Are you recently registered as a self-employed individual? If so, be sure to put money aside for income tax.

Surprisingly enough many people don’t put funds aside for their income tax bill at the end of the year. In the early years of set up this can cause a great deal of stress when you receive your income tax liability from your accountant.

The big painful hit is the preliminary tax you pay for the following income tax year. The revenue get paid in advance by sole traders. In a simplified example, your tax year from 1 January 2019 to 31 December 2019 the tax is payable in November 2020 however (….and this is the kicker), the preliminary tax for your 2020 year (January to December) is due in November 2020 also. It’s based on your 2019 income tax liability (in most years**) and therefore, it’s like having a double hit when you first start out.

**If you have been badly impacted by Covid issues, your prelim tax can be based on a ‘reasonable’ estimate.  You don’t have to pay 100% of 2019 liability.  Ensure you pay what is a realistic estimate for 2020 if lower.

As your business grows and profit level increases if the funds aren’t set aside for income tax, then it can cause awful stress. Putting aside the money is a much easier way to have this aside and reduce any unknown pressure / stress at the end of the year.

Having the savings put by for tax is paramount.  The tax rates in Ireland are particularly high, so ensure you are actively putting ‘enough’ by.  Watch your numbers monthly (expenses versus income) and remember some items you feel are ‘expenses’ may not be allowable, so err on the side of caution.

** Always confirm your understanding of your tax position with your financial advisor / accountant. The savings advice tips are only guidance notes and not specific tax advice for any individual without a full consultation with Wendy.