Queries - self-employed tax estimate for 2009

I have a friend who is switching from PAYE / Class A1 employment to self-employed Class / S1 with all income coming exclusively from interest from March 2009. The friend is under 65 and has no other income or State benefits. CGT and CAT don’t apply.

All PAYE tax is up to date apart from a €442 underpayment of tax (Revenue’s miscalculation of a refund paid on the 2007 P21). There was no income in 2008. Health insurance is paid directly to the insurer by direct debit and there is no mortgage.

I have had a quick look at the tax & PRSI and have come up with estimated figures to the end of the current (2009) tax year, below.

Gross Income (estimated) €82,687.50
DIRT @ Source Paid €19,018.13 (23%)
Adjusted Personal Tax Credit (€1,830 - €442) = €1,388.00
Net Tax Due (€19,018.13 - €1,388.00) = €17,630.13
1% Income Levy €826.88
2% Health Contribution €1,653.75
3% PRSI € 2,480.63
Total of Net Tax + Levies + PRSI = €22,591.38

Total Due to Revenue (€22,591.38 - €19,018.13) = €3,573,25

Do these calculations look correct?

Apart from registering as a self-employed tax-payer, I have a couple of questions :

1. When is the preliminary tax due?
2. If every year is as simple as this seems is there any need to use an accountant?
3. Have I missed anything?

Thanks, M

The calculations look right but a few things that occurred to me:

- Revenue aren't looking for the €442 now? If it's paid separately, obviously your calcs would be modified to reflect this
- the DIRT credits are actually reflected differently in the Form 11. What happens is that you actually include the interest as normal income and pay the relevant "normal" tax on it (including at 41%) but then you both credit the tax (DIRT) paid against it AND increase the standard rate band by the equivalent of the interest earned - I don't have it in front of me at the moment but the instructions on the Form 11 explain it
- preliminary tax is due at October 31 2009 for the 2009 tax year. If you get the return in before the end of August, Revenue will check the calcs for you. You don't have to pay when you file if you file early - payment is due Oct 31st (or two weeks' later if using ROS)

I'm not a qualified accountant so don't know if you've missed anything, but it doesn't look like it to me!

WaterSprite said:

...
- the DIRT credits are actually reflected differently in the Form 11. What happens is that you actually include the interest as normal income and pay the relevant "normal" tax on it (including at 41%) but then you both credit the tax (DIRT) paid against it AND increase the standard rate band by the equivalent of the interest earned -

Click to expand...

Thanks for that, so you are suggesting that the interest is treated as that of a normal PAYE taxpayer with a small amount of interest (less than the requirement to register as self-employed). I did the initial calculation the way you describe but thought it was wrong.

This page on the Revenue site threw me as I took it as "the gospel" as there is no other income - http://www.revenue.ie/en/tax/dirt/index.html

A sentence from that page states - "D.I.R.T. is a final liability for income tax purposes, i.e. the payment of retention tax at the standard rate by individuals liable to income tax at the higher rate is regarded as satisfying the individual’s full liability to this tax."

Any further thoughts?

Thanks again.

The 23% DIRT is the final liability (except for PRSI and Health Levy). The way I (somewhat clumsily) described the recording of it doesn't affect the bottom line liability. I don't fill in a Form 12 myself but on the Form 11, the way you account for DIRT is to add it in as normal income, tax accordingly (including at 41%), deduct the DIRT paid (the 23%) and then increase your standard rate band by the amount of interest earned - so the net outcome is the same (or should be, if the calcs are done property). To me, it's an unbelievably cumbersome way of doing it but that's what the Form 11 calls for.

Not sure what you mean by:
"so you are suggesting that the interest is treated as that of a normal PAYE taxpayer with a small amount of interest (less than the requirement to register as self-employed)"

I'm not sure if your friend can treat him/herself as a PAYE worker and just fill in the Form 12 or if they will have to register as self-employed and fill out the Form 11. Because the interest is large and is your friend's only income, I'd imagine that Revenue will want a Form 11.

To throw something else into the mix, if your friend is treated as PAYE, then Revenue don't seem to have the ability to take PRSI/Health Levy from interest and that only seems to apply to those filling out a Form 11.

I'd give Revenue a shout and ask:
- if someone's only income is interest (from which DIRT is deducted), do they have to fill out a Form 11 each year?
- if so, do they have to register as self employed?
- if not, do they have to pay PRSI and Health Levy on the interest and, if they do, how do they pay it (form 12?)

You should let them know the amount involved as that may make a difference. It seems that if normal PAYE workers earn more than €3k-odd in non-paye income, Revenue usually has them do a Form 11.

Sorry I can't clear it up totally for you. The only things I know for sure are the dates for preliminary tax and how one would fill in the interest/DIRT on a form 11.

Sprite

Actually, just wondering now if that method of filling out the Form 11 will work now that the DIRT rate and the standard rate of tax are no longer the same... It probably won't. They'll probably have to change the method on the form of recording interest and crediting DIRT...

My friend, a successful litigant, will register as self-employed and will submit Form 11.

I've used the arcane DIRT calculations on my own Form 12's for small amounts of interest (100's) but obviously not since the change in DIRT to 23%. We'll see if Revenue make any changes to Form 11/12 this year.

Thanks for your help.