Preliminary tax is a payment on account of your expected tax liability for the current year. If you are self-employed, have rental income, or any significant non-PAYE income, you are required to pay preliminary tax. Understanding how it works, when it is due, and how to calculate the correct amount is essential to avoiding interest charges and penalties.
Who Must Pay Preliminary Tax?
You must pay preliminary tax if you are:
- Self-employed or running a business
- Earning rental income
- Earning investment income (dividends, interest not subject to DIRT)
- A director of a company with non-PAYE income
- Anyone with a tax liability that is not fully covered by PAYE deductions
If your non-PAYE income is small and can be collected by adjusting your tax credits, you may not need to pay preliminary tax. Revenue can reduce your tax credits to collect the additional tax through your employer's payroll.
When Is Preliminary Tax Due?
For the 2025 tax year:
- Paper filing: Preliminary tax is due by 31 October 2025
- ROS (online) filing: Extended deadline, typically mid-November 2025
At the same time, you must also pay the balance of tax for the previous year (2024) and file your Form 11 tax return for 2024.
Three Methods to Calculate Preliminary Tax
Revenue provides three methods for calculating your preliminary tax payment. You can use whichever produces the most favourable result:
Method 1: 100% of prior year liability
Pay 100% of your final tax liability for the previous tax year. This is the safest option if your income is stable or growing, as you are guaranteed to avoid interest charges regardless of your actual current-year liability.
Method 2: 90% of current year liability
Estimate your tax liability for the current year and pay at least 90%. This requires you to estimate your income accurately. If you underpay by more than 10%, you may be liable for interest on the shortfall.
Method 3: 105% of pre-prior year liability
Pay 105% of the tax liability from two years ago. This method is useful if you had a lower-than-normal income in the previous year and expect to return to normal levels.
What Happens If You Underpay?
If your preliminary tax payment is less than the required minimum under any of the three methods, Revenue will charge interest at 0.0219% per day (approximately 8% per annum) on the underpayment, running from the due date until the balance is paid.
The interest charge can be avoided entirely by using Method 1 (100% of prior year) or Method 3 (105% of pre-prior year), since these amounts are known in advance.
Practical Example
Let us say you are self-employed with the following tax history:
- 2023 tax liability: €15,000
- 2024 tax liability: €18,000
- Expected 2025 liability: €20,000
Your preliminary tax for 2025 options are:
- Method 1: 100% of 2024 = €18,000
- Method 2: 90% of 2025 estimate = €18,000
- Method 3: 105% of 2023 = €15,750
In this case, Method 3 gives the lowest payment (€15,750) while still avoiding interest, assuming your actual 2025 liability does not exceed the Method 2 threshold.
Direct Debit Option
Revenue offers a phased payment arrangement through direct debit. This allows you to spread your preliminary tax payments over the year rather than making one large payment. The first direct debit payment must be made by the end of the month following the preliminary tax due date.
Tips for Managing Preliminary Tax
- Set money aside monthly: Put 25-30% of your net self-employment income into a separate account each month to cover tax payments.
- Keep good records: Accurate records make it easier to estimate your current-year liability and choose the best payment method.
- File on time: Late filing results in a surcharge of 5% (up to a maximum of €12,695) for returns filed within 2 months of the deadline, and 10% for later filings.
- Use ROS: Filing online through Revenue's Online Service gives you an extended deadline and is faster to process.
Final Thoughts
Preliminary tax can feel burdensome, but it is simply a way of paying tax as you go rather than building up a large bill. The three-method system gives you flexibility, and by choosing the right method and planning your cash flow, you can manage the payments without difficulty. Use our preliminary tax calculator to model the different methods and find the optimal payment for your situation.