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Sara
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As a self-employed entrepreneur you deal with various types of taxes. Submitting and paying tax returns on time can sometimes be a challenge.
If you are late submitting your returns, this can lead to tax interest.
But what exactly is tax interest and why do you have to pay it?
Tax interest is a charge you pay to the Tax Authority on the amount of tax you owe. This means that after a certain period you immediately owe the tax.
The interest runs until the moment the Tax Authority has processed your return and imposed an assessment.
For example, if you made a profit in your sole trader business in 2023, you should submit the income tax return before 1 May 2024. If you do it later, the Tax Authority charges 6% interest from 1 July 2024.
If you do file a return but do not pay on time, 4% collection interest is charged and fines may also be imposed.
It is important to note that this article only discusses tax interest charged when you file late or pay late.
The Tax Authority calculates tax interest proportionally on the amount of tax owed. The days over which tax interest is calculated are first divided by the number of days in the year. Three factors play a role: the amount of tax owed, the interest percentage and the period over which the tax is calculated.
Example:
Suppose you have to pay €15,000 in tax with an interest rate of 6%. If the period over which the tax must be paid is 30 days, the tax interest is calculated as follows:
€15,000 x 6% x (30/365) = €73
P.s. Calculate this on a calculator where you can use brackets.
Type of tax
The tax interest and the period over which it is calculated differ per type of tax. For income tax, tax interest is charged if you are late submitting your return, up to a maximum of 19 weeks after receipt of the return by the Tax Authority. For corporate tax there is also a specific period over which tax interest is calculated, namely up to 6 weeks after the assessment imposed.
How do you avoid tax interest?
To avoid tax interest, it is crucial to submit your tax returns on time. If this is not possible, you can consider submitting a provisional assessment. This means you pay tax during the year based on an estimate of your profit. In this way you can reduce the risk of tax interest.
Conclusion
Tax interest can be an unpleasant surprise if you are late submitting your tax returns. By submitting your returns on time or making use of a provisional assessment, you can largely avoid this. It is therefore important to pay attention to this in good time to avoid unnecessary costs.
Do you have questions about tax interest or would you like advice on submitting your tax returns on time? Feel free to contact your accountant at Sarabel. We can help you keep your tax affairs in order and avoid any surprises.