This one page guide guide covers the tax codes and legislation which affect how self-employed are taxed in Ireland. It is brought to you by Liam Burns, a chartered tax adviser with the Irish Taxation Institute and Principal of Liam Burns and Co Accountants.
Contact Liam on (01)5677380 or use the quick enquiry form below
Tax Guide for Self-Employed Sole Traders
When you have decided to go for it – take the plunge and drive towards the success and rewards of setting up a business as a sole trader, there are a number of administrative questions you may have in relation to your legal and tax obligations, for example, deciding on Sole Trader, Partnership or Limited Company.
Although there are many similarities in the setting up process, this article deals with Sole Trader Businesses.
Some of the Advantages of Being Self-Employed
Expenses for business purposes are deductible against your overall income for tax purposes. Some of these expenses may be incurred by individuals as employees – in which case payments are made from Net (after Tax) income rather than Gross Income. For example, CPD courses, upskilling, tools, consumables, some motor and travel expenses, subscription fees etc.
Other general advantages include flexible work days/hours and ability to personally profit from increases in your own productivity and good ideas and decision making. The satisfaction and value of your own progress and potential to earn a lot more money is also a big plus!!
Some of the Disadvantages
Loss of PAYE Credit – Employees currently have a PAYE credit in the amount of €1,650. This credit is not available for the self-employed. However from 1 January 2016 a new tax credit became available for self-employed earners in the amount of €550 which reduces the disadvantage to a certain extent. (This increased to €950 for 2017 and €1,150 for 2018.)
If your business fails, it may be more difficult to obtain social welfare. If you have been self-employed then you will be means tested before being eligible to receive Jobseekers Allowance, while if you have been an employee for a certain period, it will entitle individuals to Jobseekers Benefit for a defined term regardless of their means.
However, the flipside of the risk is the high reward if successful.
Registering a Business Name
You may decide to use your own name as the business name, but if you wish to use a separate business name you must register the name with the Companies Registration office.
To register a business name, the form required is a RBN1 form (Registration of Business Name). To register online, individuals would need to set up an account online through CORE on the companies registration office website www.cro.ie and complete and submit the form online. Generally, accountants complete this on clients’ behalf.
A manual form can also be complete and sent to the companies office in Carlow for processing. This process normally takes up to 5 working days.
You will then be issued with a certificate of business name which should be kept on the business premises.
There is a filing fee of €20 if you register the business name online and €40 if filed manually.
Income Tax
Governing legislation – Tax Consolidation Act 1997
Individuals are required to register for Income Tax from the date of the commencement of the business. Registration can be completed online for all taxes through the Revenue Online System (ROS). You must register as a ROS customer to avail of the online service. This will allow you to file returns and make payments online for tax liabilities. Again, generally your accountant will complete this process on behalf of clients. Alternatively, you can complete a manual Form TR1 and send to your revenue district for processing.
When completing the registration for Income Tax, you will be required to choose an accounting year end date. In a lot of cases, individuals choose the calendar year end for this purpose i.e. 31 December but this is not always the case. For example, if you register from 1st September you may decide to have your accounting year to 31 August in the following year giving you a full year from date of registration. The year-end date can be any date and is at the discretion of the individual.
Sole Traders must then complete and file annual Income Tax returns under the self-assessment rules as follows.
A Form 11 (or Form 12 in smaller cases) must be prepared and filed and paid on or before 31 October in the year following the year of assessment. For example, for a year ended 31/03/2014 or 31/09/2014 or 31/12/2014, the return is due to Revenue Commissioner by 31 October 2015. There is usually an additional two weeks if filed and paid online.
The tax liability will be based on the Net Income of the business – that being total income less allowable expenses for the period (see applicable rates below).
INCOME TAX RATES APPLICABLE TO YEARS 2014 – 2018 inclusive
Income tax rates for the year 2014:
Income Tax – 20% (up to €32,800) and 41% (for income above €32,800)
PRSI – 4%
USC – 2%, 4% 7% and 10% depending on the income levels – 10% applies over €100,000
Income tax rates for the year 2015:
Income Tax – 20% (up to €33,800) and 40% (for income above €33,800)
PRSI – 4%
USC – 1.5%, 3.5%, 7%, 8% and 11% depending on the income levels – 10% applies over €100,000
Income tax rates for the year 2016:
Income Tax – 20% (up to €33,800) and 40% (for income above €33,800)
PRSI – 4%
USC – 1%, 3%, 5.5%, 8% and 11% depending on the income levels – 11% applies over €100,000
Income tax rates for the year 2017:
Income Tax – 20% (up to €33,800) and 40% (for income above €33,800)
PRSI – 4%
USC – .5%, 2.5%, 5%, 8% and 11% depending on the income levels (11% applies over €100,000)
Income tax rates for the year 2018:
Income Tax – 20% (up to €34,550) and 40% (for income above €34,550)
PRSI – 4%
USC – .5%, 2%, 4.75%, 8% and 11% depending on the income levels (11% applies over €100,000
Value Added Tax (VAT)
Governing legislation – VAT Consolidation Act 2010
Depending on the business and the turnover, a sole trade may also be required to register for VAT. If registered for VAT, the business will add VAT to the sales price of its goods and/or services. The rates of VAT are the standard rate (23%) or reduced rates (9% and 13.5%) and Zero Rated (0%). There are also low rates for Flat Rate Farmers.
Business owners are obliged to register for VAT if their turnover exceeds or is likely to exceed the following thresholds in any 12 month period.
Goods – €75,000
Generally the threshold for supply of goods is €75,000 but is reduced to €37,500 if business supplies goods that have been manufactured from zero rated materials.
Services – €37,500
Generally the threshold for supply of service is €37,500 but is increased to €75,000 if business supplies both goods and services and 90% of turnover is from supply of Goods.
ICA’s – €41,000
Intra-Community (EU) acquisitions of goods for business purposes by a person in Ireland
Distance Sales – €35,000
Distance sales of goods by a foreign trader to non-registered customers in Ireland
Foreign Traders – €0
Persons not established in Ireland but supplying goods and services here must register regardless of the level of turnover.
Received Services – €0
Persons receiving services from abroad for business purposes in the State must register regardless of the level of turnover.
If the turnover does not exceed the thresholds, there is no obligation to register. However, it may be beneficial to some businesses to register anyway. The advantage to registering for VAT is that you can claim back the VAT expense on inputs – for example on materials purchased, services required and items such as diesel and equipment.
Similar to registering for income tax, registration for VAT con be done online through ROS or manually using a TR1 form. Vat registration can sometimes take longer than Income Tax registration as Revenue Commissioners have commenced seeking additional details prior to completing the registration, such evidence of trading, lease agreements for premises etc.
VAT registered persons are obliged to file returns on or before the 23rd of the month following the period end. The VAT period is generally bimonthly, quarterly, and annually or biannually.
Employers PAYE/PRSI
Governing legislation – INCOME TAX (EMPLOYMENTS) REGULATIONS 2009
Sole traders employing or intending to employ staff are required to register for employers PAYE/PRSI. Employers are required to deduct taxes (PAYE, PRSI, and USC) from employee’s gross pay and the amounts are to be paid to Revenue Commissioners directly. Employers are obliged to file returns on or before the 23 of the month following the period end. The PAYE/PRSI period is generally monthly, quarterly or annually. An annual P35 is also required to be submitted to Revenue Commissioners on or before 23 February of each year. This provides Revenue with all pay and tax details of each employee employed in the previous year.
Similar to registering for IT and VAT, registration as an employer can be done online through ROS or manually using a TR1 form (as above). Registration can be completed at the same time as registering for IT and/or VAT or can be done separately as required.
Employee contracts (or terms and conditions) should be provided to employees, within 2 months of employment and signed copies should be kept on file. Employees are also entitled to payslips showing their wages and any deductions that have been made. An employer must also provide a P60 (Annual Pay ad Tax details) or P45 (if employment ceased prior to 31 December) if applicable to employees.
Each employee must be registered with Revenue Commissioners by supplying to Revenue the employees’ name, PPS number, and start date. Employers should then receive the tax credits and standard rate cut off points from Revenue for each employee to allow them to calculate the correct taxes to be deducted.
It is advisable to use a payroll software package to ensure proper records are maintained for employees.
Relevant Contract Tax (RCT) – Construction including Haulage, Forestry, Meat Processing
Governing legislation: Income Tax and Corporation Tax (Relevant Contracts Tax) (Amendment) Regulations 2013 S.I. No.412 of 2013
If you are operating in any of the above sectors, you may be required to register for RCT as either a Principal Contractor, a Subcontractor or both.
Registration as a subcontractor is required if you are carrying out work for a Principal Contractor in one of the above sectors. Registration as a principal contractor is required if you are or intend to use subcontractors.
All details of payments and contract must be input onto the RCT section of the Revenue online system (ROS) and be recorded on an ongoing basis as payments and contracts are made. Users must register for ROS if not using an agent to fulfil this obligation.
Monthly returns are due on or before 23rd of each month.
Depending on the history of each individual contractor – sole trader or limited company, a RCT rate is allocated. The rate will be 0%, 20% or 35%. The Principal contractor is obliged to withhold this amount from all payments made to the subcontractors and pay to Revenue on a monthly basis.
Subcontractors can request a review of their rate online through the ROS system.
Do I need an Accountant?
There is no legal requirement for a sole trader to engage an accountant or tax advisor. Registration for taxes and filing of tax returns can be completed by the business owner if he/she is comfortable with the process and understands accounting and taxation systems and legal obligations and requirements.
For sole traders, accounts are not required to be signed off by a professional and statutory audits are not required. However, accounts are often required by third parties such as financial institutions, in relation to overdraft or loan applications and usually a requirement is that accounts are signed by a professional accountant.
In general, it is also advisable to seek professional assistance* with the taxation issues as the taxation system is complex. It also allows the business owner to focus on his/her business rather than consuming the time with less familiar matters. Also, professionals in this area will ensure compliance and assist with implementing tax efficient systems for businesses.
*I have an accountancy practice called Liam Burns & Co so if you wish to contact me please do so at (01)5677380
…or use the quick enquiry form below.
Fill out my online form.
Tax Guide for Self-Employed Sole Traders
When you have decided to go for it – take the plunge and drive towards the success and rewards of setting up a business as a sole trader, there are a number of administrative questions you may have in relation to your legal and tax obligations, for example, deciding on Sole Trader, Partnership or Limited Company.
Although there are many similarities in the setting up process, this article deals with Sole Trader Businesses.
Some of the Advantages of Being Self-Employed
Expenses for business purposes are deductible against your overall income for tax purposes. Some of these expenses may be incurred by individuals as employees – in which case payments are made from Net (after Tax) income rather than Gross Income. For example, CPD courses, upskilling, tools, consumables, some motor and travel expenses, subscription fees etc.
Other general advantages include flexible work days/hours and ability to personally profit from increases in your own productivity and good ideas and decision making. The satisfaction and value of your own progress and potential to earn a lot more money is also a big plus!!
Some of the Disadvantages
Loss of PAYE Credit – Employees currently have a PAYE credit in the amount of €1,650. This credit is not available for the self-employed. However from 1 January 2016 a new tax credit became available for self-employed earners in the amount of €550 which reduces the disadvantage to a certain extent. (This increased to €950 for 2017 and €1,150 for 2018.)
If your business fails, it may be more difficult to obtain social welfare. If you have been self-employed then you will be means tested before being eligible to receive Jobseekers Allowance, while if you have been an employee for a certain period, it will entitle individuals to Jobseekers Benefit for a defined term regardless of their means.
However, the flipside of the risk is the high reward if successful.
Registering a Business Name
You may decide to use your own name as the business name, but if you wish to use a separate business name you must register the name with the Companies Registration office.
To register a business name, the form required is a RBN1 form (Registration of Business Name). To register online, individuals would need to set up an account online through CORE on the companies registration office website www.cro.ie and complete and submit the form online. Generally, accountants complete this on clients’ behalf.
A manual form can also be complete and sent to the companies office in Carlow for processing. This process normally takes up to 5 working days.
You will then be issued with a certificate of business name which should be kept on the business premises.
There is a filing fee of €20 if you register the business name online and €40 if filed manually.
Income Tax
Governing legislation – Tax Consolidation Act 1997
Individuals are required to register for Income Tax from the date of the commencement of the business. Registration can be completed online for all taxes through the Revenue Online System (ROS). You must register as a ROS customer to avail of the online service. This will allow you to file returns and make payments online for tax liabilities. Again, generally your accountant will complete this process on behalf of clients. Alternatively, you can complete a manual Form TR1 and send to your revenue district for processing.
When completing the registration for Income Tax, you will be required to choose an accounting year end date. In a lot of cases, individuals choose the calendar year end for this purpose i.e. 31 December but this is not always the case. For example, if you register from 1st September you may decide to have your accounting year to 31 August in the following year giving you a full year from date of registration. The year-end date can be any date and is at the discretion of the individual.
Sole Traders must then complete and file annual Income Tax returns under the self-assessment rules as follows.
A Form 11 (or Form 12 in smaller cases) must be prepared and filed and paid on or before 31 October in the year following the year of assessment. For example, for a year ended 31/03/2014 or 31/09/2014 or 31/12/2014, the return is due to Revenue Commissioner by 31 October 2015. There is usually an additional two weeks if filed and paid online.
The tax liability will be based on the Net Income of the business – that being total income less allowable expenses for the period (see applicable rates below).
INCOME TAX RATES APPLICABLE TO YEARS 2014 – 2018 inclusive
Income tax rates for the year 2014:
Income Tax – 20% (up to €32,800) and 41% (for income above €32,800)
PRSI – 4%
USC – 2%, 4% 7% and 10% depending on the income levels – 10% applies over €100,000
Income tax rates for the year 2015:
Income Tax – 20% (up to €33,800) and 40% (for income above €33,800)
PRSI – 4%
USC – 1.5%, 3.5%, 7%, 8% and 11% depending on the income levels – 10% applies over €100,000
Income tax rates for the year 2016:
Income Tax – 20% (up to €33,800) and 40% (for income above €33,800)
PRSI – 4%
USC – 1%, 3%, 5.5%, 8% and 11% depending on the income levels – 11% applies over €100,000
Income tax rates for the year 2017:
Income Tax – 20% (up to €33,800) and 40% (for income above €33,800)
PRSI – 4%
USC – .5%, 2.5%, 5%, 8% and 11% depending on the income levels (11% applies over €100,000)
Income tax rates for the year 2018:
Income Tax – 20% (up to €34,550) and 40% (for income above €34,550)
PRSI – 4%
USC – .5%, 2%, 4.75%, 8% and 11% depending on the income levels (11% applies over €100,000
Value Added Tax (VAT)
Governing legislation – VAT Consolidation Act 2010
Depending on the business and the turnover, a sole trade may also be required to register for VAT. If registered for VAT, the business will add VAT to the sales price of its goods and/or services. The rates of VAT are the standard rate (23%) or reduced rates (9% and 13.5%) and Zero Rated (0%). There are also low rates for Flat Rate Farmers.
Business owners are obliged to register for VAT if their turnover exceeds or is likely to exceed the following thresholds in any 12 month period.
Goods – €75,000
Generally the threshold for supply of goods is €75,000 but is reduced to €37,500 if business supplies goods that have been manufactured from zero rated materials.
Services – €37,500
Generally the threshold for supply of service is €37,500 but is increased to €75,000 if business supplies both goods and services and 90% of turnover is from supply of Goods.
ICA’s – €41,000
Intra-Community (EU) acquisitions of goods for business purposes by a person in Ireland
Distance Sales – €35,000
Distance sales of goods by a foreign trader to non-registered customers in Ireland
Foreign Traders – €0
Persons not established in Ireland but supplying goods and services here must register regardless of the level of turnover.
Received Services – €0
Persons receiving services from abroad for business purposes in the State must register regardless of the level of turnover.
If the turnover does not exceed the thresholds, there is no obligation to register. However, it may be beneficial to some businesses to register anyway. The advantage to registering for VAT is that you can claim back the VAT expense on inputs – for example on materials purchased, services required and items such as diesel and equipment.
Similar to registering for income tax, registration for VAT con be done online through ROS or manually using a TR1 form. Vat registration can sometimes take longer than Income Tax registration as Revenue Commissioners have commenced seeking additional details prior to completing the registration, such evidence of trading, lease agreements for premises etc.
VAT registered persons are obliged to file returns on or before the 23rd of the month following the period end. The VAT period is generally bimonthly, quarterly, and annually or biannually.
Employers PAYE/PRSI
Governing legislation – INCOME TAX (EMPLOYMENTS) REGULATIONS 2009
Sole traders employing or intending to employ staff are required to register for employers PAYE/PRSI. Employers are required to deduct taxes (PAYE, PRSI, and USC) from employee’s gross pay and the amounts are to be paid to Revenue Commissioners directly. Employers are obliged to file returns on or before the 23 of the month following the period end. The PAYE/PRSI period is generally monthly, quarterly or annually. An annual P35 is also required to be submitted to Revenue Commissioners on or before 23 February of each year. This provides Revenue with all pay and tax details of each employee employed in the previous year.
Similar to registering for IT and VAT, registration as an employer can be done online through ROS or manually using a TR1 form (as above). Registration can be completed at the same time as registering for IT and/or VAT or can be done separately as required.
Employee contracts (or terms and conditions) should be provided to employees, within 2 months of employment and signed copies should be kept on file. Employees are also entitled to payslips showing their wages and any deductions that have been made. An employer must also provide a P60 (Annual Pay ad Tax details) or P45 (if employment ceased prior to 31 December) if applicable to employees.
Each employee must be registered with Revenue Commissioners by supplying to Revenue the employees’ name, PPS number, and start date. Employers should then receive the tax credits and standard rate cut off points from Revenue for each employee to allow them to calculate the correct taxes to be deducted.
It is advisable to use a payroll software package to ensure proper records are maintained for employees.
Relevant Contract Tax (RCT) – Construction including Haulage, Forestry, Meat Processing
Governing legislation: Income Tax and Corporation Tax (Relevant Contracts Tax) (Amendment) Regulations 2013 S.I. No.412 of 2013
If you are operating in any of the above sectors, you may be required to register for RCT as either a Principal Contractor, a Subcontractor or both.
Registration as a subcontractor is required if you are carrying out work for a Principal Contractor in one of the above sectors. Registration as a principal contractor is required if you are or intend to use subcontractors.
All details of payments and contract must be input onto the RCT section of the Revenue online system (ROS) and be recorded on an ongoing basis as payments and contracts are made. Users must register for ROS if not using an agent to fulfil this obligation.
Monthly returns are due on or before 23rd of each month.
Depending on the history of each individual contractor – sole trader or limited company, a RCT rate is allocated. The rate will be 0%, 20% or 35%. The Principal contractor is obliged to withhold this amount from all payments made to the subcontractors and pay to Revenue on a monthly basis.
Subcontractors can request a review of their rate online through the ROS system.
Do I need an Accountant?
There is no legal requirement for a sole trader to engage an accountant or tax advisor. Registration for taxes and filing of tax returns can be completed by the business owner if he/she is comfortable with the process and understands accounting and taxation systems and legal obligations and requirements.
For sole traders, accounts are not required to be signed off by a professional and statutory audits are not required. However, accounts are often required by third parties such as financial institutions, in relation to overdraft or loan applications and usually a requirement is that accounts are signed by a professional accountant.
In general, it is also advisable to seek professional assistance* with the taxation issues as the taxation system is complex. It also allows the business owner to focus on his/her business rather than consuming the time with less familiar matters. Also, professionals in this area will ensure compliance and assist with implementing tax efficient systems for businesses.
*I have an accountancy practice called Liam Burns & Co so if you wish to contact me please do so at (01)5677380
…or use the quick enquiry form below.