Why do the self-employed pay higher taxes?

So which is better value:
14.75% of income to provide all covered benefits?
Or
4% of income to provide 70% of covered benefits?

I may be wrong but from any figures I've seen large parts of the public service including ministers also have no employers PRSI paid.

So in terms of PRSI - a minister is more like a self employed person than a normal PAYE worker.

Arguably the government shouldn't pay employer's PRSI as the money just goes round in circles, but I think that argument is weaker as in return for reduced payments government employees sometimes have enhanced (e.g. early) access to the PRSI fund.

So if anyone is arguing that the self employed should pay higher PRSI as a result of the lack of employers contribution, surely the same argument should apply to say a minister or any other public servant?
 
This thread has moved from USC to PRSI.

If you look at the income tax actually paid by both employees and the self-employed, as mentioned in my previous post, employees with income of €100,000 and over have an effective tax rate of a little over 5% more than their self-employed equivalents.

That may be the reason for the 3% differential in USC which, unlike income tax, cannot be reduced by tax reliefs.

At the other end of the scale, incomes from €0 to €35,000, the self-employed have a higher effective rate.

There may be some justification in assisting this group of self-employed.
 
If you look at the income tax actually paid by both employees and the self-employed, as mentioned in my previous post, employees with income of €100,000 and over have an effective tax rate of a little over 5% more than their self-employed equivalents.
You can't easily compare groups using those stats. The tax paid is net of all reliefs etc. An obvious difference between the groups is that the self-employed are much more likely to need to provide for their own pension than employees who may have employer-funded schemes available - so the apparently lower tax paid by the self-employed could be due to the tax relief received.
 
So if anyone is arguing that the self employed should pay higher PRSI as a result of the lack of employers contribution, surely the same argument should apply to say a minister or any other public servant?
It's an interesting point. I hadn't really considered that public servants don't have an employers contribution made for them. I suppose public servants might consider their pension levies to be their contribution towards PRSI benefits/contributory pension.
 
The tax paid is net of all reliefs etc.

That is the point. Everyone pays income tax net of whatever reliefs are available to him or her. Some are entitled to more reliefs than others for whatever reason.


The bottom line for the government would be the average effective tax rate actually paid in various income bands; not the marginal rates.

As it turns out for incomes in excess of €100,000, (indeed upwards of €35,000) the self-employed pay less.

That is why I am suggesting this as a possible reason for the 3% additional USC charge on self-employed with incomes in excess of €100,000.
 
That is the point. Everyone pays income tax net of whatever reliefs are available to him or her. Some are entitled to more reliefs than others for whatever reason.

The bottom line for the government would be the average effective tax rate actually paid in various income bands; not the marginal rates.

As it turns out for incomes in excess of €100,000, (indeed upwards of €35,000) the self-employed pay less.

That is why I am suggesting this as a possible reason for the 3% additional USC charge on self-employed with incomes in excess of €100,000.
That doesn't really make much sense though. Why would you allow reliefs to continue in existence if you increase the tax rates of those who avail of the reliefs - such that they end up paying the same tax that they would have paid with no reliefs...

And how is it fair to apply a rate to an entire group when only some people avail of the reliefs.

I also can't think of any reliefs from personal income tax that are only available to self-employed higher earners.

I personally would do away with pretty much all income tax reliefs so everyone just pays the scheduled rates on all income.
 
I agree that it would be more helpful for analytics if the income bands grouping were more consistent, perhaps consistently ascending in groups of €10,000. But we have what we have.

In common with practically all taxation systems, the Irish system does not just collect taxes. It also acts partly as a welfare system to reduce the effect of taxation on individuals according to their personal status, health, dependants, age and certain outgoings.

It also provides a range of capital allowances and other reliefs to alleviate the expenses of the self-employed and to a certain extent influence their behaviour, such as research and development, etc.

There may be something in what you say, in that the tax code should only be concerned with taxation and that assistance to both employed and self-employed should be provided by other agencies; however you would be up against it!

As it stands, the only way the government can gauge who is paying what is by analysing effective tax rates in different income bands after tax reliefs have been applied.

In addition, I suspect that Revenue provides more detailed information to the government via the Finance dept than is shown in its income distribution statistics.
 
No, there is no justification for that.

Nor is there any justification why employees get a PAYE credit, but self-employed don't.

Brendan


I do not think it is that straight forward, Mr. Burgess.

I think we all must admit that there remains, to a certain degree, a lack of trust with regards to whether or not the self-employed are paying tax on all of their earnings.

It is entirely wrong to imply that all self-employed fail to pay tax on all of their earnings, but yet there are regular conversations with self employed tradesmen for example as to "what their cash price is". This in isolation does not prove that the earnings coming from these deals subsequently does not get declared and the appropriate tax paid, but leaves people wondering.

By extension to the above line of thinking, the suspicion leads to other sectors of the population wanting to see the self employed taxed more heavily, in my view.

As for the PAYE annual allowance, I think this is in part a credit given to the PAYE sector, to acknowledge the fact that they have their tax deducted at source during the year and do not get the benifit of their funds in full, until an annual tax payment must be made. Is the current figure the correct one to reflect whatever benefit this conveys, possibly not, but I do think in principal it is deserving.

Ultimately, I think the method in which the self-employed invoice, get paid and subsequently pay tax on their earnings needs to be changed to remove the doubt in peoples minds as to whether their earnings are ultimately all declared and taxed. Furthermore, that tax is paid on an ongoing basis by the self-employed and not just once a year (possibly a monthly payment with a final end of year adjustment, once the annual return is done ?). Once this has been done, I think the justification for different treatment between PAYE & Self Employed workers will have been removed almost entirely.
 
As for the PAYE annual allowance, I think this is in part a credit given to the PAYE sector, to acknowledge the fact that they have their tax deducted at source during the year and do not get the benifit of their funds in full, until an annual tax payment must be made. Is the current figure the correct one to reflect whatever benefit this conveys, possibly not, but I do think in principal it is deserving.

It might have been deserving in the pre-self assessment era but Preliminary Tax now means that income tax is payable on 31 October in respect of current year income, ie before a significant chunk of the income is received.

So the notion that self-employed people somehow benefit from a tax cashflow advantage is outdated and mistaken.

Ultimately, I think the method in which the self-employed invoice, get paid and subsequently pay tax on their earnings needs to be changed to remove the doubt in peoples minds as to whether their earnings are ultimately all declared and taxed.
Sorry, I don't understand your point here.


Furthermore, that tax is paid on an ongoing basis by the self-employed and not just once a year (possibly a monthly payment with a final end of year adjustment, once the annual return is done ?)

If you really believe that all self-employed people earn their income on a consistent monthly basis, you have a very poor understanding of how they operate.
 
A good chunk Purple? Most GP income seems to come from Annual Capitation payments and GMS patients.

Thanks for that figure of 29,581.

Mr. Earl, it irks me too when I come across people who work for themselves and deal in 'cash only' transactions. Such tax averse individuals are probably not going to declare incomes in excess of €100,000.

Many compliant self-employed persons will be caught by this net which in reality only acts as a disincentive to work. The emphasis should be on encouragement, and an appreciation of the life time tax that individual will contribute coupled with the productive value to the economy rather than a short term fix. The damage the extra tax can do can't be worth the extra tax the measure will yield.
 
I was self employed and the accountant had me claiming tax for all sorts, Including travel allowance and accommodations depreciation on car etc. When I went PAYE, I could not claim for travel from Cork to Dublin each week, the tax office said I could not claim from home to work, even though it was 300 + miles round trip.
 
I use a Chartered Accountant and Registered Auditor and his opinion strongly disagrees with yours. Naturally I prefer your supposition Duke,
 
How many self-employed regardless of age have income over €100,000 pa?

Tens of thousands of them.

GPs, med consultants, solicitors, barristers, accountants, architects, etc., etc.

Plus thousands of landlords.................
 
I use a Chartered Accountant and Registered Auditor and his opinion strongly disagrees with yours. Naturally I prefer your supposition Duke,
This is a tax calculator. Key in Not an Employee and, say, 200K income. You will see that you are better off in 2015 than 2014. The USC has gone up, but that is the effect of the 1% extra rate applying to all and clearly does not reflect any additional 3% on the 100K in excess of 100K.

I'm afraid your Chartered Accountant/Registered Auditor needs to brush up on her CPD:rolleyes:
 
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