Budget 2025 Highlights

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Budget 2025 Highlights

Minister for Finance, Jack Chambers delivered the final Budget today, 1 October 2023. Below we outline the highlights of Budget 2025.

Personal Tax

  • Income Tax Standard Rate Bands increase by €2,000 to €44,000 (single person), with the married single earner band increasing to €53,000, and the married dual income band increasing to €88,000.
  • Personal, PAYE, Earned Tax Credits to increase by €125 to €2,000.
  • Home Carer and Single Person Child Carer Tax Credits will increase by €150 to €1,950 and €1,900 respectively.
  • Incapacitated Child and Blind Person’s Tax Credits will increase by €300 to €3,800 and €1,950 respectively.
  • Small change to the second rate-band of Universal Social Charge which will increase from €25,760 to €27,382. The 4% rate is reducing to 3% from 1 January 2025.
  • Alignment to the tax treatment of Automatic Enrolment Retirement Savings Schemes so that they are similar to that of PRSAs. Employer contributions are tax relieved. Funds grow tax free and a tax-free lump sum can be taken on draw down of the fund up to a maximum of €200,000.

 Enterprise/SMEs

  • Ireland is the only country in the EU which taxes dividends from foreign subsidiaries. It is proposed to introduce a participation exemption for Foreign Dividends to simplify the double taxation relief provisions. Companies will have an option to claim the exemption or continue to use the existing tax and credit relief by way of an election on the company’s annual Corporation Tax return. The exemption will apply for distributions received on or after the 1 January 2025.
  • Capital Gains Tax Relief for Angel Investment to encourage investment in innovative start-ups is to commence shortly. Qualifying investments will be certified by Enterprise Ireland with a minimum investment in new shares of at least €10,000. Relief will apply if shares are held for at least 3 years. A reduced rate of Capital Gains Tax of 16% will apply on a gain of up to twice the initial investment. A lifetime limit of €10m will apply to the relief.
  • A 12-year clawback period for Retirement Relief on disposals to children on businesses valued at over €10m.
  • The various reliefs for Investment in Corporate Trades are being extended for a further two years to 31 December 2025. The €500,000 investor limit on EII investment is being increased to €1m, while it is being increased to €980,000 for SURE investments.
  • The first-year payment threshold for the Research & Development Tax Credit is being increased to €75,000. The first-year payment threshold, which allows for a claim to be repaid in full rather than spread over 3 years.
  • The Section 486C Start Up Relief is currently calculated by reference to the amount of employer PRSI paid – up to €5,000 per employee. It is proposed that amounts paid under Class S will also be considered, subject to a maximum of €1,000 per individual.
  • New relief for up to €1m of expenses incurred on companies on their first listing on a recognised stock exchange in Ireland or the EU/EEA area. The relief is to support companies in the scale up phase of their growth and development.
  • The cumulative tax-free limit for small benefit exemption is being increased to €1,500 and the number of times an employer can provide a benefit is being increased from two to five per annum.
  • An exemption from taxable benefit in kind on the provision of EV home chargers.
  • The CO2 thresholds for claiming capital allowances on business cars is being revised downwards from 2027. An expenditure of €24,000 will be allowable for cars with CO2 emissions of 0-120g/km, a reduced €12,000 for vehicles with emissions of 121-140g/km and no zero for vehicles with CO2 emissions greater than 141g/km.

Agri-Food Sector

  • CAT Agricultural Relief will now require that the donor must meet a 6-year Active Farmer test.
  • The measures for Stock Relief which were due to expire at the end of 2024 are being extended to the end of 2027.
  • 50% Accelerated capital allowances for farm safety equipment.
  • Farmer’s Flat Rate VAT compensation being increased to 5.1%.

 Housing/Cost of Living Measures

  • The Rent Tax Credit is being increased by €250.
  • The deduction for pre-letting expenditure from rental income will be extended for a further three years, to the end of 2027. The deduction is capped at €10,000 per property.
  • The Help to Buy (HTB) scheme is being extended to the end of 2029.
  • The Stamp Duty rate applied where 10 or more residential properties are acquired in any 12-month period is being increased from 2 October 2024 from 10% to 15%. In addition, a 6% rate will apply to residential properties valued excess of €1.5m.
  • A temporary one-year Mortgage Interest Tax Relief introduced last year is being extended for a further year. Relief will be available for the increased mortgage interest paid in 2024 over 2022. The relief is capped at €1,250 per property and applies to mortgages outstanding of between €80,000 and €500,000 on the 31 December 2022 and fully LPT compliant. Relief is at the standard rate.
  • The rate of the Vacant Homes Tax is again increased with effect from 1 November 2024 to 7 times the property’s existing LPT liability.
  • The 9% VAT rate for Gas and Electricity supplies is extended to 30 April 2025.

 VAT

  • The registration thresholds are being slightly increased to €42,500 for the supply of services and €85,000 for the supply of goods from 1 January 2025.
  • The supply and installation of heat pumps is reduced from 23% to 9%.
  • The Farming VAT Flat Rate is being reduced to 5.1% from 1 January 2025.

Other Measures

  • The universal relief of €10,000 to the OMV for vehicles in Category A-D is extended for a further year to end 2025.
  • The Capital Acquisitions Tax thresholds are being increased as follows.
    • Category A threshold €400,000
    • Category B threshold €40,000
    • Category C threshold €20,000
  • Two new audio-visual incentives are being introduced. Both require European Commission approval.
    • A Corporation Tax credit for expenditure on unscripted productions. The credit will be granted at 20% of the expenditure up to a limit of €15m per project.
    • Scéal Uplift for film production up to a maximum expenditure of €20m. This incentive will form part of section 481 Film Relief.

Read our tax team’s analysis of Budget 2025.

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Special Assignee Relief Programme (“SARP”)

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Special Assignee Relief Programme (“SARP”)

The Special Assignee Relief Programme (“SARP”) was introduced in Ireland in 2012 to encourage the relocation of key talent within organisations to Ireland.

The SARP programme provides for income tax relief on a proportion of income earned by employees coming to work in Ireland.  Where certain conditions are satisfied, an individual can make a claim to have 30% of employment income over €100,000 up to €1,000,000 disregarded for income tax purposes.  The relief is available for five consecutive tax years.

In determining whether an individual is entitled to the relief, the amount of compensation, excluding the following items must exceed €100,000:

  • Bonus payments,
  • Benefit-in-Kind including company cars and preferential loans,
  • Share based remuneration,
  • Termination/ex-gratia payments.

The relief only applies to income tax (PAYE) and does not apply for USC or PRSI.

How is relief granted?

SARP relief can be claimed on a real-time basis via the PAYE system, rather than waiting for the tax year-end to make a claim. While claiming SARP relief, an individual is considered a chargeable person for Irish income tax purposes and is therefore required to file a Form 11 tax return for each year of entitlement.

Example:

Francesco arrived to Ireland on 1 January 2024 and meets all the conditions to claim SARP relief. Francesco is single and his base salary is €150,000.

€
Schedule E income 150,000
SARP Relief (15,000)
Taxable income 135,000
 
Total Income tax liability 41,850
Total USC liability 8,503
Total PRSI liability 6,000

Francesco’s marginal income tax rate in Ireland is 40%, so the income tax saving is €6,000 (€15,000*40%).

Other Benefits of SARP

Employees who qualify for SARP relief are also eligible to receive one tax-free home leave trip per annum, including their family. School fees paid by the employer, capped at €5,000 per annum for each child, can also be paid tax-free.

Application Process

Qualifying individuals must complete a SARP 1A application for this relief within 90 days of arrival in Ireland.  The employee must have a PPSN to complete the application. They must also have registered their employment with Revenue through their MyAccount before approval for SARP will be issued.  From 1 January 2024, the SARP 1A application can be certified through an online e-portal which is available through ROS.

It is important to note that making a claim under SARP will negate other possible claims which may reduce tax e.g. a Foreign Earnings Deduction, Trans-border Relief, R&D (Research & Development) incentive. Employees should therefore take care before making a claim to ensure the relief provides the best tax outcome for them.

Reporting Obligations for Employers

An employer must submit an annual return to Revenue by 23 February, to provide the following information for all qualifying employees:

  • PPS Number
  • Nationality
  • Prior country of residence
  • Job title/role
  • Remuneration information (including any reimbursed school fees/home leave trips)

In addition, the annual return must set out the increase in number of employees employed or retained as a result of the qualifying employees working in Ireland.

From 01 January 2024, employers can submit the 2023 Employer Return and all subsequent years through the online eSARP portal.

If you have any questions in relation to SARP relief, or require assistance with preparing a Form SARP 1A application or annual SARP Employer returns, please contact us for assistance.

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Global Mobility Social Security Update: Framework Agreement on Cross-border Telework

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Framework Agreement on Cross-border Telework

Since the COVID-19 pandemic, there has been a significant shift in the way people work, with many employers now operating a hybrid approach to working. Cross-border teleworking can bring a lot of risks and challenges to both employees and employers, not only in the context of tax obligations but also in the determination of the applicable social security legislation.  Under EU regulations for cross border workers, where an employee works for at least 25% of their time in their State of Residence, the social security obligation would shift from the Employer State to the State of Residence.

In 2023, 18 EU countries entered into the Framework Agreement on EU cross-border teleworking.  The framework agreement follows Article 16 of Regulation (EC) No. 883/2004 on the coordination of social security systems, and provides that teleworking in an employee’s residence state will not be taken into account for determining the applicable social security legislation if it accounts for less than 50% of the employee’s working time.

There are now 22 countries who have signed the agreement, with Ireland signing up to the new Framework on 20 May 2024. This is effective from 1 June 2024.

Conditions:

The new agreement will apply if both member states involved have adopted the framework agreement and the following conditions are met:

  • The employee has one employer or multiple employers with a registered office in the same member state;
  • The employee habitually works in the member state of the registered office of the employer and teleworks in the residence state; and
  • The employee’s teleworking time is less than 50% of his or her total working time.

If the conditions are met, the social security legislation of the member state of the employer’s registered seat would continue to apply.

Application and Procedure:

A request for an A1 certificate must be submitted in the member state where the employer has its statutory seat. Requests can be filed for future periods only.  Retrospective applications may only be granted in limited circumstances.

Example:

Mark is working in France for a French employer since 2018. He has always worked 2 days from home in Germany and has been subject to the German scheme since 2018 (substantial activity). On 1 January 2025 his employer asks for an exemption under the Framework Agreement for the coming two years. The Framework Agreement applies and therefore the agreement is considered pre-given allowing France to immediately issue the A1 certificate as competent Member State.

Our View:

In a world where hybrid working is becoming more prevalent, this is a positive update and provides greater flexibility in managing the social security implications for cross-border workers.

It is important to note that the UK have indicated that they will not sign the framework agreement, which is disappointing given the number of cross-border workers between Ireland and the UK.

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Close Relative Loans – New Capital Acquisitions Tax (CAT) Reporting Requirements

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Close Relative Loans – New Capital Acquisitions Tax (CAT) Reporting Requirements

With effect from 1 January 2024, a new mandatory Capital Acquisitions Tax (CAT) reporting obligation is imposed on the recipients of certain loans from close relatives. This applies irrespective of whether any tax is due or not and is applicable to both new loans made from 1 January as well as existing loans.

This new requirement aims to provide Revenue with greater visibility of loans made between close relatives where the loans are either interest free or are provided for below market interest rates.

Who is a Close Relative?

A close relative is a person within either the Group A or Group B CAT tax free threshold category which includes:

  • a parent of the person,
  • the spouse/ civil partner of a parent of the person,
  • a lineal ancestor of the person,
  • a lineal descendant of the person,
  • a brother or sister of the person,
  • an aunt or uncle of the person, or
  • an aunt or uncle of the spouse/ civil partner of a parent of the person.

There are certain “look through” provisions that must be applied to loans made by or to private companies, including where the shares in the company are held via a trust, to determine if the loan is ultimately being made to a recipient by a close relative. The holding of any shares in a private company is sufficient for the look through provisions to apply.

What Loans must be Reported?

A loan is any loan, advance or form of credit and need not be in writing. The recipient of a loan will be required to file a CAT return where:

  • A loan has been made directly or indirectly between close relatives,
  • No interest has been paid on the loan within 6 months of the end of the calendar year, and
  • The total balance outstanding on the loan exceeds €335,000 on at least 1 day in a calendar.

All specified loans must be aggregated so if a person has more than one loan from different close relatives the amount outstanding on each loan in the relevant period must be added together for the purposes of determining if the threshold amount to €335,000 has been exceeded or not.

What Information must be Reported?

The CAT return must include the following information in respect of reportable loan balances:

  • The name, address and tax reference number of the person who made the loan,
  • The balance outstanding on the loan, and
  • Any other information which the Revenue Commissioners may reasonably require.

Case Study

A father and mother provide an interest-free loan of €400,000 to their son on the 31 March 2024. The son made no repayments on the loan in 2024.

On the receipt of an interest free loan of €400,000, the son is deemed to receive an annual gift of the free use of this money on the 31 December 2024. Irish Revenue value the annual gift at the highest rate of return the funds would generate if they were invested on deposit. Based on current interest rates applicable to a standard demand deposit account, one of the highest rates of return for a deposit account is 1.5%. As such, the value of the annual gift of notional interest is approximately €6,000 per year. After applying the annual small gift exemption of €3,000 per parent (€6,000 in total), the son is exempt from paying CAT on the notional annual gift in respect of this loan.

However, as the balance of the loan on 31 December 2024 exceeds the tax-free threshold of €335,000, the son is still required to file a CAT return under the new reporting provisions irrespective of the fact that no CAT is payable. The CAT return must be filed with Revenue no later than 31 October 2025.

Should you require any assistance in this area, please contact us.

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Research & Development (R&D) Tax Credit – What is it and how can it be claimed?

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The R&D tax credit was introduced to incentivise large multinationals to locate an R&D unit here and to encourage Irish companies to invest in R&D activities.

Where a company meets the criteria to qualify for the R&D credit, it will be entitled to claim a tax credit equivalent to 30% of eligible expenditure incurred by it on qualifying R&D activities. As the claimant should also be entitled to claim a tax deduction at the standard rate of corporation of 12.5% on the same expenditure, it should result in an effective corporation tax benefit of 42.5%.

Changes from 2024

For accounting periods commencing from 1 January 2024, new rules have been introduced in Budget 2024. The main changes include the following:

  • The R&D credit is increased from 25% to 30%
  • The first payment instalment has been increased from €25,000 to €50,000
  • The company must now provide pre-notification of intention to make an R&D tax credit claim

Is my company eligible to claim the R&D credit?

In order to qualify for the R&D tax credit the following must apply:

  • The applicant must be a company
  • The company must be within the charge to Irish tax
  • The company must undertake qualifying R&D activities either within Ireland or the EEA

The expenditure on which the company is making the claim must be wholly and exclusively incurred in the carrying on by it of qualifying R&D activities. As per Revenue guidance, it is crucial that claimants distinguish the term “carrying on” from “for the purposes of” or “in connection with”. Indirect costs such as recruitment fees, insurance and travel costs, which are not wholly and exclusively incurred in the carrying on of the R&D activity do not qualify as relevant expenditure.

Typically, expenses which qualify for the R&D credit include materials, salary costs, subcontracted R&D and plant and machinery.

What are qualifying activities for the purposes of the R&D credit?

Qualifying activities must:

  1. Be systematic, investigative or experimental activities;
  2. Be in a field of science or technology;
  3. Involve one or more of the following categories of R&D:
    • Basic research
    • Applied research
    • Experimental development
  4. Seek to achieve scientific or technological advancement; and
  5. Involve the resolution of scientific or technological uncertainty.

Essentially, the R&D activities being carried out must address an area of technological or scientific uncertainty where the outcome is unclear from the outset.

Claiming the R&D Tax Credit

Under the new R&D system which was introduced in Budget 2023, for periods commencing on 1 January 2023, a company will have an option to request either payment of their R&D tax credit or for it to be offset against other tax liabilities which will provide greater flexibility to the claimant.

Where a company opts to have the credit refunded, it will be refunded as follows:

  • The first €25,000 (for accounting periods beginning on or after 1 January 2023) or €50,000 (for accounting periods beginning on or after 1 January 2024) of an R&D claim will now be payable in full in year 1.
  • In year 2, the second instalment will equal three-fifths of the remaining balance.
  • The third and final instalment in year 3 will in effect be the remaining balance.

A company will have the option to specify whether the R&D corporation tax credit is to be offset against the company’s tax liabilities or is to be paid to the company. Under the new regime, the option is there to offset against any tax liability, such as PAYE Employer liabilities or VAT liabilities.

In addition to the above, the current limits on the payable element of the credit will be removed as part of the new system.

Pre-notification

With effect from 1 January 2024, companies who wish to claim the R&D tax credit and it is either their first tax credit claim or it has been more than 3 years since their last claim, there is now a requirement to notify Revenue of their intention to make the claim. This must be done 90 days prior to making the claim.

The company must do this in writing and the information required is as follows:

  • Name, address and corporation tax number of the company;
  • Description of the research and development activities carried out by the company;
  • Number of employees carrying on research and development activities; and
  • Expenditure incurred by the company on research and development activities, which has been or is to be met directly or indirectly by grant assistance.

It is important that companies review their activities to determine if they qualify for the tax credit as the credit can prove to be a very valuable source of funding.

If you have any queries about the R&D tax credit, please contact us.

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Knowledge Development Box Update

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Knowledge Development Box Update

The Knowledge Development Box was introduced by Finance Act 2015, for those companies whose accounting periods commence on or after 1 January 2016. This legislation will allow small and medium sized companies engaged in research and development activities which led to the creation of the patent, copyrighted software or intellectual property (IP) equivalent to a patentable invention to reduce the tax paid on profits arising from these qualifying assets.

Updates to the legislation were enacted in September 2023 and from October 2023 the profits arising from patents, copyrighted software or IP equivalent to a patentable invention are now taxed at an effective rate of 10% rather than a previous effective rate of 6.25%.

Although this is not as favourable as it once was, if the profits arising from qualifying assets are significant, there could still be significant tax savings for companies.

Qualifying Assets

For the purposes of KBD, a qualifying asset would include the following assets that arose from R&D activities:

  • A computer programme
  • An invention protected by a patent
  • IP for small companies

Qualifying Income

Any income generated from the above qualifying assets will qualify for the relief. The income generally would include:

  • Royalty income
  • Licensing fees
  • Portion of sales price that is attributable to qualifying assets

Operation of Relief

The relief operates by allowing a tax deduction of 20% (from October 2023) of the qualifying profits from the R&D activities which results in an effective tax rate of these profits of 10%. In order to calculate the qualifying profits figure, there is a formula to use as follows:

QE + UE  x  QA
OE

QE – Qualifying expenditure
UE – Uplift expenditure
OE – Overall expenditure
PQA – Profits from qualifying assets

Qualifying expenditure includes costs that have been borne by the company, wholly and exclusively in carrying out R&D activities which result in the creation, improvement or development of the qualifying assets.

Overall expenditure is the overall expenditure the company has incurred on R&D on the qualifying assets. The main difference between qualifying expenditure and overall expenditure is that outsourced costs and acquisition costs incurred by the company in relation to qualifying assets can be included here.

An additional “uplift expenditure” is allowed to increase the qualifying expenditure on the qualifying asset. The uplift expenditure is the lower of:

  • 30% of the qualifying expenditure; or
  • the aggregate of the acquisition costs and group outsourcing costs.

As can be seen from the above, the formula seeks to restrict purchases costs of IP and group outsourcing – this makes it more beneficial to Irish companies who do all the majority of the development work in house rather than multinationals who outsource elements to group companies.

Claims for the KBD must be made within 24 months of the period end.

For further information on the above article or any other issue surrounding the Knowledge Development Box, please contact us.

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Family Partnerships – Tax Efficient Estate Planning Structure for the Benefit of Family Members

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Family Partnerships – Tax Efficient Estate Planning Structure for the Benefit of Family Members

Family partnerships have become a tax efficient estate planning structure that allows parents to gift assets to their children while still retaining control, through their function as managing partner, of the investment of those assets.

The transfer of assets to the partnership is subject to tax for both the parents (Capital Gains Tax – CGT) and the children (Capital Acquisitions Tax – CAT). Stamp Duty also needs to be considered. However, the tax may be minimised, where assets of current low value, but with an expectation that they will grow over time, are transferred.

By transferring assets into the partnership, any future gains on those assets can be shared among family members. The ability to strategically distribute gains can lead to substantial tax advantages when considering the long-term growth of family assets. Family partnerships serve as an effective vehicle for succession planning, ensuring a smooth transition of assets and wealth to the next generation while potentially minimizing inheritance tax liabilities.

The partners are liable to tax on income/capital gains arising from the partnership. One of the most notable tax advantages offered in this structure is the ability to distribute income among family members in a tax-efficient manner. By strategically structuring the partnership, income can be allocated to family members who fall into lower tax brackets, effectively reducing the overall tax liability.

A partnership agreement should be prepared setting out the terms of the partnership, typically each partner’s contributed capital determines their partnership share. This is typically 90% for the children and 10% for the parents. The Agreement appoints a managing partner. By agreement between the partners, the managing partner decides on the investment strategy for the funds and the distribution policy of the partnership. By having one or both parents as managing partner, they retain control of the assets.

The partnership can be either a limited or general partnership. In a Limited Partnership, the liability for all bar at least one partner is limited to the amount they have contributed. Therefore their liability to debts is capped. A General Partnership is less administratively burdensome but all partners are liable for the debts of the partnership without limit.

Family partnerships are a useful vehicle for preserving wealth, optimising taxes, and ensuring a smooth transition of assets within a family unit.

Please contact us if you have any queries in relation to Family Partnerships.

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Changes to CGT Retirement Relief for Individuals

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CGT Retirement Relief

Retirement Relief provides relief from CGT on the disposal of trading assets or shares in trading companies. To qualify for this relief, the main conditions are that the individual must be aged 55 or over and must be disposing of or transferring qualifying business assets. In addition, the individual must have been a working director of the company for 10 years and a fulltime working director for at least 5 of the years prior to the transfer.

The latter condition can be a stumbling block for many individuals seeking to claim this relief. For example, an individual may be a director of more than one company and therefore may not meet the full-time working director requirement.

The Finance Bill 2023 introduced changes on the restrictions that apply on retirement relief. These changes will come into effect from 1 January 2025.

Disposals to Children

At present, if the individual disposing of the qualifying assets is aged between 55 and 65 years of age and the disposal is to a child, full relief may be claimed.  From 66 onwards the relief is restricted to €3 million. The changes will now restrict relief available for individuals between 55 and 69 to €10 million. From 70 onwards the relief will be restricted to €3 million.

Disposals to Persons other than a Child

Under the current rules, there is full relief on disposals of qualifying assets up to a value of €750,000 where the disposal is made between ages of 55 and 65. From 66 onwards the cap is reduced to €500,000. The new rules will extend the €750,000 relief up to the age of 69. Similarly the €500,000 cap will be from the age 70 and onwards.

The table below summarises the new rules:

Disposal to: Current Rules: Changes – effective 1 January 2025:
Child
  • Unrestricted relief up to 65 years
  • From 66 years onwards relief restricted to €3m
  • Up to 69 years relief restricted to €10m
  • From 70 years onwards relief restricted to €3m
Person other than a child
  • Full relief on disposal of qualifying assets of up to €750k up to the age of 65
  • From 66 years onwards the cap is reduced to €500k
  • €750k is extended to 69 years
  • From 70 years onwards cap is reduced to €500k

Please contact us if you have any queries in relation to the changes to CGT Retirement Relief for Individuals.

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Share Options: New PAYE Withholding Requirements from 1 January 2024 – How does this Impact Employees?

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Share Options: New PAYE Withholding Requirements from 1 January 2024 – How does this Impact Employees?The shift of share options from the Irish self-assessment system to PAYE withholding from 1 January 2024 is a significant change arising from Finance (No. 2) Bill 2023. Prior to this, employees were required to report and remit taxes within 30 days of exercising an option on Form RTSO1.  Additionally, they were required to file an income tax return for the relevant year.

The changes set out in the Finance Bill outline that under the new system, employers are now required to report and make withholdings under the PAYE system on any gains arising after 1 January 2024 on the exercise, assignment or release of share options by employees.

What do employees need to be aware of?

  • The self-assessment regime continues to apply to gains arising on or before 31 December 2023, as does the obligation to register for Relevant Tax on Share Options (RTSO).
  • Share option gains is an area of focus for Revenue, therefore employees should ensure that their tax filings (Form RTSO1 and Income Tax returns) and payments in relation to relevant tax on share option exercises are up to date.
  • Failure to submit an income tax return in any year will result in a surcharge being applied by Irish Revenue. The surcharge is as follows:
    • 5% of the tax due up to a maximum of €12,695 where the income tax return is made within 2 months of the return filing date, or
    • 10% of the tax due up to a maximum of €63,485 where the return is made more than 2 months after the return filing date.

How can Crowleys DFK help?

Our tax team can support employees with preparing and filing income tax returns and RTSO1 returns in respect of share options exercised. Please contact us for assistance.

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Preliminary Tax Obligations for Income Tax & Corporation Tax

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Preliminary Tax Obligations for Income Tax & Corporation Tax

Individuals who file income tax returns and companies who file corporation tax returns have an obligation to pay preliminary tax:

1. Individuals

Preliminary tax is your estimate of the Income Tax, PRSI and USC that you expect to pay for a tax year. You must pay this by 31 October of the tax year in question.

The amount of preliminary tax for a year must be equal to, or more than, the lowest amount of the following:

  • 100% of the tax due for the immediately previous tax year
  • 90% of the tax due for the current tax year

It is necessary that you make a sufficient preliminary tax payment based on the above rules, as we have seen Revenue impose interest on underpayments.

As income tax returns are filed a year in arrears, i.e. your 2023 tax return will be due in October 2024, it is important to note that if you do not make a preliminary tax payment for the year in question, interest at a rate of 0.0219% will be incurred from the date that the payment was due.

For example, your 2023 tax return is due for filing on 31 October 2024. Your preliminary tax payment would have been due for payment on 31 October 2023. If you did not make the payment on 31 October 2023, Revenue may impose interest from 31 October 2023 when you file your return in 2024.

2. Companies

Irish resident companies and non-resident companies must pay Corporation Tax on taxable profits if:

  • a resident company trades in Ireland
  • a non-resident company trades in Ireland through a branch or agency
  • from 1 January 2022, a non-resident company is in receipt of profits or gains in respect of rental property in Ireland.

The rules of when a company should make their preliminary tax payment depends on whether they are classified as a Small Company or Large Company.

Small Companies

A small company is a company whose CT liability is not above €200,000 in the previous accounting period.

Small companies can base their preliminary tax for an accounting period on:

  • 100% of their CT liability for the previous accounting period
  • 90% of their CT liability for the current period (and there is provision for a top up payment to be made).

This must be paid on the 23rd of the eleventh month after the accounting period ended. For example, if the company’s year end is 31 December 2024, preliminary tax is due by 23 November 2024.

Large Companies

Large companies can pay their preliminary CT in two instalments when their accounting period is longer than seven months. The first instalment is due on the 23rd of the sixth month of the accounting period. The amount due is either:

  • 50% of the CT liability for the previous accounting period
  • 45% of the CT liability for the current accounting period.

The second instalment is due on the 23rd of the eleventh month. This will bring the preliminary tax up to 90% of the final tax due for the current accounting period.

For example, if the company’s year end is 31 December 2024, and they are a large company, the first instalment of preliminary tax is due on the 23rd of June and the 2nd instalment is due on the 23rd of November.

If preliminary tax isn’t paid by the above dates, interest is due at a daily rate of 0.0219% on late payments or payments that are not made in full. The interest is calculated by multiplying together the:

  • amount of tax underpaid
  • number of days the tax is late
  • interest rate.

If you have any queries about your preliminary tax obligations, please contact us.

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