Ned O'Keeffe
Ceist:316 Mr. N. O'Keeffe asked the Minister for Finance when tax concessions will be available to a person (details supplied) in County Cork when establishing a new business. [26377/01]
Written Answers. - Tax Reliefs.
The position is that there are specific rules governing the basis of assessment and the payment of preliminary tax in the commencement years of taxation under the self-assessment system, for example, in the commencement years of trading.
Assessment: Year 1 – taxed on the profits from the date of commencement of trading to the end of the tax year – for 2001, the tax year ends on 31 December 2001; Year 2 – taxed on the profits of the 12 month accounting period ending in the tax year or the actual profits for the tax year, whichever is the lesser; Year 3 – taxed on the profits of a 12 month accounting period ending in the tax year.
Preliminary tax is a taxpayer's estimate of his-her income tax payable for a tax year. Preliminary tax must be paid by 31 October in the tax year, so as to avoid interest charges when the final tax liability becomes known. For the tax year 2001, preliminary tax had to be paid by 31 October 2001.
For an existing business, preliminary tax is calculated as follows: 90% of the final liability for the current year; or 100% of the final liability of the immediately previous year or 74% of the 2000-01 liability in the 2001 ‘short' tax year; or 105% of the final liability of the year preceding the immediately previous year.
There is an exception in the case of a taxpayer being taxed under the self-assessment system for the first time, for example, commencing to trade.
A taxpayer may have difficulty in calculating preliminary tax due in his-her first year. Interest will not be charged if the taxpayer does not pay preliminary tax in his-her first year.
I am advised by the Revenue Commissioners that in the case referred to by the Deputy, payment of preliminary tax for the tax year 2001 due on 31 October 2001 is optional. The commissioners recommend that he-she pay preliminary tax in the first year as near to the final tax liability as he-she can estimate.
However, in the second tax year of trading, in the case in question, the tax year 2002 which will be assessed on profits earned in the first 12 months of trading ending in 2002, the taxpayer must comply with the 90% payment of the 2002 tax liability or 100% rule for 2001. Because of the ‘short' tax year in 2001 this equates to 135% of the 2001 tax liabilityviz. 100/74 x 100%. This will ensure that the taxpayer meets the preliminary tax obligations for 2002 and therefore avoids an interest charge when the tax bill for the tax years 2001 and 2002 are finalised.
Revenue has produced two leaflets to help taxpayers starting in business and entering the self assessment tax system for the first time. They are entitled, Starting in Business – a Revenue Guide, and, A guide to Self Assessment. Copies of both leaflets have been sent to the individual referred to by the Deputy.