Week 1 Basis - Self-Employed & PAYE Employee

charliehotel

I'm currently self-employed and am soon beginning a new (and unrelated) PAYE employment. Both incomes will continue for the foreseeable future.

Upon hearing this an adviser suggested for me to request a Week 1 Tax Credit Cert once I begin the new PAYE employment. Can anyone explain the merits of doing so for somebody in the above situation? i.e. why should I do it.

Thanks.

gerrybbadd

charliehotel wrote: »

I'm currently self-employed and am soon beginning a new (and unrelated) PAYE employment. Both incomes will continue for the foreseeable future.

Upon hearing this an adviser suggested for me to request a Week 1 Tax Credit Cert once I begin the new PAYE employment. Can anyone explain the merits of doing so for somebody in the above situation? i.e. why should I do it.

Thanks.

The week 1 basis means that your tax credit certificate will start only from the date it issues on.

There will be no reference to previous credits (so if these have been used against the self employed income, they will not be taken into account).

Effectively, your credits each week, are the same as they are in week 1 of the tax year, every single week. So there is no lookback to accumulated unused credits, no look back to year to date earnings etc.

Have a look here:

http://www.revenue.ie/en/tax/it/week-1-basis.html

charliehotel

gerrybbadd wrote: »

The week 1 basis means that your tax credit certificate will start only from the date it issues on.

There will be no reference to previous credits (so if these have been used against the self employed income, they will not be taken into account).

Effectively, your credits each week, are the same as they are in week 1 of the tax year, every single week. So there is no lookback to accumulated unused credits, no look back to year to date earnings etc.

Have a look here:

http://www.revenue.ie/en/tax/it/week-1-basis.html

Thanks for your reply. I have a fair idea of what Week 1 basis is, but my main query is is the why. Why should I ask for a Week 1 basis cert instead of a regular cumulative amount, do you know?

It isn't immediately clear to me right now why I should do it, since it appears that under Week 1 basis I'll be paying a lot more in PAYE taxes. I'd rather pay most of my tax in a lump sum when I submit my Form 11, rather than losing it out of my monthly PAYE wage.

gerrybbadd

Your situation is slightly complicated with having the self employed income.

A tax cert cannot issue to your employer, detailing your previous self employed earnings, or how many tax credits (If any), you intended to offset against this income.

You see, in a situation where a person is in PAYE Employment only, where they leave one job, get their P45, and start in another, what happens is this:

The employer will receive a new Tax Cert, and the P45 information will be included on it (if it is on a cumulative or normal basis). So, they new employer has to now calculate the tax due, at that current period, also with the previous pay & tax in mind, to ensure that the correct amount of tax due is collected to that date (or make a refund if needs be).

So, with the self employed income, this can't be put on the cert. Now, you could have a cumulative certificate issued. But your employer, for all they would know, would see that prior earnings are zero, and you would have a full years worth of tax credits, therefore taxing you as such. This means that your tax bill at the end of the year may be higher as the employer has no way of taking account of the prior, self employed earnings.

I hope this is making sense.

charliehotel

gerrybbadd wrote: »

A tax cert cannot issue to your employer, detailing your previous self employed earnings, or how many tax credits (If any), you intended to offset against this income.

You see, in a situation where a person is in PAYE Employment only, where they leave one job, get their P45, and start in another, what happens is this:

The employer will receive a new Tax Cert, and the P45 information will be included on it (if it is on a cumulative or normal basis). So, they new employer has to now calculate the tax due, at that current period, also with the previous pay & tax in mind, to ensure that the correct amount of tax due is collected to that date (or make a refund if needs be).

So, with the self employed income, this can't be put on the cert. Now, you could have a cumulative certificate issued. But your employer, for all they would know, would see that prior earnings are zero, and you would have a full years worth of tax credits, therefore taxing you as such. This means that your tax bill at the end of the year may be higher as the employer has no way of taking account of the prior, self employed earnings.

I hope this is making sense.

Thanks for the explanation. Would you know why my adviser would been keen on me getting the Week 1 cert? Could it simply be good practice to err on the side of caution and avoid any underpayment?

gerrybbadd wrote: »

Your situation is slightly complicated with having the self employed income.

They really don't make it easy for anybody who is self-employed. They clearly only expect us all to become minion employees, non-entrepreneurs etc.

Rant over.

Mrs OBumble

charliehotel wrote: »

Could it simply be good practice to err on the side of caution and avoid any underpayment?

Arguable that it's even good practise.

They are worried that you might underpay the PAYE, and thus have a large than expected amount to pay later on. That is the "why".

A better approach is to tell Revenue about the estimated other income you will have for the year, and they will allocate tax credits and cut-off point against this for you.


Personally I don't see it as a problem, provided you have the cash set aside to pay you bill at the appropriate time. (I assume you're already paying preliminary tax on your self employed income each year, so well familiar with this.) I'd rather have the cash in my bank account earning interest (however pitiful it may be) until it's due with Revenue, than hand it to them early.

But some paranoid people who think that most are too stupid to budget and so do see it as a problem.




And if you want a rant ... as a PAYE employee, you and your employer will have to be paying class A PRSI for you. But if get sick or unemployed and you have self-employment income as well, you won't automatically qualify for any benefits which class A would normally get you. Frankly, apart from the first 7k as a PAYE employee, you'd be better of totally self-employed.

charliehotel

Mrs OBumble wrote: »

They are worried that you might underpay the PAYE, and thus have a large than expected amount to pay later on. That is the "why".

A better approach is to tell Revenue about the estimated other income you will have for the year, and they will allocate tax credits and cut-off point against this for you.

Personally I don't see it as a problem, provided you have the cash set aside to pay you bill at the appropriate time. (I assume you're already paying preliminary tax on your self employed income each year, so well familiar with this.) I'd rather have the cash in my bank account earning interest (however pitiful it may be) until it's due with Revenue, than hand it to them early.

But some paranoid people who think that most are too stupid to budget and so do see it as a problem.

Thanks, that clears it all up for me pretty much!

Mrs OBumble wrote: »

And if you want a rant ... as a PAYE employee, you and your employer will have to be paying class A PRSI for you. But if get sick or unemployed and you have self-employment income as well, you won't automatically qualify for any benefits which class A would normally get you. Frankly, apart from the first 7k as a PAYE employee, you'd be better of totally self-employed.

Oh, so being simultaneously self-employed and a PAYE employee, I will be paying Class A and Class S PRSI? I was led to believe by my adviser that PRSI will be payable on self-employment income only. I experimented with a few ROS Offline returns and that appeared to confirm the same..