Chris Murray: Tax Assessment For Self Employed Individuals

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rsz_chris_murrayBy Chris Murray

AS a self employed individual you are regulated for Income Tax, PRSI and Universal Social Charge which are collected by the Revenue under the Self Assessment Tax System.

The obligation is on you to send in tax returns to Revenue and voluntarily pay your tax liability. Substantial penalties apply in addition to your normal tax liability if you do not comply with the rules.

You must pay your Tax/PRSI/USC levy on October 31 each year. Your tax return form for the preceding tax year must also be sent to Revenue by this date.

Tax payments can also be made by monthly direct debit. All payments and tax return forms go to the Collector General, Sarsfield House, Francis St, Limerick.


Tax Year Ended – 31st December 2013

Tax/PRSI Payment Due – 31st October 2014

Tax Return to Revenue – 31st October 2014

There is a penalty for not sending your tax return to the Revenue on time. This applies even if you have paid whatever tax is owed for the year.

If the tax return form is no more than two months late then the penalty is 5% of your normal tax liability. If it is later than two months the penalty is 10% of the year’s tax liability.

The tax liability to which the penalty applies is based on the tax due before you deduct tax payments made on account against your tax liability for the year. You could in fact be owed money by the Revenue and still be subject to a penalty for not submitting your tax return on time.

Preliminary Tax Payment Rules

The 31st October each year is the date for making your preliminary income tax payment on account for the year in question and also for settling your account with the Revenue Commissioners for the preceding tax year.

This can give rise to situations where two years tax liability could fall due on the same 31st October.

Needless to say if you do not comply with these rules there are substantial interest and penalties which can be applied to your actual income tax liability owed for the period.

When considering your preliminary tax payment requirement for any particular tax year the following options are open to you:

• Pay at least 90% on account of the tax you think you will owe for the year in question or
• Pay 100% of the preceding year’s tax liability.

If you do not meet either of the above rules then interest charges will arise on any unpaid tax from the original due date for payment of same i.e. the 31st October during the tax year in question until the date of payment of the tax.

In addition you must also settle your account with the Revenue for the preceding tax year.

Final tax liability for the Tax Year 2013 – €20,000
Less preliminary tax paid 31/10/2013 – (€15,000)
Final tax payment for Tax Year 2013 (due on the 31/10/2014) – €5,000
Preliminary tax payment for the Tax year 2014 – €20,000
Total Payment due to Revenue on 31/10/2014 – €25,000

On the 31st October 2014 you have to pay whatever balance of tax is owed for the 2013 tax year and also make a tax payment on account for the 2014 tax year.

In the example above the balance of tax due for the tax year 2013 is €5,000. The payment on account for 2014 tax year using the 100% rule is €20,000.

This gives a total due on the 31st October 2014 of €25,000.

It is also possible to pay your annual tax bill on a direct debit basis to the Revenue. If you are availing of this basis your direct debit payments must amount to at least 105% of the final tax payable for the prepreceding tax year i.e. the tax year two years back.

However if you are newly registered as self employed in 2014 you may find yourself facing a dilemma. As for you the “100% of the previous year’s liability” rule will equate to zero as you were not self employed in 2013.

While this may relieve cash flow pressure by the fact that you can make nil payment now, you will face a ‘double bill’ in October 2015 i.e. balance of 2014 and also preliminary tax 2015.

• Chris Murray is Practice Manager at Casey & Co Accountants & Auditors. Casey & Co. strive to add real value to your business by providing specialist services in the areas of personal taxation, business start up, restructuring, bank negotiations and succession.

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