will be taxed at the higher rate of tax. I've been told that I could do a 2009 tax return and include the €4000 as part of my income and in this way I will pay little or no tax.

My question is: Can I treat the €4000 as part of my 2009 income even though I did not receive the payment until 2010? If not is there any way I can avoid paying tax on it at the higher rate in 2010?

Thanks in advance

dbran

Hi

The income is earned whenever you did the work and not when you got paid. So you can take the money into the 2009 tax year assuming that is when all the work was done.


Kind Regards

dbran

whoknowsthis

Thanks dbran...much appreciated.

Can you clarify one thing for me (the reason I was confused in the first place!). Does the same ruling apply to payments made to an employee e.g. if I was to earn a bonus in 2010 but it was not paid to me until 2011 for cashflow reasons. Could that be treated as 2010 income?

dbran

Hi

No PAYE income is slightly different as it is the employer who is liable to pay the tax and not you. PAYE/PRSI is due to be paid over by the employer when the actual money is paid over and not when it is agreed to be paid.

However you can ask the revenue after the year has ended (if it is a bonus relating to the previous year and you obtain a letter from your employer to this effect) to adjust the relevant annual gross figures for the years in question accordingly.

Kind Regards

dbran

mathepac

I believe the €4,000 payment may be a little more complex than it first appears.

The payment exceeds the lower threshold for non-PAYE income which AFAIK means you need to register for self-assessment taxation and you need to submit a Form 11 rather than a Form 12 at tax year-end.

You say you were not working last year and had no other income - were you drawing benefits? If you were drawing benefits and now register as self-assessed and declare earnings for last year, Welfare will be notified by Revenue, which may lead to an investigation.

I know the full circumstances of your tax / benefits situation were not posted, but you need to be careful of the potential consequences of any actions you ake now to minimise tax. You might be better off and have a simpler life by paying higher-rate tax on the payment this year.

whoknowsthis

mathepac wrote: »

I believe the €4,000 payment may be a little more complex than it first appears.

The payment exceeds the lower threshold for non-PAYE income which AFAIK means you need to register for self-assessment taxation and you need to submit a Form 11 rather than a Form 12 at tax year-end.

You say you were not working last year and had no other income - were you drawing benefits? If you were drawing benefits and now register as self-assessed and declare earnings for last year, Welfare will be notified by Revenue, which may lead to an investigation.

I know the full circumstances of your tax / benefits situation were not posted, but you need to be careful of the potential consequences of any actions you ake now to minimise tax. You might be better off and have a simpler life by paying higher-rate tax on the payment this year.

Mathepac...thanks for your input.

Also, could you provide the lower threshold for non-paye income? I couldn't find on the revenue website

I did this work in the middle of 2009. I did start drawing Welfare benefits, but not until November 2009, after this work had been completed. Therefore, I believe that I am OK from a social welfare point of view. I appreciate that I will have to submit a self assessment form which I plan to do in the next few weeks.

dbran

mathepac wrote: »

I believe the €4,000 payment may be a little more complex than it first appears.

The payment exceeds the lower threshold for non-PAYE income which AFAIK means you need to register for self-assessment taxation and you need to submit a Form 11 rather than a Form 12 at tax year-end.

You say you were not working last year and had no other income - were you drawing benefits? If you were drawing benefits and now register as self-assessed and declare earnings for last year, Welfare will be notified by Revenue, which may lead to an investigation.

I know the full circumstances of your tax / benefits situation were not posted, but you need to be careful of the potential consequences of any actions you ake now to minimise tax. You might be better off and have a simpler life by paying higher-rate tax on the payment this year.

Mathepac is correct on this but as if it is a once off I would still chance the Form 12 rather then have the register and then deregister as self employed the next year.

Kind Regards

dbran