Professional Services Withdrawal Tax

John_Mc

Hi,

I have just started a new contract working for a public sector body. They are witholding 20% of invoiced amounts for days worked and expenses (but not Vat) for the Professional Services Withdrawal Tax.

I currently file and pay my income tax online each month using ROS. My accountant has given me a spreadsheet which automatically works out what I can pay myself and what I owe for the P30 based on income.

I asked him about the PSWT and how it can be handled in the spreadsheet and he said to add it as an expense so that it will be deducted from the invoiced amount. He said the PSWT can be reclaimed once the Corporation Tax return is filed.

To me this seems absolutely crazy. For no good reason my income each month is down 20%. I need to wait until the end of the year to get it back as a credit.

Is there any other way to handle this? If not I am obviously going to look for a non-public sector contract because this is way too much hassle :mad:

Shane732

John_Mc wrote: »

Hi,

I have just started a new contract working for a public sector body. They are witholding 20% of invoiced amounts for days worked and expenses (but not Vat) for the Professional Services Withdrawal Tax.

I currently file and pay my income tax online each month using ROS. My accountant has given me a spreadsheet which automatically works out what I can pay myself and what I owe for the P30 based on income.

I asked him about the PSWT and how it can be handled in the spreadsheet and he said to add it as an expense so that it will be deducted from the invoiced amount. He said the PSWT can be reclaimed once the Corporation Tax return is filed.

To me this seems absolutely crazy. For no good reason my income each month is down 20%. I need to wait until the end of the year to get it back as a credit.

Is there any other way to handle this? If not I am obviously going to look for a non-public sector contract because this is way too much hassle :mad:

You can make a claim for an interim refund of PSWT.

Why would you say you're obviously going to look for a non-public sector contract? It's just a form of withholding tax, like the PAYE your company pays on a monthly basis or RCT. It may be causing you cashflow issues - have you considered whether conducting your business through a company is the correct route?

John_Mc

Shane732 wrote: »

You can make a claim for an interim refund of PSWT.

Why would you say you're obviously going to look for a non-public sector contract? It's just a form of withholding tax, like the PAYE your company pays on a monthly basis or RCT. It may be causing you cashflow issues - have you considered whether conducting your business through a company is the correct route?

Thanks for such a prompt reply.

I have no problem paying the income tax each month and collecting & paying the VAT. I'm a one man show and pay myself what I earn each month, like any contractor regardless of their setup. It has been working fine for me up until now, and even with this I can live with it.

But what's the point? Why bother working for the government? I had to arrange professional indemnity insurance which covers liabilities of €2.6m which is way OTT for what I do. I also had to go through a lengthy & time consuming tendering process.

Now my cashflow is needlessly being reduced by 20% each month, including expenses incurred which are not taxable, just because I'm working for a public sector body.

What's the alternative to operating as a Ltd company which would change the above?

srsly78

If you don't like it then don't work for the public sector.

This tax makes no difference, it just hits you up front rather than at the end of year. Everyone has to pay income tax eventually. If you are overpaying then you will get a refund.

You could set up a ltd company, but then you would be complaining about your accountant+bank fees, and would have to pay even more income tax anyway.

John_Mc

srsly78 wrote: »

If you don't like it then don't work for the public sector.

This tax makes no difference, it just hits you up front rather than at the end of year. Everyone has to pay income tax eventually. If you are overpaying then you will get a refund.

You could set up a ltd company, but then you would be complaining about your accountant+bank fees, and would have to pay even more income tax anyway.

Did you even read my post or were you just too eager to dismiss it and demonstrate your ignorance on the subject?

I already have a limited company already set up and I'm happy with how it works. No problems with accounting fees or collecting Vat.

My problem is that this tax is actually a double taxation. It taxes all of my income at 20%, and then I have to pay my normal income tax out of it each month. I can only recoup it in the next financial year and I estimate this to be about €15,000.

Not an insignificant sum for a one man show.

srsly78

Easily worked around with some accounting. Pay yourself as little as possible during the year, with a big bonus at years end (with tax properly applied to it). This is what many self-employed people do anyway, even without pswt.

Or have the company give you a loan offset against wages... accountant can surely advise you on this.

John_Mc

srsly78 wrote: »

Easily worked around with some accounting. Pay yourself as little as possible during the year, with a big bonus at years end (with tax properly applied to it). This is what many self-employed people do anyway, even without pswt.

Or have the company give you a loan offset against wages... accountant can surely advise you on this.

That won't work. My revenue/income has 20% deducted at source - including non-taxable income such as expenses incurred.

I am a one man private limited company with no overdraft/credit facilities (and I want to keep it that way). I can only pay myself what I make each month less my P30 for PAYE & PRSI.

I know I'll get the money back, but next year is hardly comforting to me. This is about my cashflow being negatively affected just because I'm providing services to the government.

And yes, if I don't like it then I don't have to do it. However, I've just started my contract and it's not in my nature to leave clients high and dry on a whim. I've also just paid professional indemnity insurance as it was a specific requirement of the job, and spent a few weeks working on tenders.

My accountant is telling me there's no way around this, and that's why I'm posting on here.

smeharg

You're absolutely right John_Mc. I'm surprised by some of the responses you've got (from people who should know better!).

PSWT can cause significant cashflow problems for the "one man show". If this is your only or main contract then you effectively have to fund the VAT out of your own pocket.

Unfortunately, there's not much you can do about it. You can get an interim refund but your previous year's corporation tax needs to have been files and paid. If it's your first year of trading you may be able to get an offset against other taxes.

This is clutching at straws, but also check that the body you have the contract with is actually listed in Schedule 13 of the Taxes Consolidation Act. If it's not listed it can't deduct PSWT. I have seen public bodies in the past deducting it when they shouldn't have been.

It's not double taxation, it's a payment on account.

I think what some posters mean by questioning whether you need a limited company is that if you were a sole-trader you would have one less withholding tax (PAYE) to worry about which might ease the cash-flow burden.

John_Mc

dbran wrote: »

Hi

PSWT can also be set off against PAYE and VAT. You don't have to wait until the end of the year.

dbran

You sure about Vat? It's excluded from the PSWT and must be paid every two months.

How can I off set it against PAYE?

smeharg wrote: »

You're absolutely right John_Mc. I'm surprised by some of the responses you've got (from people who should know better!).

PSWT can cause significant cashflow problems for the "one man show". If this is your only or main contract then you effectively have to fund the VAT out of your own pocket.

Unfortunately, there's not much you can do about it. You can get an interim refund but your previous year's corporation tax needs to have been files and paid. If it's your first year of trading you may be able to get an offset against other taxes.

This is clutching at straws, but also check that the body you have the contract with is actually listed in Schedule 13 of the Taxes Consolidation Act. If it's not listed it can't deduct PSWT. I have seen public bodies in the past deducting it when they shouldn't have been.

It's not double taxation, it's a payment on account.

I think what some posters mean by questioning whether you need a limited company is that if you were a sole-trader you would have one less withholding tax (PAYE) to worry about which might ease the cash-flow burden.

Thanks - finally someone who is understanding my problem. I checked Schedule 13 there and they're are on the list, but thanks for the suggestion it was worth checking.

I setup the company in Oct 2012 and had no profits so I believe corporation tax is all in order.

How can I request an interim refund?

Thanks
John

dbran

Hi

I have been successful in getting it set off against PAYE and VAT in the past but this may no longer be the case now.

dbran

smeharg

dbran wrote: »

Hi

I have been successful in getting it set off against PAYE and VAT in the past but this may no longer be the case now.

dbran

You could be right.

I qualified the offset as only being available in the first year as this is the only time I've seen it done where the previous year's tax return hasn't been submitted (because there isn't one!).

Although, I think that technically an offset is treated as a refund.

There's a hardship provision as well, but I think it's quite restrictive.

John_Mc

smeharg wrote: »

You could be right.

I qualified the offset as only being available in the first year as this is the only time I've seen it done where the previous year's tax return hasn't been submitted (because there isn't one!).

Although, I think that technically an offset is treated as a refund.

There's a hardship provision as well, but I think it's quite restrictive.

Thanks for your reply.

I have been operating since Oct 2012 so P35 and corporation tax have already been filed.

Doubt I'd qualify for any hardship provision as I'm not exactly in hardship. I'm just annoyed!

John_Mc

Just a heads up for others in this position. My accountant just came back to me with the following:

I spoke to someone in the Office of the Revenue Commissioners, Corporation Tax Section, South City District , 85/93 Lower Mount Street, Dublin 2 and she stated that if you receive a F45 monthly and post it into the Revenue address above then once all taxes are up to date they will issue the refunds there and then, each month/3 months whatever period the F45 is for.

Not so bad afterall...