Are you building a good pension pot?

As a salaried person, it’s very important to build your pension pot. What you save or build for retirement depends completely on what kind of lifestyle you want to live post-retirement. However, One of the biggest challenges faced by people these days is that they don’t know how much money they’d need to generate a decent retirement income. In order to live a comfortable retirement, you’d need a pension pot of £260,000.  But building that kind of pension pot might not be easy given today’s low savings rates.

In an effort to persuade people to increase their savings for a better post-retirement life, Government of Ireland plans to introduce a new scheme where if your earnings are more than €20000 a year, you automatically get enrolled into the pension scheme (in addition to the state pension scheme).

Salaried people can look at having a personal (pension) plan that is nothing but a long-term investment which will help save money that can be used to support the lifestyle post-retirement.

How much should people be saving to build a good pension pot?

It’s completely up to the individual and depends on a lot of their personal factors. On average, every salaried person should aim at saving an average of €1000 a month to manage their living standards post-retirement. You can use a Pension Calculator which will help you to decide how much money you must contribute to your pension. You’ll also know how much tax relief you may be eligible for your contributions. Say, if you are 33 years old and you want to retire at the age of 65 and receive €3000 every month as a pension, all you need to save is €1759 every month. If you are eligible for tax relief (say, 40%), your contribution can be as less as €1055. However, it’s important to remember that “the earlier you start to save money, the better the saving and returns after retirement”.

What are the benefits of building the pension pot?

The key benefit is that post-retirement you will have the pension fund available from which you can take 25% of the amount as a lump sum (tax free). This guarantees a regular monthly income for the remaining of your life. The actual pension amount you receive will depend on the pooled amount, your age of retirement, and the then annuity rates provided by the pension provider. Say, if you have pooled €360000 and the annuity rate offered is 4.5%, you will get €16200 per year or €1350 per month.

In addition to saving for retirement, saving through pension schemes will also help you to receive support from the Government in terms of tax relief. Every contribution to the pension scheme receives a tax relief of either 20% or 40% based on the income tax rates that you pay.

Therefore, if you are keen to start planning for your retirement or pension plans, it is advisable to get in touch with an expert tax advisor who can offer investment advice customized to meet your specific needs.

 

 

 

 

 

PAYE Modernisation – All your questions answered

Pay As You Earn (PAYE) modernisation is a new public consultation process initiative introduced by the Revenue to give the existing system a makeshift. The existing PAYE system is in place since 1960 and hasn’t been updated. The Revenue is working to modernise the PAYE system especially to overcome the problem of over and underpayment of taxes.

With PAYE modernisation, every employer must report their employees’ pay and deductions to the Revenue as and when they are paid. This helps the Revenue in deducting and paying the correct amount of Income Tax, Pay related Social Insurance, University Social Charges and Local Property Taxes.

How does the PAYE modernisation work?

At the end of every calendar month, the Revenue will issue a statement with the tax due for the period of time. The organization must positively return the statement to the Revenue by the 14th day after the month end after which payroll taxes have to be remitted by the 23rd day of the following month. If your company has employees paid both weekly and monthly, you must submit separate Payroll Submission Request (PSR)s to the Revenue.

Payroll submissions must be done by organizations before any taxable component cash payments are done to the employees. Employers must revise their internal processes and make sure the taxable expenses are calculated beforehand.

Can payroll corrections be made after submission?

Yes, payroll corrections can be made before or after the employee is paid. The organization has to make the payroll correction and send it to the Revenue which will replace the original submission.

When does the PAYE modernisation come into effect?

The new PAYE system is in effect from 1st of January, 2019.

What benefits does PAYE modernisation offer?

PAYE modernisation improves to streamline the business and reduces the burden of the employers to meet their PAYE reporting deadlines.

Should organizations complete the P35 after the year end? Should P60s be issued to employees?

No, the annual P35 is no longer required since the Revenue will be receiving the file submissions during each day period of time. This will also eliminate the need for P30s. However, organizations must remember that the P35 is still required for the year 2018 while it’s no longer required after that.

P60s need not be produced to employees after 2019, though it is still required for the year 2018 (similar to P35). The Revenue will issue a statement at the end of the year to all employees. All taxpayers will be able to view their certificate of earnings and deductions from the myAccount page on the Revenue portal.

How should Benefits and notional payments be reported?

If there are any Benefits-in-Kind (BIK) payments or notional payments, they must be reported to the Revenue on the day when it is paid or the earlier of the next payday or December 31 of the particular year. Company credit cards use is considered as notional payments. The benefit has to be provided by the organization on the date the card is used (and not when the bill is settled).

What are the penalty charges for non-PAYE modernisation compliance?

The Revenue implies a €4000 fixed penalty for every PAYE breach. There is also a fixed penalty of €3000 which will be imposed on the company secretary for every breach.

Have more questions regarding PAYE Modernisation? Speak to our experts today. Book your first no-obligation appointment here. 

How much should you pay to yourself as the business owner?

You wanted to start a business, and you’ve done it! Everything you do is working great, your product or services are selling fine and your customers start loving your product. But if you haven’t thought of giving yourself a pay check, think again. Most entrepreneurs tend to overlook paying their salaries. Here’s why you deserve a pay check –

  • You put in the hard work and it’s your valuable time that must be credited
  • Keeps you motivated and helps you perform better
  • Helps to manage your personal finances and expenses
  • Reduces the tax you pay on the total profit

How much should you pay yourself?

The first question that arises when talking of paying yourself a salary is “How much?” Getting paid is important and necessary for your personal well-being, but this should not slow the business growth. Paying too much will take a hit on the business while paying less might not seem the right thing. So it’s important to strike the right balance on how much you get paid as a business owner. And as always, treat your personal and business finances separately! Remember this general rule of thumb: You can take 20% of the profits as your salary and put back the remaining 80% as an investment in your business.

Take your pay according to your business type

Before drawing your pay, assess the nature of your business and see how much you are “eligible” to take as per Government norms. You can refer to the Government tax websites to get these details. This varies based on the market sector and the amount of profit your business is actually making. Do some research on how much other similar businesses will pay you, and understand if the pay is reasonable when compared to your employees and if it merits your work and efforts.

When can you take a paycheck?

If your business is on a low, taking a paycheck should be your last priority. Once the business stabilizes, it becomes easier to get paid. Here are a few questions you can try answering to see if you can take a paycheck or not –

  • Has my business starting generated a sustained revenue?
  • Am I on track with the projected revenue?
  • Are all my operational expenses covered, and is my business breaking even?

If you answered Yes to all these questions, you can take a paycheck as the business owner.

Ways to take a paycheck

The best practice is to take your pay from the business profits rather than the revenue. Also remember to factor in other expenses like payroll, taxes, overheads and so on. You can choose to take a paycheck either as a Salary or an Owner’s Draw. You can choose to earn at regular intervals based on a number of hours of work or a flat rate according to the nature of your business. On the other hand, you can take a salary from your company profits.

As a business owner, it’s important that you make a point to get yourself paid. It’s completely fair for all the work you do.

What other questions do you have regarding paying yourself as a small business owner? We’d love to provide you with custom advice unique to your business. Book your appointment with our Expert Now.