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Income Tax - The Basics

Posted 19/9/2016

What is an Income Tax Return?

Your income tax return is a submission made to Revenue declaring what your self-assessed tax liability is for the previous year. (i.e. your tax return made in 2016 relates to the trade carried out in 2015.) In simple terms it is calculated by deducting allowable expenditure from income, to calculate taxable profit, and multiplying this by the appropriate tax rate.


Who needs to file an Income tax return?

  • Self Employed Person
  • PAYE worker with investment or other income (e.g. rental income)
  • Director of a company with >15% shareholding


What are my obligations?

  • To register for tax.
  • Filing of correct tax return on time.
  • Payment of tax liability in full and on time.
  • Maintenance of records for 6 years (penalty of €3,000)


When does a tax return need to be filed?

  • The pay and file deadline for Income Tax is 31st October each year.
  • By using ROS to both pay and file online this is extended to 12th November.
  • If you have all of the information ready do not delay in filing your return. The closer to the deadline the busier ROS gets and it may be slower or worst case it could crash leaving you with the risk of late filing and payment.


What happens if I’m late?

If you miss the deadline and file your Income tax return late, a surcharge will be added on to your tax due, as follows:

  • before 31st December 2016 – penalty of 5% of the tax due (max of €12,695), e.g. if your final tax bill is €1,000, a surcharge of €50 (1,000 x 5%) is added – total to pay €1,050.
  • after 31st December 2016 – penalty of 10% of the tax due (max of €63,485), e.g. if your final tax bill is €1,000, a surcharge of €100 (1,000 x 0.10) is added – total to pay €1,100.


What is Preliminary Tax?

Preliminary tax relates to the current year. (i.e. in 2016 it is an estimate of your 2016 tax liability). It covers your liability to PRSI, USC as well as Income Tax.

To calculate your Preliminary Tax, it is the lower of:

  • 90% of your final liability for the tax year, or
  • 100% of your final liability for the previous tax year, or
  • 105% of your final liability for the pre-preceding tax year. (This option is only available where preliminary tax is paid by direct debit and does not apply where the tax payable for the pre-preceding year was nil).


What happens if I don't pay my full Preliminary Tax on time?

If you don't pay your Preliminary Tax by 31 October or if you don’t comply with your direct debit arrangement or if the amount of Preliminary Tax you pay is too low, you will be liable to an interest charge. Interest is due from the due date, on late payments of tax, for each day or part of a day at a rate of 0.0219%. eg if your Preliminary Tax liability is €1,000 this equals €22 per day from 31 October. To avoid this risk it is advisable to pay 100% of last year’s liability.


How much does an Income Tax Return cost?

This will depend on the quality of bookkeeping undertaken during the year but on a basic level, the cost will be in the region of €480 (ex VAT). Our clients can pay their fees over 12 months via an interest free direct debit arrangement.  Clients that choose this option will receive a “Business Review” performed free of charge. If you would like to hear further on this or any other of our services please contact us.


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