Starting as a freelancer - how to sort out the tax?

nacho66

Hi guys

I ended up my employment with the company in November and month later started to do some freelance work. Decided that this is how I'm going to work in coming months and I wonder how to sort out taxing. I know I have to register self-employment for incoming tax (and I don't need neither VAT registration nor company name) but I'm not sure how do I actually pay the tax. Is it really that I need to 'pile up' 20% of each paid invoice and wire this to revenue before 21st October each year? And if I'm eligible for any credit revenue would refund me later? Just need a tip on what's the best practice to keep things easy and clean.

Also, at the same time me and my wife want to register in revenue to pay taxes as a married couple. I wonder what's the good way to combine those two things and if there's something I should keep in mind beforehand

Thanks

coach343

Hi Nacho,

In order to register for tax as a sole trader, you need to fill out a TR1 form. You will be required to file a tax return by 31st October each year beginning the year after you register.

Lets say you register from the 1st January 2012 and you set your year end to be 31st December 2012 for handiness, then you first tax return will be due on 31st October 2013 (normally a few weeks extension if filing and paying online).

In compiling your tax return, your spouses income will be included in the form and you will be taxed as a married couple automatically. Income Tax is payable a year in advance so by 31st October 2013, you will need to pay your 2012 liability and also make a preliminary payment of your 2013 liability (100% of your 2012 liability or 90% of your 2013 if known).

There is a separate form which you can register a business name if you wish to trade under a different name.

Be sure to keep neat records of income, receipts for all transactions and I would highly recommend setting up a separate bank account for your new venture.

If you have any other queries, let me know. Best of luck with your new business.

Mongarra

Agree with coach343 except because it is your first return (2012 in his/her example) you do not have to file it until your are filing your second year's (2013) return which will be in October 2014. However the payments will be due as stated.

Probably best to see an accountant or tax consultant as there may be items for which you can claim of which you may not be aware.

Joint assessment is automatic. It is only if you do not want to use that method that you have to claim otherwise.

coach343

Apologies for the error.

Please note that despite the returns not needing to be filed until 2014, Preliminary Tax for 2012 will be due by 31st October 2012, and Preliminary Tax 2013 will be due by 31st October 2013.

nacho66

thanks guys for the info

There's one bit I don't understand tho. That 2012 preliminary tax that would be due by 31st October 2012 is basically 20% of all the invoices (profit) I get before that date, is that correct? So if I earn 10k before 31st Oct 2012 I have to transfer 2k to revenue just before that date. I don't have to transfer/lodge anything before that right?

coach343

20% of your estimated profits for 2012 less tax credits. Therefore if you earned 10k, you would be taxed at 20%, from the resulting figure (2k in your example), you would subtract tax credits, assuming your spouse is utilizing her credits and her credits only, your basic credit would be 1,650.

However, as there may be PRSI and universal social charges, you would be better off talking to an accountant. The accountant will also advise you on the best way to keep your records also.