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Preliminary Tax in Ireland Explained

preliminary tax ireland

Paying taxes can be a daunting task, especially if you’re not familiar with the specific rules and regulations of a country. Ireland is no different with its unique tax structure. One of the essential tax elements you must be aware of is the Preliminary Tax. Let’s dive deep into understanding what it is, who needs to pay it, how much should be paid, and when it’s due.

preliminary tax Ireland
Source: Unsplash

What is Preliminary Tax

Preliminary Tax is essentially a pre-payment of the tax that you expect to owe for the following year. It acts as a method to ensure that taxpayers are paying their tax liabilities as they earn income throughout the year, rather than in one lump sum. This system not only aids the Revenue in maintaining a consistent inflow of tax revenue but also helps taxpayers by spreading their tax liabilities over a more extended period, thereby potentially alleviating any large end-of-year tax bills.

Who Pays Preliminary Tax in Ireland

The obligation of paying Preliminary Tax in Ireland falls on a wide spectrum of taxpayers including self-employed individuals, corporations, and individuals receiving income where tax cannot be deducted at source. In a nutshell, if you’re an entrepreneur running a business, the odds are that you will need to pay Preliminary Tax.

How Much Premilinary Tax Do I Have to Pay

The amount of Preliminary Tax you are required to pay hinges on several factors including your income level and the nature of your business. Usually, the Preliminary Tax should be equal to or exceed the lower of:

90% of the tax due for the current year, or

100% of the tax paid in the preceding 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).

If you’re looking for assistance in calculating and paying your Preliminary tax obligations, contact Chern & Co experts. We are an authorised Tax Agent with Revenue of Ireland. Our accounting team will ensure your business remains compliant, while you focus on steering your venture towards achieving its goals.

Preliminary Tax for New or Startup Companies

The first year of trading often comes with a whirlpool of financial obligations, and Preliminary Tax is one of them. New or start-up companies do not have to pay preliminary tax for their first accounting period if they have Corporation Tax that is less than €200,000. This is excluding surcharge but including Income Tax payable under Section 239 TCA 1997. Instead, they must pay their final Corporation Tax charge for the first accounting period when submitting their Corporation Tax return.

Even though typically, there isn’t a specific requirement to pay Preliminary Tax in your first year of trading, any other tax due will need to be settled by the normal due date.

Preliminary Tax Ireland Due Date

The due dates for Preliminary Tax are contingent on the financial year of your business. For individuals, the due date for Preliminary Tax is generally on or before 31st October of the tax year. For companies, it’s usually due one month before the end of the accounting period, with a grace period of three weeks from the end of the month. 

Failure to pay your Preliminary Tax by 31 October, adhere to your direct debit arrangement, or pay an adequate amount in Preliminary Tax could result in an interest charge. The deadline for paying your complete tax liability or any remaining tax balance reverts to the due date of the Preliminary Tax, specifically 31 October of the respective assessment year. As section 1080 of the Taxes Consolidation Act stipulated, interest will be applied to late tax payments for each day or part thereof, at the applicable rate.

preliminary tax Ireland due date
Source: Unsplash

Wrapping Up

Preliminary Tax, acting as a pre-payment mechanism, serves to streamline the process both for the state and the taxpayers, ensuring a steady revenue flow and manageable payment structures for businesses and individuals alike. It’s paramount that entrepreneurs, self-employed individuals, and corporations grasp the workings of Preliminary Tax, its computation, and deadlines to avoid any inadvertent financial pitfalls and ensure smooth operations.

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