Tag: self employed

Self Employed

April 29, 2013

Pension Planning for Retirement

All self employed individuals need to consider their retirement as early as possible. It may involve the transfer of the business within the family or a disposal of the business or its assets. The object of the exercise is to ensure that there will be sufficient resources available to provide some form of pension to the owners of the business.

Pension funding will be a major part of the retirement planning process. Needless to say the more you have invested in your pension scheme the better. Unfortunately a lot of self employed overlook the need to set aside funds for their own pension funding as cash can be a scarce resource when running a small business.

When and How to Claim Tax Relief 

Normally you will take account of your pension contributions when calculating your preliminary tax payment each October. Many self employed individuals pay their pension contributions once a year by way of a lump sum payment rather than monthly contributions. This lump sum payment can be claimed against the preceding tax year provided it is paid by the end of October following the end of the tax year.

The making of a lump sum payment at the end of October to coincide with your normal preliminary tax payment date and filing of your tax return can give a double benefit for cash flow purposes. The pension contribution can be claimed as a tax deduction in the earlier tax year. This reduces your tax liability for that year, which in turn allows you to reduce the preliminary tax payment being made on account for the current tax year.

Example of pension contributions reducing preliminary tax payment 

Assume the following:

Taxable profit for year 2016

€       60,000
Tax/PRSI due on profit

€20,000
Maximum Allowable Pension Contribution

€15,000
Preliminary Tax paid on account for 2016

€0
  Pension Payment
€

2015
€

2016
€

      Total Paid
€
No Pension Relief Claim
Pension Payment on 31/10/16

0

0
Tax Payments

20,000

   20,000

40,000
Tax Due on 31/10/16

40,000
With Pension Payment
Pension Payment on 31/10/16

 15,000

15,000
Revised Tax Payments

14,000

    14,000

28,000
Total Due on 31/10/16

43,000

 

Result: 
For more or less the same outlay our client has satisfied their liability for tax payments on the 31/10/2016 and also saved €15,000 into their pension scheme.

*The preliminary tax payments for 2016 tax year are based on paying 100% of the tax liability for year 2015. Whatever balance of tax liability is owed for year 2016 will become due for payment on 31/10/2017. The tax liability for tax year 2016 can be reduced by making another pension contribution in October 2017.

Partnerships

April 29, 2013

A partnership is a separate legal entity from a sole trader. It requires two or more individuals to carry on business together. You could have a partnership with your spouse, your children if not minors, and any unrelated parties.
Partners are taxed on their share of the profit arising to the partnership. This is calculated in the same way and subject to the same rules as for Sole Traders.
A partnership with your spouse can be useful for tax purposes for saving income tax under the individualization rules and for Capital Gains Tax purposes under the retirement relief rules.

Tax Registration

April 29, 2013

If you are not already in the tax system you will need to register with the Revenue for income tax purposes and perhaps also for Value Added Tax and Employers PAYE/PRSI if you will be taking on employees.

Form TR1, available from www.revenue.ie, deals with the registration for each of these taxes.

Sole Trader

April 29, 2013

When you carry on business in your own name you pay your tax based on the profit made by your business. You must prepare accounts and determine your profit for a twelvemonth period ending in the tax year. Our calculators for the self employed do the calculations for you.

Your taxable profit is the actual profit earned and not what you actually pay yourself from the business. The calculation of your profit will depend on how complicated your business affairs are. This section of our site is primarily intended for small businesses which do not require a complicated accounting structure e.g. self employed commission agents, employees of foreign companies not liable for Irish PAYE, self employed tradesmen, freelance sales people etc.

Self Assessment Tax Rules for Paye Earners & Self Employed

April 29, 2013

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.

Self Assessment Tax System (Intro)

April 29, 2013

Do I need to complete a Form 11 self assessed income tax return ?

The Irish Self Assessment tax system applies to all self employed individuals along with PAYE earners who have non-PAYE income (that exceeds €5,000), e.g. Rental Income. In addition, it applies to Director Shareholders of Limited Companies and anybody who has income which is not dealt with through the PAYE system.

Whether you are in the tax system or not, the onus is on you to comply with all the rules and regulations of the Self Assessment system. You must ensure that your tax returns are submitted to the Revenue on time and that you also make your tax payments within the time limits allowed.  If you do not comply with these rules you will incur interest and penalty costs on top of your normal tax liability. The Revenue police the system by way of Revenue Audits.

Along with a variety of other posts concerning self-assessment, we provide detailed information on the following so that you can check your tax position:

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