Tax for self-employed people

Introduction

The main legal obligation when becoming self-employed is that you must register as a self-employed person with Revenue. 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.

Debt Warehousing

It was announced in Budget 2021 that the tax debt warehousing scheme is extended to taxpayers who self-assess for income tax that are adversely impacted by Covid-19. Impacted taxpayers who could not pay their 2019 balance and preliminary tax for 2020 could defer payment for 12 months.

If income for 2021 is also at least 25% lower than income for 2019, the 2020 balance and 2021 Preliminary Tax can also be warehoused. Debts that are warehoused are subject to 0% interest for 12 months. After this 12-month period, a reduced interest rate of 3% per annum will apply and no surcharge will apply. More detail is available from Revenue.

Income tax loss relief for self-employed

On 23 July 2020, the Government announced the introduction of a new once-off income tax relief measure. It is intended to benefit self-employed people who were profitable in 2019 but, as a result of the COVID-19 pandemic, will make a loss in 2020.

Sole traders or members of partnerships who are carrying on a trade or profession will be able to carry back up to €25,000 worth of 2020 losses (and certain unused capital allowances). This will be off set against 2019 profits.

You make claims and interim claims by amending the Form 11 tax return for 2019. To make an interim claim you must be fully tax compliant and certain time limits will apply. You can make your interim claim through MyEnquiries on the Revenue website.

The amount you claim will be deducted from the overall profits of the same trade or profession for the year of assessment 2019, reducing the amount of income tax you pay on those profits.

If you are subject to the High-Income Earner Restriction for 2019, the relief will be given to you after any other relief that you are entitled to for that year.

The measure includes an additional option for farmers to step out of income averaging for the 2020 tax year, even if the farmer may also have stepped out of income averaging in one of the 4 preceding tax years.

You can get more information on income tax relief for self-employed individuals adversely impacted by Covid-19 restrictions from Revenue.

COVID-19 and closure of Revenue’s telephone helplines

Revenue’s telephone helplines are not fully operational at present. You can contact Revenue on 01 738 3660 to make a virtual appointment (by video call). The appointment phone line is open Monday to Friday, from 9.30am to 1.30pm. Video appointments are available Monday to Friday, from 9.30am to 3.30pm.

Queries can also be sent through myEnquiries.

Rules

As a self-employed person you pay income tax under the self-assessment system, once a year. Self-assessment means that you are responsible for making your own assessment of tax due.

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.

For example, if your accounting year is from 1 January to 31 December each year, you pay Preliminary Tax for 2021 by 31 October 2021, based on an estimate of your liability for the full year. At the same time, you make a tax return for 2020 and pay any taxes outstanding for that year. If you file your tax return online using the Revenue Online Service (ROS), the deadline is usually slightly later. You are entitled to the normal income tax credits and reliefs.

For 2021, you may claim an Earned Income Tax Credit of €1,650. This amount also applies for 2020 (in 2019 the amount was €1,350). However, if you also qualify for the Employee Tax Credit (formerly known as the PAYE tax credit), the total value of these 2 tax credits cannot exceed €1,650.

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.

You can claim certain business expenses against tax. Some examples include:

  • 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
  • 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 Revenue’s guide to self-assessment, which includes information about how to fill in your tax return and important deadlines. Revenue also has 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.

Universal Social Charge, PRSI and VAT

USC: Everyone must pay the Universal Social Charge (USC) if their gross income is over €13,000 in a year.

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 11% USC on any income over €100,000. The USC does not apply to social welfare or similar payments. You pay your USC with your preliminary tax payment.

PRSI: Self-employed people pay Class S PRSI on their income.

Value Added Tax (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. As a trader you 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 Revenue. If the amount of VAT paid by you exceeds the VAT charged by you, Revenue will repay the excess. This ensures that VAT is paid by the ultimate customer and not by the business.

Note: A 6-month reduction in the standard rate of VAT from 23% to 21% applies from 1 September 2020 to 28 February 2021.

If you are registered for VAT Revenue will send you a form VAT3 which must be returned with the payment no later than a specified date. Normally, VAT returns are made every 2 months, but there are special arrangements for small businesses who can pay at less frequent intervals.

How to apply

Form 11

If you are self-employed you (or an agent) must make your income tax return and self-assess your tax liability. You have the following options:

  • You can fill out a paper Form 11 (pdf) and send to Revenue
  • You can use a shorter Form 11E which is an extract of the main personal Tax Return form
  • You can also file your Form 11 using Revenue’s Online System (ROS). Certain people must e-file using ROS. Revenue provide a guide to completing Form 11 (pdf).

You can get the forms on the Revenue website. Revenue also provide A Guide to Completing Pay and File Tax Returns (pdf)

Full-self assessment

Your annual return of income form – Form 11 - includes a self-assessment section which you (or your agent) must complete and sign. If you do not make this self-assessment you will have to pay a penalty of €250. However, you do not have to make a self-assessment if you returned the completed Form 11 on or before 31 August in the year following the year of assessment. If you filed your completed return on or before that date, Revenue will make the self-assessment on your behalf. If you use ROS, the system can calculate your tax liability based on the information you input and you can then choose to use this in your self-assessment.

Page edited: 4 January 2021