Many people in Ireland earn an income outside the Pay As You Earn (PAYE) system. Unlike PAYE employees, whose tax is deducted from their pay at source, self-employed people and those earning a non-PAYE income will need to file their own tax return.
So, if you’re self-employed, freelancing, or have any sources of income in addition to your PAYE salary, you’ll need to register with Revenue to pay tax on the profits from that business or income. To help you navigate this process, this simple guide explains who should register for self-assessment tax; how your tax will be calculated; and how to pay.
Who should register for self-assessment?
For self-assessment tax purposes, you’ll be considered an independent contractor if you are self-employed. This means you conduct your own business rather than working for an employer.
You’ll also need to register for self-assessment tax if you earn any income from a non-PAYE source such as a rental income, or any income from investments or shares. This applies even if you are an employee in the PAYE system.
Essentially, you must declare all non-PAYE income to Revenue. So, for example, if you undertake freelance work in your spare time, you will need to declare those earnings to Revenue, even if you are a PAYE employee. The type of form you fill in will depend on whether your non-PAYE earnings exceed €5,000.
How to register?
If you think you are eligible to pay tax through the self-assessment system, you’ll first need to register with Revenue. You can do this using Revenue’s online service, or by completing a paper registration form TR1.
A TR1 form can be used by Irish residents to register for tax as well as to register for value-added tax (VAT), if applicable. You will receive a ‘Notice of Registration’ once this form has been received.
How is my tax calculated?
Unlike the PAYE system where tax is deducted from your weekly or monthly salary, as an independent contractor, you’ll pay tax annually. Tax must be paid on or before the 31 October, based on the income you earned in the previous year.
In order to adhere to the rules, you will need to pay preliminary tax, which is an estimate of the tax due for the current trading year. At the same time, you’ll also need to make a tax return for the previous year and pay any outstanding taxes for that year.
To calculate your preliminary tax, you’ll need to estimate the Income Tax, Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) that you expect to pay for the tax year in question.
Everyone earning over €13,000 gross income is eligible to pay USC, with an extra charge of 3% if your non-PAYE income is over €100,000. Self-employed people will pay Class S PRSI, however, if you earn less than €5,000 in a year you will be exempt.
As an independent contractor, if your annual turnover is likely to be more than €75,000 for the supply of goods or in excess of €37,500 for the supply of services, you will need to register for Value Added Tax using Form TR1. Revenue will then send you a Form VAT3 whereby you can make a return for this element of your tax liability.
You can access more information on PRSI, USC and VAT via Citizens Information.
How to pay?
To declare your income under the self-assessment tax system, you must complete a Form 11 if your income from non-PAYE sources exceeds €5,000. If your income is below €5,000, you will need to complete a Form 12.
How can I reduce my tax bill?
Be sure to keep records of all amounts received and paid out, as well as any sales and purchases. Certain business expenses can be claimed against tax, such as accountancy fees, materials, phone bills and motor expenses. These allowable deductions can be offset against your income and may reduce your tax liability.
Income Tax Credits can also reduce your overall tax bill. As a self-employed person, you can claim Earned Income Tax Credit of €1,350. Be aware, however, that if you also qualify for Employee Tax Credit, the combined value of these two credits should not exceed €1,650.
If you are in doubt about the amount of tax you are eligible to pay, enlisting a tax return specialist can help. A tax agent, such as Tax Return Plus, can help freelancers and contractors calculate their income tax return accurately. This can help minimise your tax bill, ensuring you don’t run the risk of over- or under-paying tax.
Find out more about Tax Return Plus visiting their Profile on WhatsWhat.ie