Vol. 509 No. 6
306 Mrs. Owen asked the Minister for Finance if his attention has been drawn to the extreme difficulties being experienced by people running small business or sole traders as a result of the demands from the Revenue Commissioners for tax to be paid up to April 2000 in view of the fact their earnings only relate to nine months work; and if he will make a statement on the matter. [21706/99]
The issue raised by the Deputy relates to the payment of income tax by the self-employed, under the self assessment system. Basically, the system involves the payment of preliminary tax by 1 November each year; the filing of the return of income by 31 January after the end of the relevant tax year; and the payment of any balance of tax due – over and above preliminary tax – by 30 April following the return filing date.
The self-employed taxpayer has three options as regards how much preliminary tax he or she should pay without being exposed to an interest charge.
Under the first option, a payment equal to at least 90 per cent the estimated tax for the current year. Under the second option, a payment equal to 100 per cent of the previous year's liability. This is the most frequently used option. The third option involves payment by direct debit, where the payments are spread in equal instalments from May to the following April. Total payments equal to 105 per cent of the preceding years liability can be used as an additional payment option when paying by direct debit.
If the correct amount of preliminary tax is not paid or is paid late, the taxpayer is liable to an interest charge of 1 per cent per month or 12 per cent per annum. This rate of interest is set at a level to encourage the highest degree of compliance. The charging of interest on late payment or insufficient payment of preliminary tax also ensures equity with the PAYE sector and avoids a situation where the taxpayer who fails to meet their preliminary tax obligations enjoy an advantage in their trading activities over the majority of self-employed taxpayers who pay the correct amount of tax on time.
