Registering for tax in Ireland
Paying tax is an inevitable part of running a business. Both Sole Traders and Limited Companies need to pay tax.
The four main taxes are Corporation Tax/Income Tax, Value Added Tax (VAT) and Employers Taxes – Pay As You Earn (PAYE).
All the above taxes are applicable to Irish Limited Companies depending on what activities your company carries out. Corporation Tax is a mandatory tax for all companies in Ireland and we go through the different rates of Corporation Tax later.
Sole Traders don’t register for Corporation Tax, only Income Tax.
If you employ staff, you need to register for Employers Taxes and there are certain conditions you need to meet before you register for VAT.
With this in mind, the amount of tax you pay will also depend on the size and type of your business and what sector you belong to. So this may mean your tax registration will involve different steps.
Having an accountant from the beginning of your business journey will mean your business is registered for the correct tax and filing the correct tax returns at the end of the year. If you need help with your tax situation, please get in touch with our Client Services team and we can talk you through the services you need to get your business off the ground.
When do I need to register for tax?
As a business owner, you need to register with the appropriate government body before you start invoicing clients. Tax registration is completed through Irish Revenue.
Setting up a Limited Company in Ireland involves submitting an application to the Companies Registration Office (CRO) to incorporate your company. Once your company has been set up and you have received your company number, you can start invoicing clients. At the same time, your company needs to be registered for Corporation Tax with Revenue.
Starting out as a Sole Trader means you need to register as self-employed with Irish Revenue before you start invoicing clients. Registering as a self-employed also means you need to register for Income Tax. In some cases, Sole Traders never deal with the CRO unless they want to use a business name that is different to their own true name.
Tax filings in Ireland
Once you are registered for tax in Ireland, there are different tax filings you need to prepare. This applies to both Limited Companies and Sole Traders.
Ireland’s tax system is based on a self-assessment system. This means that each business owner is required to file their own tax returns to Irish Revenue and keep their own records of all financial activity for 6 years in case of a Revenue audit.
Many business owners hire accountants to look after their accounting and bookkeeping requirements so they can be reassured that all their accounting and financial obligations are taken care of.
Failure to make the appropriate tax returns can have financial consequences for your business which can be worrying for a lot of Startups.
We go through the different types of taxes in Ireland and let you know what to expect.
If you would like to talk to one of our team about your specific tax situation, get in touch with one of our expert Client Services members now.
Corporation tax registration
In Ireland, there is a relatively low Corporation Tax rate compared to other European countries. In most instances, companies in Ireland will pay this tax at a rate of 12.5%.
The low rate of Corporation Tax applies to companies who are incorporated in Ireland and are centrally controlled and managed in Ireland. This means that they have activity in the state, such as hiring employees, renting warehouses or office space, invoices from suppliers or customers in Ireland.
As mentioned, Sole Traders don’t pay Corporation Tax and the equivalent of this would be Income Tax. This is because Corporation Tax is paid on all the profits of the company after expenses. Similarly, Sole Traders need to pay Income Tax on all the profits after expenses. Sole Traders need to register for Income Tax and file an Income Tax return at the end of year.
The advantage of setting up a Limited Company is that they only pay 12.5% Corporation Tax on their profits, whereas a Sole Trader will need to pay Income Tax of up to 40% on all their profits. (Please note that Limited Companies still need to pay tax on money they take out of the company).
Corporation Tax return
Once you have registered your Limited Company with the CRO and registered for Corporation Tax, you need to keep note of your Corporation Tax return deadline.
In Ireland, your Corporation Tax return is due to be filed nine months after the end of the accounting period and before the 21st of that month.
This means it’s important you know when your accounting period is, and that you are preparing to file this return before it falls due.
All filings must be paid and filed electronically online through your company’s Revenue Online System (ROS).
Hiring an accountant to take care of your company’s compliance requirements gives you freedom to focus on other aspects of your business. If you are not familiar with what is involved with a Corporation Tax return, it can be stressful to know you have deadlines looming and no plan of action. We’re always happy to talk to you about the services you need, so talk to us today and we can send you a quote for our services.
Value Added Tax (VAT) Ireland
VAT registration in Ireland is both mandatory and a voluntary tax for both Sole Traders and Limited Companies. With this in mind, we have dedicated a full guide on how to register for VAT in Ireland but we run through the foundation of VAT below.
Firstly, VAT only becomes mandatory when your business reaches a turnover of €37,500 or above for the sale services and/or €75,000 or above for the sale of goods over the course of 12 months. This is a rolling 12 months, and not according to the calendar. In other words, at any stage your business gets close to any of these thresholds, you should register for VAT.
Secondly, a business may voluntarily choose to register for VAT. In certain cases, a business may choose to register for VAT because they deal with a lot of suppliers and clients who are also VAT registered and therefore, they want to claim back the VAT paid.
Revenue sets out the rates of VAT that are to be charged on the services or goods your business provides to its customers. You can only charge VAT once you are VAT registered and you claim back VAT through a VAT return, which is usually filed every two months.
It’s very common for Revenue to ask for proof that you require a VAT number as part of their registration process. Therefore, it’s important to show evidence of trade in Ireland to be eligible for a VAT number. This can include invoices to suppliers or customers in Ireland.
In general, VAT returns are filed with Irish Revenue every two months and they outline the amount of VAT you have charged out to your customers and the amount of VAT you have been charged over that period.
There are two ways to file VAT returns:
- Paper filings are filed using a VAT3 form. The VAT3 form is sent to you by Revenue and must be sent back to the Collector-General on the date specified on the document. In general, this needs to be completed by the 19th day of the taxable month.
- Electronic filings are filed using ROS and this needs to be completed by the 23rd day of the taxable month.
As you can see, it can be confusing to file VAT returns every two months for your business if you are unfamiliar with the requirements. Having an accountant that will look after all your VAT obligations will give you peace of mind that your business has correctly filed its returns with Irish Revenue.
Employer taxes - Pay As You Earn (PAYE)
Before you hire your first employee, you need to register for employers PAYE tax. Sole Traders and Limited Companies need to register for this tax if it is considering employing people.
You can register for PAYE on ROS or outsource this to a professional company. You may consider outsourcing because when you employ staff, you are also required to run a payroll system and use Revenue’s online PAYE modernisation system.
When you are an employer, you are required to calculate all the appropriate taxes to deduct from your employees wages. You collect all this tax on behalf of the Collector-General in Irish Revenue and then you pay them this sum of tax on a quarterly or monthly basis. We also have a full guide on what you should know about payroll processing in Ireland.
There are many payroll specialists in Ireland and you may consider hiring a professional to help you with your payroll duties. Contact us for a quote for our payroll services now.
As mentioned, business in Ireland file their tax returns on a self-assesment basis. There are different tax deadlines for Sole Traders and Limited Companies but the important thing to note is that these filings are for the previous year. There can be different deadlines for each business so speaking to a professional accountant can help clear up any doubts.
As well as paying the tax you owe for the previous year, you are also required to pay preliminary tax for the upcoming year. And this is on top of the current tax liability.
Preliminary tax can be tricky, especially when you consider late payments will incur interest to be paid per day the deadline is missed. Having an accountant look after your tax returns is a good way to ensure that your tax returns are done properly. Contact our Client Services Team to receive a quotation for accounting and compliance services.
Preliminary tax for Sole Traders
This is an estimate of your Income Tax, PRSI, and USC that you expect to pay for a tax year. There are different rules you can do to estimate your preliminary tax as a Sole Trader:
- 90% of the tax due that year
- 100% of the tax due from last year
- 105% of the tax due for the tax year preceding the immediately previous tax year. (e.g. you are completing a tax return for 2020. You can pay preliminary tax at 105% of 2018's tax liability. But please note that it cannot be nil and only applicable if you pay by direct debit)
Preliminary tax for Limited Companies
This is an estimate of the Corporation Tax due for the upcoming accounting period. Please note that Startup companies don't have to pay preliminary tax for their first accounting period if their Corporation Tax liability is less than €200,000 in their first year. There are different rules you can do to estimate your preliminary tax as a Limited Company:
- 100% of the Corporation Tax liability for the previous accounting period
- 90% of the Corporation Tax liability for the current period
Please note that the preliminary tax payment cannot be lower than any of these calculations.
Tax registration for new Irish Limited Companies
Are you a newly registered Limited Company in search of tax registration? We have a unique Startup Offer for accountancy services for new Limited Companies for just €159 per month + VAT. We can advise you as to when to register for tax and liaise with Revenue on your behalf during the application process.
If you have any questions about the tax registration process in Ireland or you need help filing a tax return, talk to one of our Client Services team who are always happy to help you. Call us on +353 1 095 9364 or email firstname.lastname@example.org now.