LPT raises questions over tax rules for self-employed
The deadline for payment of the Local Property Tax (LPT) is approaching, and self-employed taxpayers who fail to submit their return on time could face serious consequences in relation to their income tax. Paraic O’Dowd, owner and director of Prima argues that the issue also raises serious questions about tax and social welfare system rules relating to the self-employed.
Self-employed workers who fail to pay the LPT on time will be deemed not to have filed their income tax returns on time. This could lead to penalties of up to 10% being applied to their income tax return. In addition, Revenue will not issue a tax clearance certificate where there is unpaid LPT.
The individual will not therefore be able to tender for business where a tax clearance certificate is required. Whilst it had been made clear that Revenue would do everything within their powers to ensure compliance with the new property tax, this is another example of the self-employed being treated unfairly by the tax and social welfare system.
Here are two more examples:
- Self-employed contractors provide their services through Limited Companies, and pay tax under the PAYE system on salaries drawn from the company. However, as they are self-employed they do not qualify for the PAYE tax credit, costing them an additional €1,650 in income tax every year.
- Proprietary Directors and Self-employed workers do not qualify for jobseekers benefits when they are out of work, despite paying both PRSI and USC on their income.
The self-employed have a significant contribution to make to the future growth of Ireland’s economy. It’s time to give them the support they deserve and address the inequity within the tax and social welfare system. The PAYE tax credit should apply to all individuals who pay tax through the PAYE system, including Proprietary Directors who are regarded as self-employed. The reduced level of Social Welfare entitlements for Class S PRSI contributors should also be addressed. Proponents of the current system sometimes argue that the PRSI contributions made by a self-employed individual are less than those made by a Class A contributor due to the absence of an Employer’s Contribution. This is true in terms of the percentage of income contributed; but it is not always true in monetary terms – e.g. a company director receiving a salary of €120,000 will pay more PRSI than an employee earning €30,000 will contribute, including both employee and employer contributions.
It is highly unlikely in these times of austerity that any Finance Minister will offer additional social welfare benefits to the self-employed. In the short term it could however be addressed by at least offering Class S contributors the option of making additional voluntary contributions in order to qualify for the same benefits that their Class A counterparts are entitled to. Not only would this attempt to redress the balance, it would also raise additional PRSI contributions.
Given the role that the self-employed can play in the future of the economy it’s in everyone’s interest that they are encouraged and supported by the tax and social welfare system.