What does 90% of tax due for that tax year mean?

[Brendan Burgess]

From the Revenue website

The amount of preliminary tax for a year must be equal to, or more than, the lowest amount of the following:

• 90% of the tax due for that tax year
• 100% of the tax due for the immediately previous tax year
• 105% of the tax due for the tax year preceding the immediately previous tax year (often called the ‘pre-preceding year’). This option only applies where you pay by direct debit. It does not apply if the tax due for the pre-preceding year was nil.

Let's say
Tax chargeable for the period is €30,000
Paid under PAYE and DWT €25,000
Tax payable €5,000

Do I have to pay 90% of the €5,000 i.e. €4,500 - I presume it's this one.

Or 90% of the €30,000 which is €27,000 less €25,000 already paid, so €2,000

Brendan

 

[elcato]

My understanding of it is if the preliminary tax paid already was > 90% of the following year then you are fine. In cases where you might find that the prelim tax is a lot less than the previous year this would come into play i.e. if you paid < 90% of the tax due.

 

[dublin67]

Brendan - it would be 90% of €5,000 provided the income figures you have given are for 2019. You need to be very accurate with the 90% rule as, if you are not, then you've made a payment on account and not a preliminary tax payment and interest applies.

 

[Brendan Burgess]

Thanks Dublin

In the above example, let's say I paid €2,000.
So I have underpaid by €3,000 and will be charged 8% annualised interest until I pay the €3,000?
Let's say I discovered it only on doing my tax returns, I would pay interest of €240? Is that right?

Brendan

 

[dublin67]

The interest is payable on the balance of tax due for 2019 and it runs from 31st October 2019. Logic would indicate, which can't always be assumed in tax, that you would pay interest on the €3,000 alright (which would be the balance of tax). I'd be 95% sure on this and would defer to someone who had actually examined the legislation.