Reduce your Tax Bill today
Every year thousands of self-employed people across Ireland use a pension as a great way of reducing their tax liability. It easy, efficient, and if you aren’t doing it, you should ask yourself why not!
If you have self-employed earnings, you must calculate your tax liability and make a payment by 31 October 2022 in respect of your
- Final Tax Assessment for 2021
- Preliminary Tax for 2022
You can reduce your 2021 Final Tax Liability and your 2022 Preliminary Tax Liability by making pension contributions to a Personal Pension or PRSA Plan by 31 October 2022 (or 16 November for ROS users) and electing to backdate the tax relief to 2021. The amount you can contribute to pension are subject to age-related limits and an earnings cap of €115,000.
Example
Paul is Self Employed, age 42 years and his Net Relevant Earnings for 2021 were €80,000. He has 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. He does not currently pay a pension. The follow two scenarios below show how a lump sum pension contribution can save Paul lots of money in tax.
Scenario One – No Pension Contribution
Balance of Tax due from 2021 is €7,000 (ie: €22,000 less €15,000). The Preliminary Tax due for 2022 is €22,000 (ie: 100% of 2021’s Final Liability). Total Payment to Revenue is €29,000
Scenario Two – After Pension Contribution
Before 31 October 2022, Paul makes a €20,000 Pension Contribution and elects to backdate the tax relief to 2021. Paul’s actual tax bill for 2021 is reduced to €14,000 (ie: the total tax bill for 2021 of €22,000 less tax relief of €8,000 (40% on the pension contribution of €20,000). However, €15,000 was already paid in preliminary tax in October 2021, therefore a refund of €1,000 is due from the Revenue. Preliminary Tax due for 2022 is €14,000 (ie: 100% of 2021s final liability). Total payment to Revenue is €13,000.
At Peavoy Financial Planning Limited we recommend our clients to make the most of the tax-efficiency of pension contributions now as you may never get such good value again! To find out more, do make contact with us to find out what you can do. I can be contacted on 087-2902206 or alternatively by email on .
David Peavoy BA, QFA, LIAP is a Director of Peavoy Financial Planning Limited whose practice is based in Office 5b, Portlaoise Enterprise Centre, Clonminam Business Park, Portlaoise, Co Laois.
Peavoy Financial Planning Limited is regulated by the Central Bank of Ireland
Disclaimer: All data and information provided within this blog is for information purposes only. It should not be taken as specific advice for your situation. Peavoy Financial Planning Limited makes no representations as to the accuracy. completeness, or suitability of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries or damages arising from its use