Tax for first time sole trader

M

Marine 8

Registered User
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I'm a bit confused about preliminary tax and would appreciate some clear direction.
I left work and set up as a sole trader last May. I have registered with the Revenue as a sole trader and signed up with ROS. I am not VAT registered as I will not be going over the threshold.
I have made a small amount since May and don't know if I am supposed to file a tax return on that or wait until October 2013. Also am I supposed to pay preliminary tax by this October 31 on what I expect to earn before October 2012?
Any advice would be welcome.
 
First thing's first, you need to separate your two different obligations in your mind. The first one is your payment obligation and the second is your filing obligation - they are actually two separate obligations.

Assuming you set up in May 2012:

You are obliged to "pay" preliminary tax by Oct 31st 2012 for the current year. However, one of the options for calculating preliminary tax is based on 100% of the previous year's (i.e. 2011) self-assessed tax - since it is your first year in business your 2011 figure is nil, so you can satisfy your payment obligation for 31/10/12 by submitting a nil preliminary tax payslip. I think you can do this on ROS.

Next comes your filing obligation. When you commence in business for the first time, you have an extra year to file your first return. So in effect you are not obliged to file an income tax return for 2012 until the due date for your 2013 return, which is 31st Oct 2014. HOWEVER it is not advisable to do this, because of your PAYMENT obligations in 2013...

Your payment obligation for 2013 is that by 31/10/2013 you have to have paid in full whatever income tax you owe for 2012 (in practice you can't really know this unless you prepare a tax return, so you may as well just file the thing at that stage even though it's not due til 2014!). You also have to pay preliminary tax for 2013, which would normally be based on 100% of the previous year's liability (which is 2012).

So, the conventional wisdom would be that while you have the option to kick the can down the road for a while, if you think you're going to owe tax for this year you should pay an amount you can afford on account now, because otherwise you'll get hit with a double whammy when next October comes around - i.e. you'll end up having to pay all of 2012's tax along with the same amount again as preliminary tax for 2013 all in one go.
 
While Mandelbrot is (as always) correct about making preliminary tax payments before you absolutely have to, note that Revenue won't pay any interest on the money.

You would be better off calculating the amount you should be putting aside for your first prelim tax payment and putting it on deposit until it's needed, unless of course you would spend it first!
 
Mrs Vimes said:
While Mandelbrot is (as always) correct about making preliminary tax payments before you absolutely have to, note that Revenue won't pay any interest on the money.

You would be better off calculating the amount you should be putting aside for your first prelim tax payment and putting it on deposit until it's needed, unless of course you would spend it first!
Click to expand...

That's a good point and I thought about it, but from experience of dealing with people in the OP's position, for the amount of money they might garner in interest it generally works out better if the money is no longer where they can get at it!
 
Thank you Mandelbrot and Mrs Vimes that makes it crystal clear. Now my only dilemma is whether I'm safe to be left with my due tax on deposit...or whether I'll blow it all on something extremely silly!
 
Hi Mrs Vimes, could you help me with this query;

I registered for self-assessment in January 2016. Can you tell me what I need to do in advance of the October 31st deadline this year? I'm finding it very confusing.

In October 2017, my understanding is that I should file a tax return for the period Nov 2015 - Oct 2016. Considering I registered in Jan 2016, I would be paying tax on the amount earned between Jan 16 and Oct 16.

Let's say the amount of tax I owe for the period Jan 2016 - Oct 2016 is €10,000 (for simplicity), how much then total should I be paying revenue? Would it be the €10,000 that I owe for the period ending in October 2016 and ALSO the same amount, as preliminary tax, for the period Nov 2016 - Oct 2017?

Thank you in advance for your time
 
Paddy O'B said:
Hi Mrs Vimes, could you help me with this query;

I registered for self-assessment in January 2016. Can you tell me what I need to do in advance of the October 31st deadline this year? I'm finding it very confusing.

In October 2017, my understanding is that I should file a tax return for the period Nov 2015 - Oct 2016. Considering I registered in Jan 2016, I would be paying tax on the amount earned between Jan 16 and Oct 16.

Let's say the amount of tax I owe for the period Jan 2016 - Oct 2016 is €10,000 (for simplicity), how much then total should I be paying revenue? Would it be the €10,000 that I owe for the period ending in October 2016 and ALSO the same amount, as preliminary tax, for the period Nov 2016 - Oct 2017?

Thank you in advance for your time
Click to expand...

You would pay the amount of your liability to close out 2016 and (in the example above) 2015, you would also pay 2017 (which for simplicity would be the 2016 amount).
 
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