Preliminary Tax Requirements for 2012 - Interaction with Credit for Withholding Taxes

1. Requirement to pay Preliminary Tax

A chargeable person is, by virtue of the current Pay & File rules in Part 41 of the Taxes Consolidation Act (TCA) 1997, required to pay Preliminary Tax directly to the Collector General each year. The amount of Preliminary Tax required to be so paid is calculated by reference to the amount of tax which is likely to become payable ^[1] by the person for the tax year, or accounting period in the case of a company.

2. Minimum amount required to avoid interest charges

In order to avoid interest charges in relation to Income Tax or Corporation Tax, a certain minimum amount of Preliminary Tax must be paid for the tax year or accounting period involved. In the case of an individual liable to Income Tax, to avoid interest charges, the amount of Preliminary Tax to be paid for a tax year must be equal to or exceed the lower of:

• 90% of the tax payable by the individual for the tax year,
• 100% of the tax payable by the individual for the previous tax year, or
• 105% of the tax payable by the individual for the pre-preceding tax year. [This final option is only available where Preliminary Tax is paid to the Collector General by direct debit and does not apply where the tax payable for the pre-preceding year was nil].

3. Queries in relation to Withholding Taxes

A number of queries have been made to Revenue recently in relation to the interaction of withholding taxes with the calculation of the amount of Preliminary Tax that chargeable persons are required to pay directly to the Collector General. These queries relate mainly to Dividend Withholding Tax and Professional Services Withholding Tax.

Dividend Withholding Tax (DWT)

Where a person is within the charge to Income Tax for a tax year, DWT is, by virtue of section 172J of the TCA 1997, available to be set against the amount of Income Tax chargeable on the person for the year involved. It is given as a credit against the amount of Income Tax chargeable on a person in arriving at the amount of tax payable by the person for the tax year.

Professional Services Withholding Tax (PSWT)

Where a person is within the charge to Income Tax for a tax year or to Corporation Tax for an accounting period, PSWT is, by virtue of section 526 of the TCA 1997, available to be set against the amount of Income Tax or Corporation Tax chargeable on the person for the year or period involved. It is, again, given as a credit against the amount of Income Tax or Corporation Tax chargeable on a person in arriving at the amount of tax payable by the person for the tax year or accounting period involved.

4. Update of Leaflet IT 19

Information Leaflet IT 19 has recently been updated to clarify the interaction between a credit for PSWT and the calculation of the amount of Preliminary Tax required to be paid by chargeable persons. The updated leaflet confirms the position outlined in Part 41.00.05 of the Income Tax, Corporation Tax and Capital Gains Tax Manual (and previously in Statement of Practice SP – IT/1/95). Both of these are available on the Revenue website www.revenue.ie.

The updated leaflet confirms that PSWT is to be given as a credit against the amount of Income Tax or Corporation Tax chargeable on a person in computing the amount of tax payable by the person for the year or period involved. Preliminary Tax required to be paid directly to the Collector General is, in turn, calculated by reference to the amount of tax payable. An amount of PSWT that is (or will be) given as a credit in arriving at the amount of tax payable for a tax year or accounting period may not be treated as a payment (or a part payment) of the amount of Preliminary Tax required to be paid directly to the Collector General.

5. Position in relation to other Withholding Taxes

A similar position to that outlined above in relation to PSWT, applies in relation to credits for other withholding taxes that are given in arriving at the amount of tax payable by a chargeable person for a tax year or accounting period. These withholding taxes include Dividend Withholding Tax (DWT) and PAYE. Again, where credits for these taxes are involved, Preliminary Tax must be paid directly to the Collector General by reference to the amount of tax payable.

6. Inadequate Preliminary Tax paid for 2012

Persons who are chargeable persons within the current Pay & File system are, in conjunction with their representatives, asked to review their Preliminary Tax payments for 2012. Where the understanding of a chargeable person or their representative in relation to the use of a credit for a withholding tax (e.g. PSWT) has resulted in too little Preliminary Tax being paid, the position should be rectified as a matter of urgency, but not later than 31 December 2012. Where this deadline is met, Revenue will not seek to pursue interest charges that would otherwise have arisen because of the inadequacy of the original amount paid as Preliminary Tax for 2012.