What is Preliminary Tax (Ireland)?

Preliminary tax is Ireland's system for collecting tax before the final liability is calculated. Rather than paying the entire tax bill when the return is filed, taxpayers make an advance payment — preliminary tax — during or before the end of the tax year. This is similar in concept to the UK's payment on account system but with different mechanics for companies and individuals.

**Preliminary tax for companies (Corporation Tax)**

Every Irish company must pay preliminary Corporation Tax before its accounting period ends. The amount is calculated as the greater of: - **100% of the prior year's final CT liability** (the safe harbour option for small companies — prevents any interest charge regardless of current year result) - **90% of the current year's expected CT liability** (requires an accurate profit estimate; a shortfall incurs interest)

For small companies (prior year CT liability under €200,000): one preliminary tax payment is due on the 23rd of the month immediately before the accounting period ends: - December year-end: preliminary tax due 23 November of the same year - March year-end: preliminary tax due 23 February of the same year - June year-end: preliminary tax due 23 May - September year-end: preliminary tax due 23 August

For large companies (prior year CT over €200,000): two instalment payments are required: 1. First instalment (6th month of the accounting period): at least 45% of prior year CT, or 50% of current year estimate 2. Second instalment (11th month of the accounting period): balance to bring total preliminary payments to at least 90% of current year CT

**Cash flow planning for companies**

The preliminary tax obligation means that a December year-end company's tax calendar looks like this: - November 2024: pay preliminary CT for the year ending December 2024 - September 2025: file CT1 and pay the balance for December 2024 year-end - November 2025: pay preliminary CT for the year ending December 2025

For a growing company, the prior year 100% safe harbour option can result in underpayment if profits have increased significantly. In that case, paying 90% of the current year estimate and monitoring the profit position closely is often better.

**Preliminary tax for self-employed individuals (Income Tax)**

Sole traders and other self-assessed individuals pay preliminary Income Tax by 31 October each year (mid-November via ROS). The minimum preliminary tax to avoid a surcharge is the lesser of: - 90% of the current year's final tax liability - 100% of the prior year's final tax liability - 105% of the tax due for the pre-preceding year (only available if paying by direct debit)

Most sole traders pay 100% of prior year to avoid the risk of underestimation. The filing of the Form 11 (for the preceding year) and the preliminary tax payment for the current year happen at the same time — both due by the same October/November deadline.

**The year two cash flow problem**

For newly self-employed individuals, the simultaneous obligations in year two create a significant cash flow challenge: - The balance of income tax for year one (the final amount after preliminary tax paid in year one) - The preliminary tax for year two

Both are due on the same date in October/November of year two. A sole trader who earned €80,000 in year one and the same in year two might face a combined payment of approximately €15,000-€20,000 on the same October date. Planning for this in year one (setting money aside monthly) is essential.

**Underpayment surcharge**

If preliminary tax paid is less than the required minimum (90% current year or 100% prior year), the underpayment attracts interest at 8% per annum from the preliminary tax due date until the balance is paid. This is not a penalty — it is a statutory interest charge. Paying 100% of prior year eliminates this risk entirely, which is why most advisers recommend that option unless current year profits are materially lower.