Preliminary tax - a little clarification?

LookingFor

Just wondering if anyone can clarify something small for me.

I'm currently filing for 2012, like many.

2012 was a pretty good year, substantial increase in profit on 2011. Liability is consequently higher.

If I pay prelim tax for 2013 the way I've done it in other years - pay 100% of the previous year's liability - I'm facing a fairly big payment. Basically double my liability for 2012.

I could just about manage this. HOWEVER - right now it's looking like 2013 will have a much smaller liability. So if I do pay this amount, I'll be due a refund next year.

I went reading online, and it says you can also calculate your preliminary tax as 90% of the final liability for the year, for 2013 in this case.

Does this mean I could calculate/estimate my final liability for 2013, which I expect to be substantially lower than for 2012, and pay 90% of that figure instead?

The downside is...if my estimate is wrong, I'll be paying interest on the balance?

Can I pay the estimate + a bit of a buffer 'just in case'?

I note that on the return form they don't ask you how you've calculated the tax. I guess they'll just run a check next year when I file my return that the prelim paid the previous year meets one of the calculation criteria?

Thanks for any help!

namenotavailablE

LookingFor wrote: »

Q1: Does this mean I could calculate/estimate my final liability for 2013, which I expect to be substantially lower than for 2012, and pay 90% of that figure instead?

Q2: The downside is...if my estimate is wrong, I'll be paying interest on the balance?

Q3: Can I pay the estimate + a bit of a buffer 'just in case'?

Ans 1: Yes- you can choose to pay using the "90% of current year" rule.

Ans 2: Yes- if you pay insufficient Preliminary Tax (either 90%/100%) then you would be charged a daily rate of interest.

Ans 3: This is the way to go! Basically leave enough of a buffer so that you have a bit of leeway in case your trade picks up and profits turn out to be better than you are anticipating.

LookingFor

Thanks, exactly the info I need!

I guess one follow up - if you knew at the end of the year that you'd under estimated your liability, it would presumably pay to file ASAP next year to limit the number of days of interest?

(Although this is a hypothetical...I'm pretty sure I won't come in over my estimate, it'd have to be a very very good Q4 )

namenotavailablE

Correct- so hypothetical or not, you don't want it to happen.

angeldelight

If you pay 90% of the estimated current year liability they do allow for a margin of error. The greater of €635 or 5% of total final liability to a max of €3175. So if you estimate your current year liability accurately, they do allow you a buffer. If your margin of error is within those limits above you don't pay interest as long as you pay any balance owed and file your tax return on time next year

LookingFor

Thanks name and angel...great info, much clearer now

Ray Palmer

Just to jump in on this I want to clarify something.

Similar. Started company in 2012. Filling returns now

I originally understood it was I would pay this month is 2012 tax plus 2013 estimating the remainder of the year. Then when I went to read it again the other night I suddenly got a shock thinking I have to pay 2014 tax as well.

Which is correct?

WildRosie

Ray Palmer wrote: »

Just to jump in on this I want to clarify something.

Similar. Started company in 2012. Filling returns now

I originally understood it was I would pay this month is 2012 tax plus 2013 estimating the remainder of the year. Then when I went to read it again the other night I suddenly got a shock thinking I have to pay 2014 tax as well.

Which is correct?

Are you filing a corporation tax return for the company or income tax for yourself?

Ray Palmer

WildRosie wrote: »

Are you filing a corporation tax return for the company or income tax for yourself?

Income tax for myself. It has been suggested elsewhere that I should have been paying the income tax monthly. If so I have certainly made a mistake.

I have an account with my income tax waiting to pay it. It is for 2012 and 2013.

angeldelight

Ray Palmer wrote: »

Income tax for myself. It has been suggested elsewhere that I should have been paying the income tax monthly. If so I have certainly made a mistake.

I have an account with my income tax waiting to pay it. It is for 2012 and 2013.

There is an option to pay monthly by direct debit, but you don't have to avail of it.

You need to pay the balance of income tax due for 2012 (if you didn't pay preliminary tax last year this will be the full amount) and your preliminary tax for 2013. You don't need to pay anything for 2014