If you are self-employed, a Proprietary Director with a 15% or more shareholding in a company, or a PAYE employee who wishes to make an AVC contribution to a pension and have missed the first deadline of October 31st, you still have a week to make a pension contribution through the Revenue On-Line (ROS) system.
If you wish to make a Personal Pension, PRSA or AVC contribution and backdate the income tax relief against your 2016 earnings, time is running out! The good news however is that the return filing date this year was originally Tuesday, November 14th; however, due to Storm Ophelia Revenue have extended the deadline to Thursday, November 16th.
Getting the tax relief is very simple. If you owe tax, you or your accountant can calculate the tax relief you are entitled to and this can be offset against the tax you pay. Alternatively if you have already paid the tax in 2016 and are due a refund, Revenue will reimburse you by way of cheque or bank transfer.
The benefits of this tax relief for a self-employed person making a pension contribution for the first time are significant and can be seen in a simple example as follows:
Mike, age 52
Self-Employment Income for 2016: €50,000, with a tax bill of €9,940.
If Mike does not make a pension contribution he will have a tax bill of €9,940 for 2016 and he will be required to pay 90% (€8,946) preliminary tax for 2017. This leaves a total tax liability of €18,886.
Mike decides to make a pension contribution of €10,000 for the first time, against his 2016 income. He can avail of 40% tax relief (€4,000) on this contribution meaning his tax bill for 2016 is reduced down to €5,940. Mike will also benefit from reducing his preliminary tax bill for 2017 to €5,346. The net effect of making the €10,000 pension contribution means that Mike’s tax liability has been reduced by €7,600. This leaves a total tax liability of €11,286. Mike will have a total outlay of €21,286 which includes his pension contribution of €10,000.
If you would like to discuss this further, you should contact an Independent Financial Advisor, who can advise you how much of a pension contribution you can get tax relief on and inform you as to what type of contract is most appropriate for your circumstances.
Stephen Harrington QFA is a Qualified Financial Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on firstname.lastname@example.org