Tax

Disclaimer: Please note that the following information is valid as of December 2021. The Freelancer’s Guide can accept no responsibility for loss or distress to any person acting or refraining from acting as a result of the material contained herein which is intended as a guide only and not tax advice. Freelancers should always obtain their own personal tax advice.

Self employed individuals are responsible for assessing their own tax and paying it once a year. It is extremely important that you keep your tax affairs up to date and in order.

Types of Business Structures

A Sole Trader is the simplest business structure in Ireland. As the name implies it is typically set up by one person who owns and operates a business.

To register as a sole trader you must first have a Personal Public Services Number (PPSN).

If you wish to use a business name you must register that with the Companies Registration Office.

You may have employees. If you do, you should register as an employer with the Revenue Commissioners and you then have an obligation to withhold at source and return to Revenue by given dates employee Pay As You Earn (PAYE), employee universal social charge (USC) and employee and employer Pay Related Social Insurance (PRSI).

You are obliged to register as a sole trader for Value Added Tax (VAT) in Ireland when your turnover from the provision of services exceeds or is expected to exceed €37,500. VAT registration allows you reclaim VAT on relevant business purchases and expenses.

Sole traders are obliged to prepare annual accounts and submit an annual tax return, which is called a Form 11. A sole trader also has income tax payment obligations under Irish Revenue preliminary tax rules. A sole trader should engage an accountant / tax advisor to assist with these obligations.

It is important to remember that in the Sole Trader structure, if your business fails, your personal assets could be used to pay your creditors.

Registering as a Sole Trader can be done online through Revenue’s eRegistration Service or by completing a TR1 form.

A Partnership is where 2 or more people agree to run a business in partnership with each other.

The partnership agreement should be drawn up by a solicitor. The partners are jointly responsible for running the business and if it fails all partners are jointly responsible for the debt.

The person who is responsible for keeping records of the business is called the ‘Precedent Partner’. The partnership should engage an external accountant who will prepare annual accounts for the partnership and these accounts form the basis for the payment of tax by the individual partners.

Each partner must pay Income Tax, PRSI and USC on their share of business profits. You include your share of the business profits in your own personal tax return Form 11. The partnership as an entity has a separate obligation to make a tax return known as Partnership Form 1. The Precedent Partner would complete this form.

The Partnership may have employees. If this is the case, the partnership will register as an Employer with the Revenue Commissioners and withhold at source and return to Revenue by given dates employee Pay As You Earn (PAYE), employee universal social charge (USC) and employee and employer Pay Related Social Insurance (PRSI).

When you register the partnership, Revenue will issue a Tax Reference Number for the partnership. This number is used to register for employer PAYE, employer PRSI, VAT and RCT. Your personal tax matters will be dealt with under your PPSN.

The partnership will be obliged to register for Value Added Tax (VAT) in Ireland when the partnership turnover from the provision of services exceeds or is expected to exceed €37,500. VAT registration allows the partnership to reclaim VAT on relevant business purchases and expenses.

A Limited company. If you set up your business as a limited company, the business is a separate legal entity.

If the company gets into debt, the creditors generally only have a claim on the assets of the company.

The company must be registered with the CRO and the company reports and accounts must be returned to the CRO each year.

It is important to note that if you are trading as a limited company, you are not self-employed as you will be deemed an employee of the limited company. As such all payments made to you by the company are subject to withholding of PAYE, USC and PRSI at source. The company should register as an employer and remit these payments to the Revenue Commissioners by the specified dates. You may hear the term ‘Schedule D’ used in relation to self employment in Ireland. Schedule D is the heading under which business income is charged to tax. If you operate as a Sole Trader or as a Partnership you are considered Schedule D. If you operate as a Limited Company, the company is your employer and so any income paid to you will be paid through the PAYE system and so will fall under Schedule E.

Determining your employment status

Each individual needs to know and understand the difference between being a Schedule D service provider and an employee with regard to demands and entitlements.

Revenue has released a document entitled Code of Practice on Determining Employment Status which indicates whether someone’s engagement is capable of being deemed self employed. It is imperative that you understand this before engaging in any work, and before engaging anyone to work for you.

Each engagement would be looked at separately and distinctly. While one engagement made correctly can be considered a Schedule D contractor engagement, the next may fall within a Schedule E employment contract. It is for the company engaging with the individual to make this decision, not the individual. Although you may request to be engaged under a Schedule D self employed contract, the company may not be comfortable doing so as the engagement terms may more appropriately suggest an employee-employer relationship and so, the company would be exposed to unpaid taxes if an incorrect decision with regard to status were made.

As per the Revenue document a Schedule D contractor is not entitled to holiday pay, sick pay, general employee expenses, pay in lieu of notice, overtime, pension contributions etc..

A Schedule D contractor should agree to an all-in price for a job. If the scope of the job changes then additional payments for work outside of the original scope should be agreed. If you have any questions on your employment status for a specific production it is recommended that you reach out to your relevant union, guild or representative group. You can find a list of those here on our Industry Links page.

Being Self-Employed or operating via Limited Company and employing Staff

As discussed above, if you hire employees as a Sole Trader or a Partnership or Limited Company then you must register as an employer with the Revenue Commissioners and are responsible for withholding and paying over to the Revenue relevant taxes including:

Pay As You Earn (PAYE) This is the income tax that you deduct from your employee’s wages to pay directly to Revenue.
Universal Social Charge (USC)
Employee and Employer PRSI is the Pay Related Social Insurance. You, as an employer, are responsible in law for paying the entire contribution. However, you will deduct the employee’s share when you are paying the employee’s wages. It is in your interest to make the correct deduction at the time of payment of wages. Otherwise you will have to bear the cost of the entire contribution and, in addition, any arrears that may be due. The amount of PRSI you deduct will depend on your employee’s earnings and the social insurance class they are insured under.

Please refer to Revenue’s Employing People page for further information.

Tax Obligations – Sole Trader & Partnership (excluding on employment of staff discussed above)

Income tax – The tax that the government imposes on income generated by businesses and individuals. Income tax is used to fund public services, pay government obligations, and provide goods for citizens e.g. hospitals and schools.The amount of income tax you pay depends on the amount you earn and your personal circumstances in a given year.

VAT – Value-Added Tax is a tax which is payable on the sale of goods or services within the territory of the Member States of the EU. You are subject to pay VAT if you are self employed and your turnover on sale of goods or services is in excess of or expected to exceed in a 12 month period the following thresholds

Services €37,500
Goods €75,000

Please note if any production you are working for provides you with a VAT 56B authorisation advice this does not mean you do not charge VAT on your invoices, but rather that the VAT chargeable is at 0% rather than the standard rates. Therefore, in these circumstances you still have an obligation to register for VAT.

PRSI – Pay Related Social Insurance contributions are used to fund social insurance payments, for example, state pensions. All Self-Employed people with earnings more than a specified amount (currently €5,000 per annum) must pay PRSI. There are different rates of PRSI for different categories. Most employees pay Class A but as a self-employed person, you pay Class S PRSI.

Class S contributions only cover you for a limited number of payments. In general, they do not cover you for any short-term payments including illness and disability payments. If you satisfy all the other conditions, Class S contributions can entitle you to:

Maternity Benefit
Adoptive Benefit
Paternity Benefit
Parent’s Benefit
Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension
State Pension (Contributory)
Treatment Benefit Scheme
Invalidity Pension
Jobseeker’s Benefit (Self-Employed)
Guardian’s Payment (Contributory)

USC – The Universal Social Charge (USC) is a tax on income that replaced both the income levy and the health levy since 1 January 2011. You pay the USC if your gross income is more than €13,000 per year. Once your income is over this limit, you pay the relevant rate of USC on all of your income.

It is important to note that the above outlines the primary taxes relevant to your income only. You may have additional personal tax obligations if you own property or drive a car.

CGT. Capital Gains Tax is the tax you pay on the profit realized on the sale of a non-inventory asset. Eg the tax you pay on the sale of a property.
LPT. An annual Local Property Tax is charged on residential properties in Ireland. You are liable for LPT if you own a residential property on 1 November of that Tax year.
DIRT. If you earn interest on savings, then you pay a tax on the interest called Deposit Interest Retention Tax.

For further information on all of the above please visit the Revenue website.

Tax Credits, Reliefs & Exemptions

Tax credits, reliefs and exemptions can be used to reduce your overall tax bill. The tax credits , reliefs and exemptions you are entitled to depend on your personal circumstances.

Tax credits directly reduce the amount of tax that you pay. Your tax credits are given for a full tax year. Some tax credits are given automatically and others you must claim. Common Tax Credits include:

Personal Tax Credit
Earned Income Credit
Rent Tax Credit
Single Person Child Carer Credit

Please refer to the Revenue list to find out which Tax Credits you may be entitled to.

Tax reliefs directly reduce the income on which you pay tax. They may result in you receiving a refund of tax paid. The amount of relief you receive depends on the rate of tax you pay. Some common tax reliefs you should be aware of are –

Tax Relief on Medical Expenses
Rent a room relief
Start Your Own Business Relief
Working From Home Relief

Please refer to the Revenue list to find out which Tax Reliefs you may be entitled to.

Tax exemptions You may be exempt from paying tax on certain types of income you receive. You must meet certain conditions to qualify for an exemption. Examples include marginal relief and some social welfare payments.

The most common Tax Exemption for those working in the screen and animation industries is the Artist Tax Exemption. Income you earn from the sale of your artistic works may be exempt from Irish Income Tax in certain circumstances. Revenue makes a determination that certain artistic works are original and creative works generally recognised as having cultural or artistic merit. Revenue can make determinations in respect of artistic works in the following categories:

Books or other forms of writing
Plays
Musical compositions
Paintings or other similar pictures
Sculptures.

If Revenue makes a determination for a piece of work, you are deemed to have Artists’ Exemption from the year in which the claim is made. This means that income up to a maximum of €50,000 per annum from these works are exempt from IT.

To find out more about the Artist Tax Exemption visit the revenue website here.

Tax Obligations – Limited Company (excluding on the employment of staff which is discussed above)

Corporation tax – a company is obliged to file a corporation tax for a set 12 month trading accounting period 8 months and 21 days after the end of that accounting period. Corporation tax is payable at 12.5% on trading profits and 25% on non trading profits. We strongly recommend that a Limited Company engages an independent accountant / tax advisor to assist with annual company tax returns.

Income tax – If you own more than 15% of the share capital of a company in addition to the obligations of the company to file a corporation tax return, and regardless of the fact that all of your income from the company is subject to tax deduction at source under the PAEY system discussed above you still have an obligation to file a personal tax return each year.

VAT – Value-Added Tax is a tax which is payable on the sale of goods or services within the territory of the Member States of the EU. The company is obliged to charge VAT where the company’s turnover on sale of goods or services is in excess of or expected to exceed in a 12 month period the following thresholds.

Services €37,500
Goods €75,000

PRSI – Pay Related Social Insurance contributions are used to fund social insurance payments, for example, state pensions. All Self-Employed people and proprietary directors with earnings more than a specified amount (currently €5,000 per annum) must pay PRSI.There are different rates of PRSI for different categories. Most employees pay Class A but as a proprietary director, you may pay Class S PRSI.

Allowable Expenses

When calculating the profit for your business, you may be able to claim a deduction for expenses incurred. The business (whether sole trader or company) should prepare a set of accounts. The requirements as to the standard of these accounts depends on the size of the business or company.

What expenses CAN be claimed?

The expenses that you can claim for are those that are directly related to the running of your business such as:

the purchase of goods for resale
employees’ pay
rent and bills for your business premises
running costs for vehicles or machines that you use in your business
lease payments for vehicles or machines that you use in your business
accountancy fees
interest payments for money you borrowed to finance your business.
You may also claim for expenses you had before your business started trading such as the cost of preparing business plans.

If you are registered for Value Added Tax (VAT), the amount that you claim for expenses should not include the VAT amount.

What expenses CANNOT be claimed?

You can not claim expenses for any item that is not fully related to the running of your business such as:

clothing (except protective clothing)
personal expenses
payments made to you / drawings from the business
business entertainment expenses
your own food or travel expenses (except those described in the Food and Accommodation Expenses and Travel Expenses manuals).
You cannot claim a deduction for capital expenditure when calculating your profit. Capital expenditure is money you spend on buying or maintaining land, property or equipment for your business. You may be able to claim capital allowances on some of this expenditure.

Expenses that are for both business and private use

If you spend money on something that is for both business and private use, you can claim a deduction for part of the expense. This would include items such as phone bills, motor expenses and rent. You must work out how much of the expenditure was for business purposes and claim a deduction for that amount only.

Capital items – purchases of equipment by the business may be considered a capital item under tax rules and therefore an annual write down of the cost of the item over a number of years may be the more correct deduction rather than claiming the entire cost in one year which is not allowable.

For further information visit Revenue’s Allowable Expenses page.

Bookkeeping

Depending on your own skill set, bookkeeping may seem like a simple matter of tracking your financial records or a mind-boggling quagmire.

In simple terms Bookkeeping is the process of recording financial transactions and maintaining the financial records to support a company’s financial statements.

Invoicing

An invoice is a document that lists goods or services that you have supplied to a client.

It outlines the exact services provided, the service charge, the date the work was completed, your payment details, and payment terms i.e. the date the payment is due. The standard deadline is 30 days unless you have a contract outlining a different payment schedule.

It should also incorporate the individual or company name (if limited company), registered address and VAT number and if not VAT registered, the individual (PPS) or company tax registration number. Finally, if any expenses have been incurred in the performance of that service these expenses should be itemised and the appropriate VAT rate applied to these and charged to the client.

Record Keeping

If you run a business (as a Sole Trader, Partnership or Limited Company), you must keep certain records for tax purposes. Your records can be used to confirm information contained in your tax returns and they should clearly show the accounting process.

If your accounts are prepared by an agent or accountant, they may keep your records on your behalf. However, you are ultimately responsible for your record keeping. If you are in a partnership, the precedent partner is responsible for keeping records. You must keep the original of these documents for six years.

What types of records are kept?

You must keep anything that is used to calculate your Income Tax, Corporation Tax (CT) or Capital Gains Tax (CGT). These records are known as ‘linking documents’ and can include:

receipts for expenses
receipts for purchases
sales invoices
nominal ledgers
accounting book

You do not need to send your records in when you submit your tax return but you need to keep them as proof in case you are asked to show them or during an Audit.

There are many small business software products that can help with Bookkeeping. Examples include; Wave, Sage and Quickbooks.

Filing Your Tax Return

The deadline for filing a personal self employed / proprietary director tax return (Form 11 or Form 12) for a tax year is the 31 October of the following year. This can be done through Revenue’s Online Service (ROS). For a step by step guide on how to file your tax return visit the Revenue site here.

October 31st is also the deadline for your Preliminary tax. Preliminary Tax is your estimate of the Income Tax, Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) that you expect to pay for the current tax year. The amount of preliminary tax for a year must be equal to, or more than, the lowest amount of the following:

90% of the tax due for that tax year

100% of the tax due for the immediately previous tax year

105% of the tax due for the tax year preceding the immediately previous tax year (often called the ‘pre-preceding year’). This option only applies where you pay by direct debit. It does not apply if the tax due for the pre-preceding year was nil.

For late payments, you will be charged interest for each day (or part of a day) past the deadline.

For more information on Preliminary Tax visit the Revenue site here.

Company tax returns (Form CT1) are due to be filed 8 months and 21 days after the end of an agreed annual accounting period.

Revenue Audit

A Revenue audit is where your tax returns are compared to your tax records. There are generally three reasons for which Revenue can decide to audit you:

Screening tax returns – this is where Revenue look at your returns and compliance history for any patterns or trends. This is the most common method of selecting a business or tax payer for audit.
Projects on business sectors – Revenue might focus on a particular business sector, trade or profession when choosing businesses or tax payers for audit.
Random selection – a small number of audit cases are selected using this method.

For full details on the process of a Revenue Audit visit the website here.

Your Pension

As a self employed person it is up to you to put the plans in place that ensure you will be financially secure at retirement age. For some, the state pension will suffice but most people aim to supplement this with a personal pension scheme.

Personal pensions or private pensions mean pensions that are organised individually by self-employed people or employed people who do not have an occupational pension scheme. Personal pensions are managed by a life assurance or investment company.

A Personal Retirement Savings Account (PRSA) is a basic and flexible pension product which you can take out, regardless of your employment status.It is available from PRSA providers whose products have been approved by Revenue and the Pensions Authority.

You can make regular payments or lump sum payments to your PRSA, and these are usually tax deductible. You don’t pay tax on any investment gains but you might end up paying a relatively low level of tax on the retirement benefits you get from your PRSA.

You can find a list of approved PRSA providers on The Pensions Authority website here.