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Self-Employed could take a “Double Hit” with this year’s tax return

Written by Robert McHugh, on 25th Oct 2016. Posted in Financial

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Experts at Taxback.com say that those who are seeing their business on an upward trajectory will now not only have to now pay the difference between what they predicted for 2015 in their preliminary tax payment in Oct 2015, which many people may have underestimated, and the reality of what their tax bill was for the year, but this higher amount could drive up the preliminary tax for 2016 - so effectively they’ll get a “double hit”. 
 
The self-assessed tax return deadline day is looming and with the economy improving some self-employed people throughout the country are now realising that 2015 was much better than 2014. This is great news but this financial upturn will have major implications for their tax bill – which might not be quite so welcome.
 
For example, if a self-employed person had a tax bill of €25,000 in 2013 and 2014, they probably paid that amount in preliminary tax last October for 2015. But now that they’ve completed their accounts, they may find that the tax for 2015 is actually €40,000, so they will need to pay the addition €15,000 for 2015 at the end of this month, plus preliminary of €40,000 for 2016. So their actual payment has jumped from €25,000 to €55,000 in just 12 months.
 
Taxback.com say that to avoid interest charges, the amount of preliminary tax paid for a tax year must be equal to or exceed the lower of:

1) 90% of your final liability for the current tax year (i.e. 2016), 
2) 100% of your final liability for the previous tax year (i.e. 2015), or 
3) 105% of your final liability for the pre-preceding tax year (i.e. 2014).
 
Senior Tax Manager at www.taxback.com, Barry Flanagan explained, "It is entirely possible that a “double hit” will occur for many self-employed people this year as a result of improving economic conditions. This is a necessary evil of a growing business so while there might be a financial sting in the tax return this year – it’s all for a greater good because higher tax bill stems from higher profits."

Source: www.businessworld.ie

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