Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I thank the Senator for raising this issue. When I saw this particular Commencement matter, I felt it was extraordinary that someone would want to opt to pay tax at 40%, but I knew straightaway what was behind it.Professional services withholding tax, PSWT, is a deduction at the standard rate of income tax at 20% from relevant payments made by accountable persons to specified persons. They are the service providers in respect of certain professional services. The tax deducted is a payment on account. I stress that. It is not, and was never intended to be, a payment to cover the tax liability for the year. It was always only a payment on account. That is the key point I want to make. It is against a person's specified final liability for the year with the amount of PSWT deducted credit against the tax liability for the full year. "Specified person" can include businesses undertaken via a company, sole trade or a partnership.

"Accountable persons" include Government Departments, State agencies and bodies, local authorities, colleges and authorised medical insurance providers. The definition of "professional services" covers a wide range of services such as medical, architectural, engineering, financial, legal and geological services. Upon making a relevant payment, an accountable person will issue a certificate, known as an F45 form, to the specified person showing details of the payment and the tax deducted. The legislation provides that a specified person may, in certain circumstances, make a claim for a refund of PSWT in the year in which it is deducted, referred to as an interim refund. Among the requirements for the making of an interim refund claim is the requirement that the specified person's profits for the previous period have been finalised and that the tax due for that period has been paid. All claims must be accompanied by the relevant F45s. Any refund due will be processed and made by Revenue. That is the people at the other end of the scale, who are looking for a refund. They might feel the 20% was excessive in their particular case when the costs of running their particular service are taken into account. It is proposed to introduce electronic professional services withholding tax, EPSWT, from 1 July 2021, which is in the next fortnight or so. Section 13 of the Finance Act 2020 provides for an electronic payment notification via Revenue Online Service, ROS, and the ending of the paper P45 form. I am sorry, I meant F45 form. I should not have mentioned the P45 in this context.

As an accountable person applies a deduction to a relevant payment it is not possible for a specified person to choose the tax rate which is applied to this relevant payment. As the query relates to PSWT being withheld at 40% as opposed to 20%, I will focus my following comments on self-employed individuals, because it is all about the persons concerned. For the income tax year 2021, an individual is subject to tax at 20% on income up to €35,300 and 40% thereafter. An individual will also qualify for a personal tax credit and an earned income tax credit totalling €3,300. The result of this is a lower effective income tax rate than 40% on an individual's income. It is also important to note that an individual is subject to PSWT on his or her gross income, that is, before any deductions incurred wholly and exclusively in the trade such as insurance, rent, salaries, etc. A self-assessed individual must pay preliminary tax for the year equal to, or more than, the lowest amount of the following: 90% of the tax due for that tax year; 100% of the tax due for the immediately previous tax year; or 105% of the tax due for the tax year preceding the immediately previous tax year. This option only applies where a person pays by direct debit.

An individual can choose to pay additional preliminary tax throughout the year should he or she believe his or her current year tax liability will be higher than the previous tax year. Revenue has advised that there are a number of options available to self-employed individuals to make payments on account in respect of their income tax liability throughout the year on the Revenue Online Service using a ROS debit instruction, or via MyAccount using a debit instruction. These systems will accept bank account details or debit or credit cards. A third option exists where an individual can apply for a direct debit instruction. There is, therefore, an option for persons to pay the additional tax as the year goes on, depending on how they expect their own situation to evolve.