Saturday, 4 March 2017

How to Pay and File Irish Corporation Tax

Pay & File System

Revenue operates a "Pay & File" system for companies. In simple language, a company first pays the bulk of its estimated tax bill for a year. When the financial statements and the tax amount due are finalised, it files the tax return and pays the remaining amount of its tax bill for that year.

There are different arrangements for large companies - companies which have a Corporation Tax Liability of at least €200k in their previous accounting period or for start-ups, their first accounting period. We will not focus on the requirements for large companies in this article. You can read more about them on Revenue's website.

Small Companies

Companies with a Corporation Tax Liability of less than €200k ("small companies") are given special provisions.

Small companies are required to pay a preliminary tax which is at least 90% of their final Corporation Tax Liability 31 days before the end of the current accounting period, subject to the 21/23 day rule. The rule states that the payment due date and the tax return date is the 21st day of the applicable month and extended to the 23rd of the applicable month for companies who files and pays electronically.

Small companies may, however, choose to pay a preliminary tax which equals to the Corporation Tax Liability for the prior accounting period instead. This can be useful to companies who are expected to pay higher taxes for the current accounting period compared to the prior period and wish to manage their cash flows.

Here is an example which illustrates the above requirements:

It is 2017. Company ABC's financial year-end is 31 December. It uses Revenue's Online Service to file and pay its taxes.
On 23 November 2017, ABC has an option of paying either:
  • At least 90% of its final Corporation Tax Liability for 2017, e.g. €100 or
  • Its Corporation Tax Liability for the prior year 2016, e.g. €80.

ABC decides to pay €80 on 23 November 2017 instead of €100 to better manage its cash flow. It is also a "safer" option for ABC as sales for December can be rather unpredictable from their experience - there is a risk that it may underestimate its final Corporation Tax Liability for 2017 and pay less than 90% of it.

Subsequent to the financial year-end, small companies are required to pay the balance of the final tax due and at the same time, file its return within nine months after the financial year-end, subject to the 21/23 day rule mentioned above.

New or Start-Up Companies

There is a special provision for new or start-up companies which are small companies.

Instead of paying a preliminary tax for and during its first accounting period, they can pay the final tax liability at the same time as they are required to submit their Corporation Tax return, i.e. nine months after the financial year-end, subject to the 21/23 day rule. In my view, this provision helps start-ups with their cash flows in the first year of operation.

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