If you are an independent contractor operating in Ireland, whether through the RCT system (Relevant Contracts Tax) or not, you’ll need to declare your income to the Revenue Commissioners and pay tax through the self-assessment tax system. However, a combination of effective planning and ensuring you avail of all applicable tax reliefs may well reduce your tax bill. Below are 10 of the most effective tax saving tips that could help reduce your tax liability.
1. Claim for ‘allowable deductions’
Contractors are entitled to claim legitimate business costs as expenses, which can be offset against income. Any expenses are deducted from your profits, so the higher your expenses, the lower your taxable profits. There are many common contractor or freelancer expenses you may be able to claim for, such as: phone bills, motor expenses, insurance costs and materials.
2. Wear & Tear
Assets can be claimed over a period of 8 years. Assets can include such items like a car, computers, office furniture or any plant and machinery that are required in the course of running your business.
3. Apply for Earned Income Credit
As a self-employed person, you can claim the Earned Income Tax Credit of €1,350 or 20% of your qualifying earned income, whichever is the lower. Be aware, however, that Earned Income Tax Credit can only be applied to trading income and is not available against investment or rental income.
4. Pay into a pension
Pensions are one of the most tax efficient investments you can make. Any premiums paid by a self-employed person are allowed for tax relief for up to 40%.
5. Pay into an income protection policy
Like pensions, income protection policies are very tax efficient. Income protection policy payments allows self-employed persons to claim tax relief for up to 40%. Income protection is also commonly known as Permanent Health Insurance.
6. Use the Small Benefit Scheme
The Small Benefit Scheme allows employers to provide a tax-exempt benefit to Irish employees of up to €500 per employee, per year. This must be awarded in the form of a benefits voucher and cannot be paid in cash.
7. Claim medical expenses
If you pay medical expenses that are not covered by the State or by your medical insurance provider, you can still claim tax relief on those expenses. You will receive tax relief for health expenses at the standard rate of 20%.
8. Maximise tax credits
There may be various tax credits that apply to you, so be sure to review and apply for them where appropriate. For example, you may be able to transfer any unused tax credits from your spouse across to you, or perhaps apply for joint assessed tax. If you are a single parent, ensure you are getting the SPCCC tax credit.
9. Avoid penalties
Avoid penalties for the late submission of your tax return. As an independent contractor, tax must be paid on or before the annual tax deadline, based on the income you earned in the previous year. If you don’t pay your tax bill on time, you could be liable for a penalty, which can rise if your payment continues to be late.
10. Appoint a reliable tax agent
Finally, enlisting the help of a tax specialist, such as Tax Return Plus, can help you keep track of the various expenses or tax reliefs that you can claim. Not only can a tax agent calculate your income tax accurately, so you don’t run the risk of over- or under-paying, they can also file the tax return on your behalf. Furthermore, any fees that you incur for engaging a Tax Agent are deductible expenses, which makes this tip a win-win for contractors looking to stay on top of their tax.