Self Assessment Tax System >> PAYE Earners

There are many PAYE earners who do not realize that they are in fact liable for tax under the Self Assessment Tax System.
The main categories of PAYE earners who are liable to be dealt with under the Self Assessment Tax System are:

• Company Directors who own more than 15% of the shares of their company, referred to as proprietary directors for tax purposes. This applies even if their only income is PAYE income.
• Employees who exercise share options.
• Employees in receipt of nonPAYE income. Where the other income is taxed by reducing your tax credits for PAYE purposes you are not dealt with under the Self Assessment Tax System.

If you are late making tax returns due under the Self Assessment Tax System rules you will be charged interest and penalties. The penalty is 10% of your tax liability for the year. For proprietary directors this 10% penalty is calculated before any credit for PAYE tax already paid. This means your PAYE tax bill is increased by 10% for not making your tax return on time.

When a person retires and is in receipt of both a company pension and the State pension this would bring them under the Self Assessment Tax rules. The State pension is paid without deduction of tax at time of payment. However the recipient will have to pay income tax on the State pension. If they are taxable at the 41% tax rate this could leave them owing a very substantial tax liability to the Revenue. This amount of tax owed could then be increased with the addition of interest and penalties under the Self Assessment Tax Rules. 

PAYE earners in receipt of rental income or investment income may also come within the selfassessment rules. The Revenue Commissioners have indicated that they will be paying more attention in future to PAYE earners in receipt of other forms of income. 

1.1 Tax Returns Submission Date

Income Tax, PRSI and Capital Gains Tax are collected by the Revenue under our 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/Health Levy/Income Levy and Capital Gains Tax if applicable on the 31st October 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. 

Example

These matters can be dealt with in the traditional way by filing paper tax returns and paying by cheque. Alternatively the whole process can be dealt with online by using the Revenue Online System (ROS). When you pay your tax liability and file your tax return using the Revenue Online System the deadline date is usually extended to the middle of November each year.

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 years 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. 
The rules for the payment of Capital Gains Tax are more complicated with two different payment dates during the tax year. See our article on the Sale of Property and Shares for details.

1.2 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 years tax liability.
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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.

Example

On the 31st October 2011 you have to pay whatever balance of tax is owed for the 2010 tax year and also make a tax payment on account for the 2011 tax year. In the example above the balance of tax due for the tax year 2010 is €5,000. The payment on account for 2011 tax year using the 100% rule is €20,000. This gives a total due on the 31st October 2011 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.