If you are a self-employed person, in other words a sole trader, most probably you already know that you need to file your annual income tax return.
However, this is not the only case when an income tax return has to be prepared and filed.
What actually is an income tax return?
In simple words, an income tax return, also called Form 11, is a calculation of taxes due on all your income, including PAYE, trading income, investments, rental income, etc. The return has many sections which relate to:
- your personal details,
- residence status,
- income from all sources,
- available tax credits,
- exemptions and deductions,
- extract from trading accounts.
It is usually prepared by an accountant on the basis of documentation submitted by you. As a result, the final tax liability or refund is calculated and the return is filed using Revenue Online Service (ROS).
Who has an obligation to file the return?
As already mentioned, mainly sole traders would have an obligation to file annual income tax returns in relation to their trading income. But apart from them, there are other groups of so-called chargeable persons who are required to file such returns. The most common example would be proprietary directors of limited companies, controlling more than 15% of the share capital. Also, if your main income originates from rent, investments, foreign income or maintenance payments, you will have to file an income tax return.
An important point to note – in case of married couples or civil partners who are jointly assessed for taxes, only one of the spouses has to file the return. Even if only one spouse is a sole trader or a director, the joint income tax return has to be filed for both of them.
Sole traders and company directors have an obligation to file income tax returns.
How to register?
Prior to filing any returns, you have to register with the Revenue Office for income tax purposes. Usually this is done at the moment you intend to start trading as a self-employed person or you become a director of a limited company. You can register yourself through Revenue Online Service or your accountant/tax agent can do it on your behalf. If you want to do it yourself, first you need to create an account with ROS following the online instructions. This process can take a few days because Revenue Office will need to confirm your identity by sending special access codes to your home address.
What is the deadline?
Annual income tax returns have to be filed by 31 October of the following year. So for example, by 31 October 2019 you have to file the tax return for year 2018. The deadline can be extended until mid-November if you decide to file the return using the online service ROS.
A good advice would be not to wait until the last minute to avoid the risk of late filing penalties, which can be substantial. It’s worth pointing out that all accountants and tax advisors are extremely busy around this period and it may be difficult for them to find enough time to look after your tax return.
If you miss the filing deadline 31 October you may be liable to serious penalties.
When do you need to pay the income tax?
The deadline for paying your income tax liability is also 31 October. However, you need to keep in mind that apart from the tax due for the previous year, you also need to pay a so-called preliminary tax. This is the estimated amount of tax which you expect to pay for the current year. Usually this would be 100% of the tax liability for last year. For example, when your file your first income tax return you may need to pay a tax due for the previous year and also the preliminary tax for the current year. This will relate only to the first year, in the following years you only pay the remaining balance plus your preliminary tax.
You have to keep in mind that the tax liability consists of 3 components:
- Tax payable on all your profits (20% at the lower rate and 40% at the higher rate)
- PRSI contribution (usually 4% of your profits, minimum €500)
- USC as the relevant % of your income.
Tax payments can be made by a credit or debit card online through ROS service or alternatively by a direct debit. In case you are due a refund, Revenue Office will process it usually within a couple of weeks.
Do you still have questions?
If you are still in doubt about your obligations related to the income tax return, you are more than welcome to contact us to get our valuable professional advice.
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