Quick Guide to Preliminary Tax in Ireland
Preliminary tax always comes as a bit of a shock, especially for those new to business! So what is it?
Preliminary tax is an advanced payment on account for your next tax year. Yes, that does mean paying tax on income you may not already have earned….
The tax is a combination of your income tax, PRSI and USC that you expect to pay for the tax year.
Revenue will expect your final tax payment for each tax year by 10 November of the following (current) year, if you are filing and paying online. However, they will also expect your preliminary tax payment for the current tax year by the same date.
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How Do You Calculate Preliminary Tax Liability?
You may already be asking the obvious question…..if the current tax year is not over, how do I know my income for the year, and therefore how much Preliminary Tax I have to pay? There are a few acceptable methods of calculating this tax.
Before the 31st of October, you must calculate and pay one of the following. There are three options for calculating Preliminary tax 2018 due;
- 90% of the tax liability due for 2019.
- 100% of the tax due for 2018.
- 105% of the tax due for 2017.
The 105% tax payment only applies when you pay by direct debit.
The most popular way is to base it on the previous year’s liability.
For example, if your tax liability for 2018 is calculated to be €1,000, Revenue will expect the same amount of Preliminary Tax – although there can be exceptions to this rule!
If you have been in business for a few years, it is likely that you paid tax preliminary last year, so this will reduce the amount you have to pay in the current year for the previous year.
However, if it is your first year in business, it can feel that you are paying tax twice! It may be small comfort to know that the preliminary tax you pay will be held by Revenue ‘on account’. This tax is offset against your liability next year.
Please note that non-payment of Preliminary Tax may be due to Revenue interest or penalties.