Each year the national budget is decided by the minister for finance. The Amount of money (tax bands) you can earn at the the various tax rates is decided as shown below.

There are also tax credits issued to you i.e. a certain amount of tax you do not have to pay over each week. So when the tax is calculated on all the money you earn, you are then given a credit for some of the tax and you get to keep that amount. An example is shown later in the article.

Here are the tax credit for the years 2006 and 2007

The two most relevant PRSI classes to a business are Class A and Class S. The A rate applies to standard PAYE workers, while the S rate applies to business owners/Shareholders and most Directors. The rates are listed at the end of the article.

PRSI is not TAX. It is Pay Related Social Insurance. The reason for paying it is to give you benefits such as eye tests, dental checkups, unemployment benefits etc. As to its fairness and overall benefit to each person, that is a political debate that wont be raised here. For now it just has to be paid. So knowing how much you are paying and how it is calculated is important to ensure that you minimise the amount you have to pay.

Your PRSI subclass can change from week to week when your wage increases and you go beyond the upper threshold for your current subclass. So if your wage is €339 per week and your new wage is €340 per week, your subclass will change from AO to AX.

IMPORTANT:

You may come home with less pay despite an increase in your wage

Why?

WHAT ARE ACCRUALS?

In your mind you calculated sales invoices €10,000, I have received purchase invoices of €6,000 so I made a profit of €4,000. Ahh but John has not sent me his invoice for €2,000, so my real profit is only €2,000. This is accruals. Taking into account costs you have been billed yet

Accruals are costs that you charge in your profit & loss account even though you may not have received an invoice for them yet.

A typical example is your audit or accountancy fee you receive from your auditor or accountant. The auditor prepares accounts for 31st December 2006, but you don’t get billed until 2007 for the work. But the work relates to 2006 accounts, so we must make an estimate if we don’t know the exact amount for the accrual and put a charge into the 2006 accounts.

If your supplier is always late in sending purchase invoices to you, the purchase costs in your profit & loss account will be understated in one month and over stated when you receive the invoice in the next month. So we must accrue for the invoice not received yet. If we were sent 1000 widgets (that cost €1 each) in June, but did not get the invoice until July we must accrue for a cost (the invoice not received) of €1,000, otherwise we will have stock worth €1,000 and no cost for them.

EXAMPLE OF ACCRUALS:

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