At one point or another, every tradesman in Ireland must have experienced the feeling of despair at seeing the taxman shuffle up to his door and take away most of his hard-earned income. While we all are aware of the importance to pay our taxes in a timely fashion, most people cannot get their heads around how it works. The two main questions that plague all tradesmen are; why is the tax bill so high, and are there any tax-saving tips for tradesmen?
This blog post will discuss several ways to minimise your tax bill and maximise your net pay in 2021.
Tax Return Tips for Construction Workers
This blog is a guide to help tradesmen not only understand their tax and why they have to pay it on time but also to discuss income tax saving tips for tradesmen. Whatever you trade – whether you are a construction worker, builder, electrician, gardener, or carpenter – you have to pay a variety of taxes each year.
Understanding some key terms will help you tackle your taxes better. For starters, a tax return is a form that you file annually. It details all your income, expenses, investments, and any other tax-related information. You are entitled to a tax refund if you pay more taxes than your actual tax liability. In this case, you will get a tax refund or tax rebate for the amount overpaid.
Let’s take a construction worker for example. If you are a self-employed construction worker, you have to pay income tax. Also, depending upon your residency status and turnover, you may need to register for Value-Added Tax (VAT). Moreover, if you have employees, then you must register as an employer and deduct the following taxes where appropriate:
- Pay As You Earn (PAYE)
- Pay Related Social Insurance (PRSI)
- Universal Social Charge (USC)
Tax Tips 2021 – Construction Workers
The following are useful tax return tips for construction workers:
- Make sure that you claim all expenses
When you work in the construction business, there are several expenses that you can claim as deductions on your tax bill. For instance, you can claim back on any equipment that you used solely for your business. Examples include workwear, uniforms, tools or any equipment purchased. If you are required to travel for business, you can claim back on the cost of fuel.
- Keep all your documents including expense receipts safe for a period of 6 years
If you are planning to claim any deductions on your tax returns, you need to keep a proper record of all your receipts. Audits are not uncommon, and you will need them if you’re singled out for them.
- Before filing the tax returns, make sure you are aware of what documents you require
This may seem an obvious thing, but a lot of people make mistakes and fill out wrong tax forms. If you are a self-employed taxpayer, you need to be aware of the TR1 form. This form is a registration for sole traders, individuals, partnerships, or trusts. Once you file it, you will receive a ‘Notice of Registration’, which confirms your registration is complete. More information regarding this can be found on the Revenue website.
- Be sure to claim every possible tax credit
In Ireland, every PAYE worker is entitled to claim PAYE tax credit. However, the Revenue office is not responsible for keeping a track of your tax credits and whether they are claimed and assigned. Therefore, every construction worker needs to ensure they’re receiving all tax credits they are entitled to.
This point is especially important if you have recently returned to work in construction or changed employers over the last four years. If so, there is a likelihood you may not have claimed all your eligible tax credits.
- Try and claim back tax after short term construction contracts
It is normal for construction workers to move from job to job and from one short term contract to another, often with gaps in between different projects. When you register any new job with Revenue, they automatically spread your tax credits equally over the 52 weeks of the year.
This may be ideal if you’re working for the same company all year round. However, if you were employed in a short-term contract, you can get a sizeable tax rebate.
Tradesman Tax Ireland: The Importance of Paying on Time
The importance of submitting your tax returns on time cannot be stressed enough. In case you fail to do so, you face hefty surcharges that can significantly increase the liabilities you owe to the Revenue Commissioners.
The longer you delay before submitting your tax returns, the more likely you’ll have to pay a higher surcharge. This will be 10% along with any penalties and interest the Revenue department may impose on you.
How to Save Tax in 2021
The following are some tax-saving tips for a tradesman in Ireland:
- Use subcontractors
Subcontractors are independent workers who can be paid on a job to job or contract basis. This cuts the costs of holidays and possible redundancy costs in the long run. You can benefit this way, rather than hiring part-time workers and paying Employers PRSI of more than 10% besides their regular wages. However, you must ensure they fall in the category of subcontractors and not employees.
- If you’re currently operating as a sole trader or partnership, consider converting to a Limited Company
This will allow you to benefit from the lower tax rate of 12.5% applicable to companies, rather than up to 50% as a sole trader. The other advantages of doing so include:
- Retirement Relief: If all assets and money are built within a company structure, individuals over the age of 55 can usually avail of the retirement relief and withdraw up to €750,000 tax-free. They don’t have to incur any Capital Gains Tax or Income Tax from the company
- Termination Payments: In certain circumstances, directors may be eligible for a tax-free payment of more than €20,000.
- Pay into a pension
Company and individual contributions to pensions may be deducted before any income tax. Moreover, for those operating through a company, the options are more favourable and less restrictive as compared to those for sole traders, when you reach the pension age.
- Avoid late surcharges and penalties
It will benefit you to hire a competent accountant to ensure that all RCT, VAT and other taxes are filed and paid in time. If you set up some of these payments on Direct Debit, you can reduce the frequency of filing tax returns. This can thus reduce chances of late filing surcharges and such costs can be easily avoided.
- Apply for and use a business credit card
It is natural to lose track of some records and receipts. By using a business credit card, all expenses are recorded easily. Moreover, the chances of overlooking an expense are reduced. Even though receipts are required to reclaim VAT, if misplaced, you can still get the benefit of expense against the Income Tax.
Conclusion
The sad reality is that many workers are unfamiliar with the tax process or don’t know what expenses can be claimed as deductions. Thousands of euros worth of tax deductions go unclaimed as a result. Similarly, if tax returns are not filed properly, this results in costly fines and penalties. All these tax-saving tips for tradesmen mentioned above will surely help you avoid such costs and maximise your net pay in 2021.
