First year Preliminay Tax for Sole Trader

Tordelback

Stupid question time.

Just about to pay my Preliminary Tax for my first year as a sole trader (2014), but confused as what additional information I need to supply when I do. Do I need to submit draft accounts of any kind? I'm not set up on ROS yet (haven't been trading long), and I've just realised that I don't know what forms etc. should accompany my payment.

Revenue.ie seems strangely silent on this matter, or I'm being particularly thick today.

barneystinson

Tordelback wrote: »

Stupid question time.

Just about to pay my Preliminary Tax for my first year as a sole trader (2014), but confused as what additional information I need to supply when I do. Do I need to submit draft accounts of any kind? I'm not set up on ROS yet (haven't been trading long), and I've just realised that I don't know what forms etc. should accompany my payment.

Revenue.ie seems strangely silent on this matter, or I'm being particularly thick today.

They want your money, that's all, don't make the simple bits any more complicated than they need to be!

If this is your first year as a chargeable person, then you could pay nothing, as the rule is that you pay either 90% of the 2014 liability (unkown) OR 100% of the prior year liability (2013 - which will be nil if this is your first year trading).

I'm not advising you not to pay, but just letting you be aware that the 31st October deadline is actually irrelevant for you this year.

Gloomtastic!

If 2014 is your first year trading, then you'll make your first tax return, together with your first payment, in October 2015. You'll also pay preliminary tax for 2015 based on your 2014 tax return.

If you have the money now, stick it in as high an interest account as you can find, and don't touch it! :eek:

Tordelback

Thanks guys, that makes a lot more sense that the way I had read it (in numerous sources).

Fukuyama

I see this question asked again and again here and elsewhere. Not blaming the OP as I had the same questions a few years back. I just wish the Revenue would get their act together and make Sole Trader info more accessible. The average sole trader has no tax or accounting experience.

jimmii

Dean0088 wrote: »

I see this question asked again and again here and elsewhere. Not blaming the OP as I had the same questions a few years back. I just wish the Revenue would get their act together and make Sole Trader info more accessible. The average sole trader has no tax or accounting experience.

Absolutely I was in the same position last year and there really is nowhere to go for the answers!

Tordelback

The stupid part of this is that I have been a director and manager in SME limited companies before, and handled accounts and tax there (albeit with the safety net of an accountant on call), and I had thought that the sole trader thing *had* to be simple compared to that. I even did an SYOB course before setting up, and I've read all of Revenue and the Local Enterprise Board's online and printed bamf.

Nowhere did this specific issue come up, or at least come up in such a way as I understood how it worked. I've put off getting an accountant until such time as having one might save me more money than it would cost, and this was really starting to make me wish I hadn't. The idea that I might not have to pay anything to Revenue yet just went right over my head, used as I am to monthly returns.

So genuine thanks for the sensible and comprehensible replies.

barneystinson

Dean0088 wrote: »

I see this question asked again and again here and elsewhere. Not blaming the OP as I had the same questions a few years back. I just wish the Revenue would get their act together and make Sole Trader info more accessible. The average sole trader has no tax or accounting experience.

The info is available here:
http://www.revenue.ie/en/tax/it/leaflets/it10.html#section4
That's about as simply as it can be explained.

I don't see why you're trying to blame Revenue - the system is as complex as it needs to be. There's a reason why whole professions exist in the area, it's all governed by a large body of law and everyone's circumstances are different so the correct answer in their particular case may be different.

delahuntv

Dean0088 wrote: »

I see this question asked again and again here and elsewhere. Not blaming the OP as I had the same questions a few years back. I just wish the Revenue would get their act together and make Sole Trader info more accessible. The average sole trader has no tax or accounting experience.

Get an accountant to do the returns - seriously its worth every cent.

Firstly, when revenue see you with an accountant doing your returns, is gets you a good mark because accountants must follow onerous rules regarding tax for their clients. Its also frees you up to do what you do best.

For a while I didn't use an accountant - regularly got into cash flow difficulty. Then about 15 years ago a supplier closed down and he opened an accountancy practice and gave mne some help to get bthngs in order. Never looked back and even in the recession was able to cut costs & force landlords to do deals before the costs becaome onerous.

In one case the accountant managed to get a landlord to take back a lease without penalty - I don't know what he said, but it was worth about 30k to me!

Gloomtastic!

barneystinson wrote: »

The info is available here:
http://www.revenue.ie/en/tax/it/leaflets/it10.html#section4
That's about as simply as it can be explained.

I don't see why you're trying to blame Revenue - the system is as complex as it needs to be. There's a reason why whole professions exist in the area, it's all governed by a large body of law and everyone's circumstances are different so the correct answer in their particular case may be different.

Because Revenue make their tax returns so bloody complicated with legalese wording that makes no sense to the average human being. That's why the vultures that are accountants can rip-off the average sole trader every year. €500 + VAT for 20 minutes work!

If it's any consolation Barney, trying to file a tax return in the UK is comparable to banging your head against a brick wall.

Larry Wildman

Gloomtastic! wrote: »

Because Revenue make their tax returns so bloody complicated with legalese wording that makes no sense to the average human being. That's why the vultures that are accountants can rip-off the average sole trader every year. €500 + VAT for 20 minutes work!

If it's any consolation Barney, trying to file a tax return in the UK is comparable to banging your head against a brick wall.

Your post is ludicrous. On the one hand you're giving out about the complexity of the work and then on the other you're giving out about being charged for professional advice.

Use a professional - A good one will save you more than he or she charges you.

barneystinson

Gloomtastic! wrote: »

Because Revenue make their tax returns so bloody complicated with legalese wording that makes no sense to the average human being. That's why the vultures that are accountants can rip-off the average sole trader every year. €500 + VAT for 20 minutes work!

If it's any consolation Barney, trying to file a tax return in the UK is comparable to banging your head against a brick wall.

That's some load of twaddle - no-one gets €500 for 20mins work... :rolleyes: anyone who pays someone €500 for 20mins work is an idiot and shouldn't be in business.

And of course the returns have legalese wording, they're legal documents / declarations and have to have wording that is unambiguous by reference to the legislation.

Gloomtastic!

Larry Wildman wrote: »

Your post is ludicrous. On the one hand you're giving out about the complexity of the work and then on the other you're giving out about being charged for professional advice.

Use a professional - A good one will save you more than he or she charges you.

Firstly, if you want to contribute to this debate I think you should state whether you are an accountant or not.

I'm not an accountant.

Did you ever think maybe Revenue keep the return forms complicated so their assistants on the other side, the accountants, can justify their existence?

Gloomtastic!

barneystinson wrote: »

That's some load of twaddle - no-one gets €500 for 20mins work... :rolleyes: anyone who pays someone €500 for 20mins work is an idiot and shouldn't be in business.

And of course the returns have legalese wording, they're legal documents / declarations and have to have wording that is unambiguous by reference to the legislation.

Ask the next accountant you speak to what they charge to file their clients' tax return. Not do their accounts, just file their tax return.

This year's ROS tax return had a new humdinger. You fill in your return, then, before you can file your return you have to re-enter all the figures the revenue claim you owe. What kind of nonsense is that?

Immy

Gloomtastic! wrote: »

That's why the vultures that are accountants can rip-off the average sole trader every year. €500 + VAT for 20 minutes work!

.

I wish. I have filed and submitted 100's of tax returns and have never managed to complete one in 20 mins and get €500.

Maybe I'm doing something wrong.

I am very good at doing tax returns and preparing accounts. I can't however do a hell of a lot of other stuff and when I come across something I can't do, like say replace the clutch in my car then I hire a professional who can do if for me.

Hire an accountant and spend your time and energy working and growing your core business.

If you think your accountant is charing too much and not offering a good service, look for a new one.

Gloomtastic!

Immy wrote: »

I wish. I have filed and submitted 100's of tax returns and have never managed to complete one in 20 mins and get €500.

Maybe I'm doing something wrong.

I am very good at doing tax returns and preparing accounts. I can't however do a hell of a lot of other stuff and when I come across something I can't do, like say replace the clutch in my car then I hire a professional who can do if for me.

Hire an accountant and spend your time and energy working and growing your core business.

If you think your accountant is charing too much and not offering a good service, look for a new one.

For the last three years, I've done one a year, mine. It takes me about 20 minutes to complete. This year's took a bit longer because of the re-entering nonsense I mentioned to Barney above. Had to get on to the helpline for help figuring out what the hell they meant!

barneystinson

Gloomtastic! wrote: »

Ask the next accountant you speak to what they charge to file their clients' tax return. Not do their accounts, just file their tax return.


This year's ROS tax return had a new humdinger. You fill in your return, then, before you can file your return you have to re-enter all the figures the revenue claim you owe. What kind of nonsense is that?

Welcome to self-assessment. You have to calculate your own liability, or at least acknowledge that you agree with Revenue's calculation.

There's a tick-box to automatically transfer all the figures across if you agree with ROS's calculation of the liability.

As for this concept of "just filing their client's tax return", I don't know that I've ever seen this in practice, have you? A trader who prepares their own set of accounts, and provides all the information necessary for the filing of a return (capital allowances, allowable medical expenses, add backs of non-deductible expenses etc.). Even then it would still take more than 20 minutes to go through the form AND open a file to document what you'd done etc...

It might, and I mean might just about, if you had a very basic and straightforward return to complete, be possible to do it in 20 minutes. But that's your own return and you aren't a professional accountant expected to maintain client files...

No phone calls during the year to ask for advice or clarify anything, and no correspondence from Revenue, the CRO, the CSO etc to deal with.

Just a single contact, once a year, where you sit down at your desk and all the information necessary to file a tax return just materialises in front of you, and you complete a ROS form 11, don't check or confirm any of the figures and file a return. No conversation about the amount of the liability and any options to pay into a pension to reduce liability. No need to chase up necessary information to ensure that the return filed is correct.

This scenario simply doesn't exist in reality.

Gloomtastic!

barneystinson wrote: »

This scenario simply doesn't exist in reality.

You should know me better by this stage Barney. :cool:

barneystinson

Gloomtastic! wrote: »

You should know me better by this stage Barney. :cool:

I don't know you at all.

What are you saying?

Gloomtastic!

barneystinson wrote: »

I don't know you at all.

What are you saying?

Keep It Simple, Stupid! And no Barney, I'm not calling you stupid! :rolleyes:

Tordelback

barneystinson wrote: »

The info is available here:
http://www.revenue.ie/en/tax/it/leaflets/it10.html#section4
That's about as simply as it can be explained.

In fairness, nowhere at that link (which I had read about 20 times) does it say anything about your first year as a sole trader. I had been casting around trying to find a Revenue form to allow myself to document and pay 90% of my projected liability for the current year (Option a), which appears to be the most applicable option. That's pretty confusing.

I fully accept that there are professions whose area of expertise there is, but as someone starting out in a new business my tax affairs are (or at least should be) painfully simple.

barneystinson

Gloomtastic! wrote: »

Keep It Simple, Stupid! And no Barney, I'm not calling you stupid! :rolleyes:

I never thought you were! I just didn't understand your rather cryptic statement - I tried to explain why, when someone is providing a professional service it is not and should not be 20 minutes work, and your response was... odd!

rahmalec

barneystinson wrote: »

As for this concept of "just filing their client's tax return", I don't know that I've ever seen this in practice, have you? A trader who prepares their own set of accounts, and provides all the information necessary for the filing of a return (capital allowances, allowable medical expenses, add backs of non-deductible expenses etc.). Even then it would still take more than 20 minutes to go through the form AND open a file to document what you'd done .

I'm one who does all of this. I work in the arts as a freelancer with income from all sorts of sources (including some paye) and make 20 to 30k a year. If I ever need to register for vat (some day ...), I'll need to get advice (to know the various vat rates applicable to my random income sources) but for now happy by myself :-).

I understand it's a pain for most people but being numbers-minded, I don't mind doing accounts myself (maybe ill become an accountant some day if I want to earn more money?). I've made a nice little excel document for myself where I pretty much now just enter money in (paye or trading), money out (capital or expense), percentage personal use of a few things and it calculates everything.

I found google and patience to be the two most useful things for learning this stuff.

Hillybilly4

I'm confused too now lol.

http://www.revenue.ie/en/tax/it/leaflets/it10.html#section4 states:

"To avoid interest charges, the amount of preliminary tax paid for a tax year must be equal to or exceed the lower of:
90% of your final liability for the tax year, or
100% of your final liability for the previous tax year, or
105% of your final liability for the pre-preceding tax year. (This option is only available where preliminary tax is paid by direct debit and does not apply where the tax payable for the pre-preceding year was nil)."

My understanding of this is that for your first year, obviously you have no liability for the previous tax year or the pre-preceding (isn't that a made up word?!) tax year and therefore you MUST pay 90% of your liability for the current tax year. Is my understanding correct?!

There's conflicting advice on this thread, this thread http://www.boards.ie/vbulletin/showthread.php?p=92894304
and this thread http://www.boards.ie/vbulletin/showthread.php?p=92423093 amongst others...

Edit: Ah, is the clue actually in the "must be equal to or exceed THE LOWER of..." bit?! The lower being zero (for the previous tax year).

Gloomtastic!

"To avoid interest charges, the amount of preliminary tax paid for a tax year must be equal to or exceed the lower of:
90% of your final liability for the tax year, or
100% of your final liability for the previous tax year, or
105% of your final liability for the pre-preceding tax year.

So if you don't prepay your potential tax liability, 12 months in advance of when it's technically due, Revenue can charge you interest.

Great bunch of lads! :rolleyes:

Slightly Off-topic......

When I am pronounced High King of All-Ireland, one of the first things I will introduce is Quid Pro Quo Government.

We, as tax payers, are constantly bombarded with threats and warnings if we don't pay our taxes on time then either our car will be destroyed, we will go to jail or we will be charged interest and fees at rates that would make a money lender blush.

However, when we wish to avail of the services we pay for with those taxes we are told we are in a queue and we will be dealt with as soon as possible. (Last year, after waiting 12 months to see a consultant I finally got an appointment. At the appointment I was told I would be seeing the Pre Consultant and it would be another three years to see the consultant!)

So, if you pay your taxes on time you get the services on time. If not, then you have to wait. Likewise if the people in charge of delivering the service don't, then they have their pay reduced and their car destroyed. :P

delahuntv

If its a new company it is exempt from corporation tax for 3 years up to €40,000. It does exclude professional services and a couple of other categories.


http://www.revenue.ie/en/practitioner/tax-briefing/2013/no-022013.html

thecommander

delahuntv wrote: »

If its a new company it is exempt from corporation tax for 3 years up to €40,000. It does exclude professional services and a couple of other categories.


http://www.revenue.ie/en/practitioner/tax-briefing/2013/no-022013.html

A sole trader isn't a company so I don't think it applies.

delahuntv

thecommander wrote: »

A sole trader isn't a company so I don't think it applies.

whoops - I need to head to specsavers!

barneystinson

Gloomtastic! wrote: »

So if you don't prepay your potential tax liability, 12 months in advance of when it's technically due, Revenue can charge you interest.

That's quite an ill-informed statement, in this context.

In the case of the post your responding to, in the first year of trading, there is no requirement to pay preliminary tax if the trader chooses not to, becasue the requirement is to pay "the lower of" X, Y or Z, and at least one of those amounts will be Nil.

People under PAYE pay their tax by deduction as they earn it, so this is the self-assessment method of attempting to match the earning of income with the paying of tax on that income. Whereas if you are self-employed you pay whenever it suits you, including the option to pay by DD. The requirement then is that you have paid 90% of your tax liability, by the 31st October in the current year, which is 83.33% of the way through the year. Hardly draconian?

If you didn't have to pay your income tax for a year until the following October, what would happen when there's a crash like 2008, or even an economic blip? You'd have swathes of people who had large income in the last good year (2007) whose income has fallen away, and who have burnt through all their cash (including the money they needed to pay their big (2007) tax bill) by the time October (2008) comes around... This actually happened at the time, and was a large contributor to a lot of people, like small sole traders in the trades, going under at the time, because they weren't very disciplined, couldn't distinguish that VAT was never their money to play with, and never got their head around paying sufficient preliminary tax.

And then of course depending on when you prepare your accounts up to, your tax for 2014 might be based on your accounts prepared for the year ended 31st January 2014, in which case the tax is on profits you earned for a period that ended 9 months earlier.