Tax for self-employed people
The main legal obligation when becoming self-employed is that you must register as a self-employed person with Revenue. You can do this by completing Form TR1 - Tax Registration form for Sole Traders, Trusts and Partnerships to register for income tax (pdf).
Form TR1 can also be used to register for employers' PAYE and PRSI and VAT, if you need to do so at this stage. The equivalent form for companies is Form TR2.
You pay tax on the profits from your business and on any other income that you have.
If you make a late payment of any taxes due by you, you will be charged interest from the due date to the date when your payment is received.
How do I pay income tax?
As a self-employed person you pay income tax under the self-assessment system, once a year.
You pay Preliminary Tax (an estimate of tax due for your current trading year) on or before 31 October each year and make a tax return for the previous year not later than 31 October.
If your accounting year is from 1 January to 31 December each year, you will pay Preliminary Tax for 2013 by 31 October 2013, based on an estimate of your liability for the full year. At the same time you will make a tax return for 2012 and pay any taxes outstanding for that year.
If you file your tax return online using the Revenue Online Service following the end of the tax year, you can file your return up to 2 weeks after 31 October.
Revenue will assess your liability for income tax, PRSI and the Universal Social Charge based on the information supplied by you and any amounts that you owe are paid directly to Revenue. You will be entitled to the normal income tax credits and reliefs.
You must keep proper records which include:
- All purchases and sales of goods and services and
- All amounts received and all amounts paid out
You must keep supporting records (for example, invoices, bank and building society statements, cheque stubs and receipts). You do not have to send them in to Revenue, but you must keep them in case of a Revenue audit, that is, an inspection. You can read more in our document on keeping records.
You can claim certain business expenses against tax, such as purchase of goods for re-sale, wages, rent, rates, repairs, lighting and heating, running costs of vehicles or machinery used in the business, accountancy fees, interest paid on business loans, leasing payments on vehicles or machinery used in the business. as well as contributions to your personal pension (up to certain limits).
If you are working from home you may be able to claim a proportion of household bills such as telephone, heating, lighting etc.
You can find more information on self-employment in the Revenue booklets IT 10 A Guide to Self Assessment, which includes information how to fill in your tax return and important deadlines and from Revenue including information on registering for tax and about the business expenses that you can claim against income. Your local Revenue office can also help you with any questions that you may have.
Subcontractors: If you are a self-employed subcontractor working in construction, forestry or meat processing there is detailed information about Relevant Contracts Tax on Revenue's website.
Do I pay the Universal Social Charge?
Everyone is liable to pay the Universal Social Charge (USC) if their gross income is over €10,036 in a year.
|Standard rate of USC||Charged on income between|
|2%||€0 to €10,036|
|4%||€10,036.01 to €16,016|
An extra charge of 3% applies to any self-employed income over €100,000 regardless of age. This means that self-employed people pay a total of 10% USC on any income over €100,000.
The USC does not apply to social welfare or similar payments and there are reduced rates of USC for people who hold a medical card and people aged over 70 with annual incomes of €60,000 or less. You can find more detail in our document on the Universal Social Charge (USC).
You do not pay the USC if your total income for a year does not exceed €10,036. You pay your USC with your preliminary tax payment.
What PRSI do I pay?
Self-employed people pay Class S PRSI on their income.
Income from investments or rents can be treated differently depending on any other sources of income you have. If you do not work and therefore have no earned employment income, you may have to pay Class S contributions on your unearned income (such as income from investments, rent or maintenance payments).
If you work and pay Class A PRSI you do not have to pay Class S PRSI on any unearned income you may have. However you must pay Class S PRSI for any earned self-employment income – perhaps from consultancy or freelance work.
Am I liable for VAT?
You must register for Value Added Tax (VAT) if your annual turnover is more than or is likely to be more than €75,000 for supply of goods or €37,500 for supply of service.
You as a trader pay VAT on goods and services acquired for the business and charge VAT on goods and services supplied by the business.
The difference between the VAT charged by you and the VAT you were charged must be paid to the Collector-General.
If the amount of VAT paid by you exceeds the VAT charged by you, the Collector-General will repay the excess. This ensures that VAT is paid by the ultimate customer and not by the business.
How do I pay VAT?
If you are registered for VAT the Collector-General will send you a form VAT3 which must be returned with the payment not later than a specified date. Normally, VAT returns are made every 2 months, but from January 2012 there are special arrangements for small businesses who can pay at less frequent intervals.