PENSION PAYMENT CUTS SELF-EMPLOYED TAX BILL

With the ROS income tax return filing deadline looming on November 16, self-employed people need to hurry up to make a pension payment.

Zurich instances the example of John, who had Net Relevant Earnings for 2021 of €80,000. He paid €15,000 Preliminary Tax in 2021 and his total tax bill for 2021 is €22,000. This leaves him owing €7,000 for 2021.

In Scenario 1, where there is no pension contribution, the balance of tax due from 2021 is €7,000 (i.e. €22,000 less €15,000). Preliminary Tax due for 2022 is €22,000 (i.e. 100% of 2021’s final liability). So the total payment due to Revenue is €29,000.

In Scenario 2, before November 16 2022, John makes a €20,000 pension contribution and backdates the tax relief to 2021. The actual tax bill for 2021 is reduced to €14,000 i.e. the total tax bill for 2021 of €22,000 less tax relief of €8,000 (40% on the pension contribution of €20,00).

As €15,000 Preliminary Tax was paid already in October 2021, a refund of €1,000 is due from the Revenue.