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A Guide To Preliminary Tax In Ireland

Are you a business owner or self-employed individual in Ireland? If so, you’ve probably heard of preliminary tax. Let’s take a quick look at everything you need to know about this tax in Ireland. 

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What is preliminary tax?

Preliminary tax is essentially a form of income tax that you pay in advance of the current tax year. If you’re self-employed or run a company in Ireland, you’re required to pay this tax. It’s a way for Revenue Ireland to ensure a steady flow of income throughout the year and for you to spread out your tax payments, instead of being hit with a lump-sum at the end of the year.

How to calculate preliminary tax

Calculating preliminary tax might seem complicated, but we’ll break it down for you. The amount you need to pay is based on your estimated income for the current tax year. 

  • You will need to do an estimation of your total earnings for the current tax year.
  • Calculate your tax liability on this income. This includes income tax, PRSI, and Universal Social Charge (USC).
  • Subtract any tax credits and reliefs you’re entitled to.
  • The resulting amount is your preliminary tax for the year.

Example

Let’s look at an example. Imagine you’re a self-employed graphic designer. You estimate that you’ll earn €50,000 this year. Now, let’s break down how you’d calculate the tax amount.

  1. Estimate your income for the current tax year: You expect to earn €50,000.
  2. Calculate your tax liability on this income: This includes income tax, PRSI, and Universal Social Charge (USC). Imagine that all these taxes together come to €12,000.
  3. Subtract any tax credits and reliefs you’re entitled to: You’re entitled, for example, to a personal tax credit of €1,650 and an earned income credit of €1,650. When you subtract these from your tax liability (€ 12,000 – € 3,300), you get €8,700.
  4. The resulting amount is your preliminary tax for the year: €8,700.

When is preliminary tax due?

Preliminary tax in Ireland is due on 31st October of the current tax year. So, for example, in 2023 that would be due on 31st October 2023. It’s important to pay on time to avoid any penalties or interest charges. If you’re late with your payment, you could be charged interest for each day that your payment is overdue.

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How to pay preliminary tax in Ireland

Paying your tax in Ireland is straightforward. You can make the payment online through the Revenue Online Service (ROS). You’ll need to log in to your ROS account, select the ‘Pay Preliminary Tax’ option, and follow the instructions to make the payment. If you don’t have a ROS account, you can register for one on the Revenue website.

Our online accountants in Ireland can help you with this process no matter where you are located.

Small companies & short accounting periods

If you run a small company or your accounting period is less than 12 months, the rules for preliminary tax are slightly different. 

For small companies, the amount must be at least 90% of the final company tax liability for the accounting period or 100% of the company tax liability for the preceding accounting period.

For short accounting periods, the tax is calculated based on the number of months in the accounting period. 

Example – small tech startup

Let’s say you run a small tech startup. In your first year (a short accounting period of 6 months), you made a profit of €20,000 (great job!). Your corporation tax rate is 12.5%, so you would be responsible for a tax liability €2,500 for this period.

In your second year. Your sales are increasing and you estimate your profit for the full year to be €50,000. Thus your tax liability for this year would be €6,250 (12.5% of €50,000).

You have two options on how you can calculate your preliminary tax for the second year:

  • Option 1 – You can pay 90% of the current year’s tax: This would be 90% of €6,250 which equals €5,625. 

Or

  • Option 2 – You can pay 100% of the previous year’s tax. €2,500 was the amount of tax you paid last year. 

It is likely that you would want to choose the second option because it’s less. But remember, if your final tax liability for the second year is more than €2,500, you’ll have to pay the difference by the 31st of October in the following tax year to avoid paying interest charges.

Tax expertise

At Around finance, our team of tax accountants can help you find your way through these rules and ensure you remain compliant. 

We hope this guide has helped you understand preliminary tax in Ireland. Remember, if you have any questions or need assistance with your taxes, don’t hesitate to reach out to us. 

FAQ

Yes, if you’re self-employed or run a corporation in Ireland, you’re required to pay this tax.

You can file online through the Revenue Online Service (ROS). You’ll need to log in to your ROS account, select the ‘File Preliminary Tax’ option, and follow the instructions to file your tax.

Preliminary corporation tax is due on the 23rd day of the ninth month of the current accounting period. So, for example, if your accounting period ends on 31st December, your preliminary corporation tax would be due on 23rd September.

To calculate that amount, you need to estimate your income for the current tax year, calculate your tax liability on this income, and subtract any tax credits and reliefs you’re entitled to. The resulting amount is your tax for the year.

Yes, bookkeeping services can definitely assist you. They can help you keep track of your income and expenses, estimate your tax liability, and ensure you’re prepared for your tax payments.

Still got questions? Let us know what you’re looking for.

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