# Preliminary Tax



## valparaiso (31 May 2013)

I am a PAYE taxpayer. Like many others my wife and I bought a buy to let and, fortunately, have had tenants for most of the time. Every year by 31st Oct we submitted a statement of Rental Income, did the computation and sent a cheque. After 10 years making returns to Revenue in this way, earlier this year we got a demand for Preliminary tax. I tried to get a definitive answer from Revenue as to why we are now being asked for this - I was told that businesses including ours? required such a payment. Anyway after much argument I thought I'd post this query and try to get to the bottom of it.

Ok, We have a combined income before everything of €72,000 approx. The rental income is gross €7,200. With deductions the value of the cheque we have been submitting to revenue annually came to just over €1,000 to €1,400 depending on expenses, interest etc. 
The Prelim tax notice is titled "Income Tax".  Revenue defines income tax to include PAYE. 
Is my employer and my wife's employer satisfying the idea of preliminary tax on all income by virtue of our income tax/PRSI/USC deduction returns.?
In essence is it normal for Paye tax payers to have to make a preliminary tax return on what amounts to a small supplimentary income such as this?


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## T McGibney (31 May 2013)

valparaiso said:


> Ok, We have a combined income before everything of €72,000 approx. The rental income is gross €7,200. With deductions the value of the cheque we have been submitting to revenue annually came to just over €1,000 to €1,400 depending on expenses, interest etc.
> The Prelim tax notice is titled "Income Tax".  Revenue defines income tax to include PAYE.
> Is my employer and my wife's employer satisfying the idea of preliminary tax on all income by virtue of our income tax/PRSI/USC deduction returns.?



PAYE income is largely irrelevant to Preliminary Tax.  Your Preliminary Tax payment should equal either 100% of your prior year balancing Income Tax payment (ie the tax arising on your rents) or 90% of your anticipated liability for the current year.



valparaiso said:


> In essence is it normal for Paye tax payers to have to make a  preliminary tax return on what amounts to a small supplimentary income  such as this?



Yes.


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## mandelbrot (31 May 2013)

First things first - what type of tax return do you file? Is it a Form 11 or a Form 12?


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## valparaiso (31 May 2013)

Thanks for the prompt reply.

I was afraid you were going to say that! 

Questions:
1. How Did It Take 10 Years for Revenue to get this notice out?
2. If Income tax includes PAYE  why is this notice entitled "Income tax" when it excludes Paye?
3. Does one err on the side of caution when submitting prelim tax or are Revenue prompt about refunding overpayment?


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## T McGibney (31 May 2013)

valparaiso said:


> Questions:
> 1. How Did It Take 10 Years for Revenue to get this notice out?


You'll have to ask Revenue that. I presume you've been filing Form 12s and they now want to put you on self-assessment Form 11s, as your non-PAYE income exceeds the limit for Form 12. Probably part of a routine compliance tightening exercise.


valparaiso said:


> 2. If Income tax includes PAYE  why is this notice entitled "Income tax" when it excludes Paye?


Again , you'll have to ask Revenue that. It doesn't wholly exclude PAYE as any PAYE underpayment is collected via self-assessment but sadly I don't have the time to start outlining this for you in detail.



valparaiso said:


> 3. Does one err on the side of caution when submitting prelim tax or are Revenue prompt about refunding overpayment?


Both. You should try to ensure your preliminary tax payments are sufficient. Revenue are generally very prompt in issuing refunds once the tax return is filed on ROS. Paper returns require human processing input and will take longer. How longer I don't know as I rarely if ever file paper returns for my clients.


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## valparaiso (31 May 2013)

Form 11s is not for Rental Income so that can't be right.

I can't see that €7200 gross non Paye income can exceed any limit!

I am endeavouring to find out did I submit form 12 last year. I think so. (not at home to check).


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## mandelbrot (31 May 2013)

If your taxable income from other sources (i.e. rents) in any year exceeds €3,174 then you become a chargeable person, and the obligation to file a self-assessment return (Form 11) kicks in.

I'd suspect this is what has happened here - for several years (while interest rates were higher) you had less than €3,174 of net rental income. But once you return a figure above €3,174 for any year, you then become a chargeable person and AFAIK this obligation remains for as long as the income source exists.

That would explain why you have only now received preliminary IT notice.


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## T McGibney (31 May 2013)

valparaiso said:


> Form 11s is not for Rental Income so that can't be right.



A form 11 is for rental income, indeed any type of income subject to income tax (and for self-assessed individuals, capital gains tax)


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## valparaiso (31 May 2013)

Thanks for all help, although it just beggars belief that such an arbitary and IMO low figure triggers such a drastic change in the way that Revenue collect what amounts to just over 4 figures. 







mandelbrot said:


> If your taxable income from other sources (i.e. rents) in any year exceeds €3,174 then you become a chargeable person, and the obligation to file a self-assessment return (Form 11) kicks in.
> 
> I'd suspect this is what has happened here - for several years (while interest rates were higher) you had less than €3,174 of net rental income. But once you return a figure above €3,174 for any year, you then become a chargeable person and AFAIK this obligation remains for as long as the income source exists.
> 
> That would explain why you have only now received preliminary IT notice.


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## Joe_90 (31 May 2013)

You owe the Revenue say €1200 for a tax year.  Just for arguments sake it arises evenly over the year, you suggest that the income earned and Tax due in Jan 12 should be paid over in October 13.  

Under preliminary tax you get 10 months to pay the tax.  Not like the low paid PAYE worker who pays the €100 per month.

Think you need to get things into perspective.  Perhaps Revenue should get rid of the form12 and treat everyone equally that has non PAYE income.


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## valparaiso (4 Jun 2013)

The corollary of that is to expect Paye taxpayers whose rent doesn't cover the mortgage, whose expected returns were diminished by Govt. tax changes, Nppr, Prtb, reduction in interest to 3/4 of previously claimable, Household charge, Property tax, USC, Prsi.....need I continue? to pay preliminary tax on "income" that is yet to be earned.

This is the REALITY


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## T McGibney (4 Jun 2013)

valparaiso said:


> The corollary of that is to expect Paye taxpayers whose rent doesn't cover the mortgage, whose expected returns were diminished by Govt. tax changes, Nppr, Prtb, reduction in interest to 3/4 of previously claimable, Household charge, Property tax, USC, Prsi.....need I continue? to pay preliminary tax on "income" that is yet to be earned.
> 
> This is the REALITY



Welcome to self-assessment, Irish-style.


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