If you are self-employed you must calculate your tax liability and make a payment by 31st October 2013 in respect of your:
1. Final Tax Assessment for 2012;2. Preliminary Tax for 2013.
(Note: If you use the Revenue Online Service (ROS) to both file your tax returns and pay your taxes you have until 14th November 2013)
The good news…
You can reduce your 2012 Final Tax liability and your 2013 Preliminary Tax liability by making contributions to a Personal Pension plan or to a PRSA plan by 31st October 2013 (or 14th November 2013 for ROS users) and electing to backdate the tax relief to 2012.
Example
John is self-employed, aged 45 years, and his Net Relevant Earnings for 2012 were €80,000. He has paid €18,000 Preliminary Tax in 2012 and his total tax bill for 2012 is €25,000. This leaves him owing €7,000 for 2012. He does not currently pay pension contributions. The two scenarios below show just how a lump sum pension contribution can save John lots of money!
Scenario 1 No Pension Contribution
Balance of tax due from 2012 is €7,000 (i.e. €25,000 less €18,000)
Preliminary Tax due for 2013 is €25,000 (i.e. 100% of 2012’s Final Liability)
or
Scenario 2 After Pension Contribution
Before 31st October 2013, John makes a €20,000 Pension Contribution and backdates the tax relief to 2011.
Actual Tax Bill for 2012 reduced to €16,800 i.e. the total Tax Bill for 2012 of €25,000 less tax relief of €8,200 {41% on the pension contribution of €20,000} However, €18,000 Preliminary Tax was paid already in October 2012. Therefore, a refund of €1,200 is due from the Revenue.
Preliminary Tax due for 2013 is €16,800 (i.e. 100% of 2012’s final liability).
Note: This double tax saving in the first year of retirement funding will eventually even out to one year’s tax saving for each year’s contribution.
Notes:
1. An earnings cap of €115,000 applies for contributions. Pension contributions made by you in 2012 must be deducted from the maximum tax-allowable contribution calculated based on these limits. 2. Your pension contributions are subject to age related limits. 3. Retirement benefits are subject to separate Revenue limits.