Self Assessment Tax Rules for Paye Earners & Self Employed
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.