how much tax should I pay? Please help!

Sonic Sarah

Hi
Would anyone be able to give me some advice on tax? I have just recently gone freelance so I'm now registered as self employed. The problem is I don't know how much tax I should put by each month. I'm only starting up and am not earning that much, (I earned €1,260 last month) how much tax do i have to pay on this? I had a look at the revenue website but it wasn't much help. I would really appreciate some advice, thanks.

Have you prepared any cash flow projections? They should give you an idea of your tax liability (if any).

Past30Now

Sonic Sarah wrote: »

Hi
Would anyone be able to give me some advice on tax? I have just recently gone freelance so I'm now registered as self employed. The problem is I don't know how much tax I should put by each month. I'm only starting up and am not earning that much, (I earned €1,260 last month) how much tax do i have to pay on this? I had a look at the revenue website but it wasn't much help. I would really appreciate some advice, thanks.

Hi Sarah,

If your total income for the year amounts to €1260 * 12 = €15,120, then you will have no PAYE liability for the year. You will have PRSI in the region €450 (3%). If your net profit exceeds €20K, then try to save a quarter of any profits above that figure. Once your profits exceed €35K, you'll need to be saving 46% of those profits above that figure (easier said than done).

These are ballpark figures based on the assumption that you are single, and have no other significant earnings.

Past30

mkdon05

Past30Now wrote: »

Hi Sarah,

If your total income for the year amounts to €1260 * 12 = €15,120, then you will have no PAYE liability for the year. You will have PRSI in the region €450 (3%). If your net profit exceeds €20K, then try to save a quarter of any profits above that figure. Once your profits exceed €35K, you'll need to be saving 46% of those profits above that figure (easier said than done).

These are ballpark figures based on the assumption that you are single, and have no other significant earnings.

Past30

€15120 has no liability to income tax only if she is entitled to the PAYE credit, if she hasn't worked under the paye system this year her tax credit is €1830 leaving a liability of €1194 based on above figures.

OP, assuming you are singe, any PROFIT (Not Turnover) you make up to €35400 is taxed at 20%, above this, the rate is 41%.
YOu then subtract your tax credits from this liability.
PRSI will be at 5% of total profit if over €26000 and 3% if under

As mentioned above, a forecast of the rest of the year should help you determine the level of profit that could be made. Then work out you yearly liability and divide by the remaining months. Set this amount aside to cover your tax bill.

The CCAinsider

A rule of thumb is to set aside 1/3 of what you get and you will be pleasantly surprised when there is some left over - unless you do really well, in which case tax will not be an issue. Say you started self employment in April (4 months into the year) here is the calculations:

In October 2008 you will get a letter from Revenue looking for tax, but the liability is the lower of :90% of 2007 liability (which was nil) or 100% of 2008 liability.

Your first tax is payable at the end of October 2009
4/12th of your P45 plus 8/12th of your first years profit
+preliminary tax for 2009 which is 90% of the above or 100% of your expected 2009 tax liability (let me make it clear - you will have 2 years tax to pay in October 2009)

In October 2010
Tax on first 12 months trading less preliminary tax paid in 2009 paid plus the preliminary tax for 2010
(i.e. really just tax on one years trading).

mkdon05

The CCAinsider wrote: »

A rule of thumb is to set aside 1/3 of what you get and you will be pleasantly surprised when there is some left over - unless you do really well, in which case tax will not be an issue. Say you started self employment in April (4 months into the year) here is the calculations:

In October 2008 you will get a letter from Revenue looking for tax, but the liability is the lower of :90% of 2007 liability (which was nil) or 100% of 2008 liability.

Your first tax is payable at the end of October 2009
4/12th of your P45 plus 8/12th of your first years profit
+preliminary tax for 2009 which is 90% of the above or 100% of your expected 2009 tax liability (let me make it clear - you will have 2 years tax to pay in October 2009)

In October 2010
Tax on first 12 months trading less preliminary tax paid in 2009 paid plus the preliminary tax for 2010
(i.e. really just tax on one years trading).

The Highlighted part is a bit misleading if someone is unsure of what their doing. Its the full amount on your P45 (i.e not 4/12 of that amount) and the Full amount of profit (not just 8/12 of it)
Just to be clear!

Legend100

Well technically he/she was right on the 8/12ths figure as it is a commencement situation but of course we are assuming that the first set of acccounts is 12 months long. If it was not it would be 8 over whatever the length of accounting period. Obviously the full figure for the P45 must be given as you outlined. It is certainly advisable to put a portion of earnings away for your year end tax bill as it can be a nasty surprise when you are hit with the news come October.