Preliminary tax

cianlynchali

Hi. Can anyone explain how preliminary tax works and is calculated. I started last May as a self employed person.

The previous 4 months I was a PAYE worker so my tax has been paid for those 4 months .

The remaining 8 months I have been operating as a sole trader. I have been on Rtc at a rate of of 20% so have money in revenue.

Will my paye tax be added into my preliminary for next year?.

Lenar3556

So next year by the 31st October you must file a tax return in respect of the period 01/01/2023 - 31/12/2023. Tax already deducted through the PAYE system will be factored into these calculations.

At the same time you should also pay preliminary tax for the subsequent period (01/01/2024 - 31/12/2024) at a rate of 90% of the current period.

For example, you engage an accountant to calculate your income tax due for 2023 which amounts to €6,000. You pay this by the deadline next October and additionally pay preliminary tax for 2024 of €5,400. Thereafter, you pay any balance that is due on the preliminary payment every year and then pay 90% of this as preliminary for the following year.

My advice would be to engage an accountant now and get things on track from day one. There are some really good bookkeeping packages and receipt management apps which make things very manageable if you get it right from day one.

You can also calculate preliminary tax as 100% of the previous year liability. Often this is much easier to do, particularly early in the year, than 90% of the current year projections .

cianlynchali

Does it matter if the previous year was only for 8 months. ?

Pawwed Rig

https://www.boards.ie/discussion/comment/120589202#Comment_120589202

Edit

You were working for 12 months so you can use that but it can depend when your year end is for accounting purposes. Also you are in a commencement stage so there will be adjustments in year 1 and year 2. I assume you have someone doing your taxes for you?

cianlynchali

Yes I have. Just trying to get rough idea what I be paying

Furze99

Essentially preliminary tax is a form of pay before you earn, for the final three months. Assuming using the calendar year as your accounts year, you figure out what your liability will be up to say October and then guess what you might earn in the final quarter. It all works out in the wash but you do need to watch your cashflow.

If you've a regular enough monthly turnover, it's grand. Some businesses though have increased sales towards the end of the year that are hard to predict, so these can be tricky to estimate. Was and likely still is a situation where local authorities and the like have an annual budget to use up and if you're in an associated line of work, there can be a notable increase of business.

newmember2

If paying preliminary tax is not mandatory, what's the purpose of it?

letsbefair

Don’t forget your marginal rate is 55% on any income over 100k if you’re self employed.

cianlynchali

Thanks. Could any of ye message me and didn't me a rough idea.

Read somewhere that you can pay 100% of the previous year tax amount as preliminary tax. Would my paye tax be included in this ?

https://www.boards.ie/discussion/comment/120591281#Comment_120591281

It is mandatory.

"You must pay this by 31 October of the tax year in question."

https://www.revenue.ie/en/self-assessment-and-self-employment/guide-to-self-assessment/preliminary-tax.aspx#:~:text=Preliminary%20tax%20is%20your%20estimate,pay%20for%20a%20tax%20year.

DownByTheGarden

I havent paid preliminary tax in 20 years. They wont come after you if you still pay your correct tax in October.

Xander10

https://www.boards.ie/discussion/comment/120592622#Comment_120592622

It's 100% of your liability for the year.

cianlynchali

https://www.boards.ie/discussion/comment/120592914#Comment_120592914

Thanks for that. Clears it up a bit.

CIARAN_BOYLE

https://www.boards.ie/discussion/comment/120592906#Comment_120592906

Depends on the quantum of the tax bill.

I'm aware of some people who get hit by interest every year.

Pawwed Rig

https://www.boards.ie/discussion/comment/120593088#Comment_120593088

It seems to be fairly randomly enforced ime. Revenue in general seem to be sporadic around enforcement. It is omly the unlucky ones that ever get caught.

DownByTheGarden

https://www.boards.ie/discussion/comment/120594494#Comment_120594494

I asked my accountant years ago and he said that as long as you are settling your tax for the right amount they arent going to go after you for not paying preliminary tax. He said they are only interested in the people not actually paying thier correct amount of tax at the end of the year.

I havent paid preliminary tax since and ive been fine. I even got a tax clearance cert when I needed one a couple of years ago with no preliminary tax paid.

Stationmaster

It is mandatory but the payment of it is not generally enforced by Revenue, yet. It very well could be down the line. It was only a few years ago that Revenue included having your RTD's filed on time was also a requirement for getting a tax clearance cert so there's nothing to stop revenue deciding at some time in the future to go chasing the interest on all the preliminary tax not paid.

DownByTheGarden

https://www.boards.ie/discussion/comment/120598116#Comment_120598116

I'll keep not paying then until they say something to me. They dont seem to care.

Pawwed Rig

https://www.boards.ie/discussion/comment/120598109#Comment_120598109

I have seen a few people get interest and penalties for no paying prelim or under paying but not too many.

cianlynchali

Just trying to calculate my tax.

I'm accounting the paye tax that was already paid at the start of 2022 into my 2023 preliminary tax. Would this be correct ? Even though I'm not paye employee since Apr 22

ThreeGreens

https://www.boards.ie/discussion/comment/120599851#Comment_120599851

As Ciaran_Boyle said, it depends on the size of the tax bill (hence the interest). They aren't very proactive when the amount of interest is going to be small. But as it increases, you are much more likely to get charged. As it gets big, you're virtually guaranteed to be charged.

Where the dividing line is, is a bit vague. You probably won't get an interest bill if your tax is <€5K. But anything more than that you are starting to take a risk. If it's €50K you're virtually guaranteed to get an interest bill. Though they seem to have have been a bit more lenient since that start of COVID. But that seems to be wearing off in other areas, so don't put much faith in that.

Will Yam

https://www.boards.ie/discussion/comment/120618071#Comment_120618071

The principle is to add all your income streams for 2022 together, and calculate the tax owing on it. Tax paid via PAYE will be credited in the final tally, leaving the balance for 2022 to be paid by October 2023.

for preliminary tax for 2023 best way is to pay the balance above again as preliminary tax.

mulbot

If you can't afford preliminary tax then don't worry about making a return for this-Revenue are fine with this as long as you do your filed end of year tax on Time

SureYWouldntYa

https://www.boards.ie/discussion/comment/120723255#Comment_120723255

Interest can be charged on the balance not paid, while Revenue often do not enforce this there is still a risk involved in not doing it

Madd002

Went through this last year for first time. am also RCT, 20% taken at source so you have credits there,once your expenses are taken off and tax credits applied and then whatever your tax bill is, the 20% in credit should cover that and the 100% preliminarily bill for following year.

eg. tax bill is 3k for yr 1 & you pay 100% preliminary for following year 3k = 6k - probably in credit

Next year tax bill 6k but you've already paid 3k preliminary balance is 3k - preliminary for following year 6k total be 9k.

bear in mind you won't physically have to pay as if you keep on having 20% deducted at source it'll be sitting in credit.

ps accountant bill for returns was €1200 - highly recommend registering for VAT as these are all expenses writen off against your tax bill, including diesel receipts for traveling and any other costs relating to work tools etc.and you get 23% back every 2 months. Also have a separate account and only use bank card for work related expenses and keep every receipt in a plastic A4 envelope in car/van glovebox so they match against bank statements, your accountant will thank you for it. Theres nothing worse about phone calls wheres this and that, better get it right 1st time round.

RCSATELLITES

https://www.boards.ie/discussion/comment/120723255#Comment_120723255

I was about to start a new thread, but seen your comment. I usually paid the Preliminary cause it was only a few hundred euro. But for 2022 I wasn't working as a paye, so need to pay the minimum €500 prsi for myself and my wife. So will be €2,000 if I pay Preliminary and 2022 minus a few hundred from last year.

So was thinking not to pay the Preliminary for 2023. No income tax is due because we are below our credits, so it's only the prsi that's due.

I remember talking with a accountant and he was saying you dont pay Preliminary do you? As in there was no need to pay it.

Sunrise_Sunset

Commenting here to see if anyone can help, before I start a new thread.

I just recently set up as self employed (haven't earned anything yet). Is it correct that I don't need to file a tax return this October? That I don't need to file until October 2024? And at that point I'll file for 2023, and for all of 2024 (including preliminary for the last 3 months of the year)?

Also, if the preliminary tax filed is incorrect, how and when do you correct it?

RCSATELLITES

https://www.boards.ie/discussion/comment/120905550#Comment_120905550

If you only recently set up in 2023 then you do not do a tax return until Oct / Nov 2024. So you are correct. I might be wrong but you don't have to pay Preliminary tax for your first filing. As if you go with option (b)100% tax of previous year (2022) you didnt pay any tax as you were not self employed. But for future years.

Then for the preliminary tax there are 3 options to pay i think. Something like 100% of what you paid in 2023, or 90% of what you paid. I usually just pay the 100% of what I owe for the year before. You don't have to correct it, just pay the outstanding (if any) when you file in 2025. The second year is usually the hardest as you technically pay double, but once that's done then you pay a year in advance as such. Hope this helps. I am a landlord, so my earnings tend to stay the same.

Found this.

Preliminary tax is your estimate of the Income Tax, Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) that you expect to pay for a tax year. You must pay this by 31 October of the tax year in question.

You must make sure that you do not under pay your preliminary tax, or you may be charged interest. The amount of preliminary tax for a year must be equal to, or more than, the lowest amount of the following:

90% of the tax due for that tax year

100% of the tax due for the immediately previous tax year

105% of the tax due for the tax year preceding the immediately previous tax year (often called the ‘pre-preceding year’). This option only applies where you pay by direct debit. It does not apply if the tax due for the pre-preceding year was nil.

Madd002

https://www.boards.ie/discussion/comment/120905550#Comment_120905550

I dont think so only going by when when our accountant did my husbands 1st return.

He set himself up in July 2020, so our tax year is July to June. No tax return that October.

Last October 2022 our 1st returns were filed for A. July 2020 - June 2021.

Tax owed was x amount but because he is RCT 20% is deducted at source su he had it in credit on revenue and also enough to cover 100% preliminary for following year.

This October return will be from July 21-June 22, so because we already paid 100% preliminary tax we might have to A.pay a small balance or B. might be due refund.

Our accountant said its always a year behind because not everyone has their accounts in order for current year for October deadline. Unless someone can correct me or maybe I need to change our accountant if I'm wrong.

Madd002

https://www.boards.ie/discussion/comment/120905920#Comment_120905920

I'm actually gonna check the paper work as it doesn't look right when I wrote msg as it looks like I'm missing a year- maybe they did 1st return including July 2020 to December 2020 & Jan 2021 - Dec 2021. But it was definitely our 1st return last year.

Sunrise_Sunset

https://www.boards.ie/discussion/comment/120905634#Comment_120905634

Thank you. Appreciate the response.

I will hire a Bookkeeper when the time comes, and until then I will keep all of my documents in order. Hopefully I'll start earning soon.

No need for a Bookkeeper until next year then. That's a relief.

Madd002

https://www.boards.ie/discussion/comment/120905550#Comment_120905550

Hi Sunrise,

So I logged onto ROS and our 1st returns were as follows.

Jan-Dec 2020 & 2021 were both submitted on 14th October 2022.

It's now showing Jan - Dec 2022 due to file Oct 2023.

Best of luck in your new venture.

Sunrise_Sunset

https://www.boards.ie/discussion/comment/120927966#Comment_120927966

Thank you for checking back over that.

westgolf

Hi all

Opening this again rather than starting a new thread.

Submitted my form 11 for 2023 in May 2024, received assessment back of 2k liability due to rental income. Will pay by October 31st deadline. Revenue then asking for preliminary tax for 2024 also.

Does this mean I have to find another 2k to pay over as preliminary for 2024 as well as the 2k due as the net liability for 2023 ??

SureYWouldntYa

You have two options:

100% of 2023 liability
90% of 2024 liability

If 90% of 2024 is expected to be much lower then you should opt for this, if not then 100% of 2023 is safer

If you can't afford it, the only penalty is interest due on any underpayment (about 10% per annum), Revenue don't always enforce underpayments and you will probably get other replies from people who have never paid it in 10/15/20 years and never been penalised, but it's always an option that Revenue have

If you're able to find the money now for the 2024 preliminary tax, in future you'll then end up with the majority of the balance paid and you're then just in essence paying the preliminary tax for the following year (it the liability is much the same each year)