In the first part of our tax guide, we covered what you'll need to be able to pay taxes, as well as how and when you'll pay them each year. For part two, we'll look at what a tax return is made up of- Income tax, Universal Social Charge, and Pay Related Social Insurance. We'll also touch on Tax Credits, and a little about VAT. So, diving in...
How much tax will I pay working as self-employed in Ireland?
The amount of tax you'll pay is made up of a few different categories, which we will cover a bit more in depth below. The main categories are income tax, USC, and PRSI, VAT, and tax credits.
Below are the tax brackets for taxable income (correct as of 2019):
Universal Social Charge (USC)
Universal Social Charge is a tax paid if your total (gross) income is more than €13,000 a year- and is paid when you file your taxes. The table below breaks down the brackets of USC payable:
An example of USC
Mark earns a salary of €54,000 a year working for himself (self-employed). This means he pays on three brackets of USC- 0.5% on the first €12,012 (€60.06), 2% on the following €7,862 (€157.24), and finally 4.5% on the last €34,126 of his salary (€1535.67).
This means that Mark's total USC contribution for the year comes to €1812.97.
Pay Related Social Insurance (PRSI)
In most cases when self-employed, you'll pay Class S PRSI, which means:
- you'll pay 4% on any income, or
- €500 (as a voluntary contribution if you earn below €5,000 being self-employed)
Whichever is the larger amount is what you'll pay, and if you earn less than €5,000 then you'll be exempt from Class S PRSI (but as above, you'll still pay €500).
If you work as an employee of a limited company that is run by a family member or your partner, then you'll pay Class A or J. If you happen to not be employed by a limited company, but you do help run it (or if you hold some form of director position/ are a shareholder that has a say in company decisions), then you'll be viewed as self-employed, meaning you'll pay Class S if your income is over €5,000.
There is the possibility of a PRSI refund in a very specific set of circumstances:
- You are self-employed and turned 56 years old on (or before) the 6th of April 1988
- You paid PRSI for the first time on (or after) the 6th of April 1988 and you don't qualify for a contributory or non-contributory State Pension
If you meet these criteria, then you can get 53% back of the PRSI you paid (equivalent to Class S pension contributions).
Voluntary contributions if you're self-employed and don't meet the criteria for paying PRSI
If you don't meet the criteria for paying PRSI for whatever reason, you can be a voluntary contributor - meaning you can remain insured even once you're not under the PRSI system. The criteria for making voluntary contributions are as follows:
- You're no longer within the PRSI scheme (due to obligation) within Ireland
- You're no longer within the PRSI scheme voluntarily or by obligation within another EU country
- You're under 66 years of age
Value Added Tax (VAT)
Value Added Tax is what you'll charge your customers, as well as what you'll be charged when you buy goods or services necessary to the running of your business. The VAT rate varies depending on the product or service.
The standard VAT rate is 23% for most things. For books (physical), it is 0%, and for particular electronic publications, it is 9%. The VAT rate for labour services remains 13.5%, a rate of 4.8% when dealing with livestock, and 5.2% in some instances for the agricultural sector.
The rate for the tourism sector has recently been increased from 9% to 13.5% (having previously been reduced from 13.5% to 9% during a period of economic downturn).
Tax credits replaced tax-free allowances and have done since 2001. The majority of tax credits are not applied by default, and instead must be claimed for when filing. Tax credits aimed at lowering your tax liability. For those who are self-employed, you can claim what's called an "Earned Income Tax Credit" of €1,150 or 20% of earned income- whichever is lower (for the 2018 tax year).
You cannot claim the tax credit against any passive or investment income (e.g. property rentals or interest on savings).
If you happen to have a full-time job (meaning you are under the PAYE system) and also freelance on the side, then you do qualify for the PAYE tax credit so long as the combined value of the two credits together isn't more than €1,650.
How do I report VAT working as self-employed in Ireland?
You need to register for VAT with Revenue if your annual company turnover exceeds (or is likely to exceed) €75,000 (when selling goods- products), or €37,500 when providing a service. As a company, you must pay VAT on goods and services for the business, and charge VAT on goods and services you supply to your customers.
If the amount of VAT you pay yourself is more than the VAT you have charged customers, you can contact Revenue who will pay the difference- making sure that the customer pays the VAT, and it is not footed by the business.
Working as self-employed in Ireland using Debitoor
To get started with filling in your company information and creating your first invoice with Debitoor, have a look at our tutorial. Once you've done that, you'll be off to the races, and you can invoice quickly, easily, and properly. Whilst you're at it, you can keep track of your expenses, as well as generate profit and loss reports- so you always know how your business is doing.