Self-employed people pay income tax under the self-assessment system once a year. Self-assessment means you take responsibility for making your own assessment of tax due, whether this is done by yourself or by an accountant/tax adviser on your behalf.
Preliminary tax (the estimate of tax due for the current year) is required to be paid on or before 31 October each year, and a tax return for the previous year, not later than 31 October. By using the online tax return filing system you can avail of an extension of two weeks (mid-November).
Where a person fails to file a tax return on time or at all, they may be subject to interest, surcharges, fines and penalties.
Three options for tax
There are three options that married or civil partners can choose from to be assessed for tax. Where both people are earning it is important that the best use is made of tax credits and tax bands. Different options suit different situations. Cohabitants will always be assessed as single persons.
1 Separate treatment or single assessment
Under this option each spouse is treated as a single person for tax purposes. This option generally results in higher combined taxes being paid by the couple, where one spouse is not fully utilising their tax bands and tax credits, as both are taxed as unrelated persons. However, this option is often used where couples have separated.
2 Joint assessment
This option will usually provide the most tax benefits for married couples. Once Revenue is notified of the marriage or civil partnership, the couple will be recorded as joint assessed unless the couple choose otherwise. With this option, the tax credits and standard rate cut-off point (in respect of PAYE earnings) can be allocated between spouses to suit their circumstances.
A single individual can earn the first €35,300 income at the lower income tax rate of 20%, before they begin paying income tax at the top rate of 40%. If there is one high earner and a lower earner, a spouse can transfer up to a maximum of €9,000 of unused tax band to their top rate tax paying spouse. This will allow the higher-earning spouse to earn up to €44,300 (€35,300 + €9,000), at the lower rate of tax, which could provide a tax saving up to €1,800.
A spouse can also transfer part or all of their unused personal tax credit (€1,650), another tax saving for the higher-earning spouse. If joint assessment is the preferred choice, one spouse (assessable spouse/partner) will be responsible for filing the returns on behalf of the couple.
3 Separate assessment
Under this option each spouse is treated as a single person, but they still have the option to transfer any unused tax credits or tax bands between them, at the end of the tax year by notifying Revenue. Any unused tax credits (other than PAYE tax credit and employment expenses), and standard rate tax band can be transferred to the other spouse, but only at the end of the tax year. If one spouse has an off-farm job and then lost that job for whatever reason, the other spouse would have to wait until year end to get the tax benefit.
Dear Money Mentor,
I am a beef farmer and got married earlier this year. My wife has her own job and is a PAYE worker. I am a sole trader and we are taxed as single people. I have recently completed my tax return and paid preliminary tax online. I made a small profit last year but I have made losses in previous years.
I am not sure if it is of benefit for us to be taxed jointly or to continue as we are. I have heard mixed views.
Any advice would be welcome.
As both of you are earning it is important that you make the best use of the tax bands and tax credits.
Under current Revenue rules, you will continue to be taxed as two single people in the first year of marriage. You may qualify for a refund, if you end up paying more tax for the year as two single people, rather than if you were jointly assessed. If you are due a refund, it will be given from the date of your marriage. You can claim a refund of the difference, if applicable, after year end (31 December 2021).
Once Revenue is notified of a couple being married or in a civil partnership, the couple will be recorded as jointly assessed, unless the couple advises otherwise.
You mentioned you sometimes make losses. Relief for farming losses incurred, may be claimed against other income in three consecutive years or four consecutive years in certain cases.
Joint assessment may be suitable for you, in particular if one of you is not earning more than the lower rate tax band of €35,300, which is taxable at 20%. An individual normally receives a personal tax credit of €1,650, and another tax credit of €1,650, if employed or self-employed.
With joint assessment, any unused tax band of the lower earner can be transferred to the higher earner, which can allow the higher earner to avail of the lower rate of tax (20%) for an amount in excess of the lower tax band threshold of €35,300.
It would be a good idea to avail of professional tax advice from your accountant or adviser before deciding, to ensure you are fully informed.