Using a payment for different taxes

Emma Example must make prepayments on rental income in three instalments: in February, July and November. Each instalment is €500. The prepayments fall due on the 23^rd of each month. Emma has also been imposed back taxes. The first €300 instalment falls due on 1 August and the second on 1 October.

On 15 July, Emma sends €600 under the reference for income taxes to the Tax Administration’s bank account in order to settle her €300 + €300 back taxes.  However, Emma’s prepayment is falling due in July before the back tax falls due. As a result, the Tax Administration applies €500 of Emma’s payment on the prepayment and only the remaining €100 on the first instalment of the back taxes.

If, in addition, Emma were to send €500 on 23 July with the intention pay up the July prepayment, €200 of the payment would be used for the first instalment of the back taxes and €300 for the second instalment. This is because July’s prepayment has already been settled with Emma’s earlier payment.

Eddie Entrepreneur has been imposed prepayments of €1,000 per month. The first instalment falls due on 23 January. In addition, a VAT payment of €500 falls due on 12 January. Eddie does not owe any overdue taxes from before.

His intention is to pay both the prepayment and the VAT on 9 January. To do this, he pays €1,500 to the Tax Administration’s bank account quoting the reference for income taxes. €1,000 of the payment is used for January’s prepayment and €500 for February’s prepayment. This is because the reference number he used will make all payments treated primarily as settlements of income taxes, including any income tax that is not yet due.

In other words, Eddie should pay his income taxes using the reference for income tax and his VAT using the reference for self-assessed taxes, so the payments could be allocated correctly and he would avoid late-payment interest. In this example, Eddie would end up having to pay late-payment interest for the VAT that was on paid by the due date.

A corporate taxpayer has been imposed prepayments of €2,500 per month. The prepayments fall due on the 23^rd of each month. The corporation also owes €3,000 in back taxes from the previous year. This amount falls due on 3 August.

On 15 July, the corporation makes a payment of €3,000 with the intention of settling the back taxes. The reference for income tax is entered on the bank transfer form. However, the July prepayment is falling due 23 July, i.e. before the back taxes. As a result, €2,500 is used for the prepayment and the remaining €500 for the back taxes. If the corporation also pays €2,500 on 23 July with the intention of settling its prepayment for July, quoting the reference for income tax, the Tax Administration will apply that payment on the previous year’s back taxes. This is because the prepayment has already been settled with the earlier payment.

A corporate taxpayer has requested an additional prepayment of €2,000 that is falling due on 21 January. The corporation also has to pay €1,500 in employer contributions, due 12 January. In addition, it has to pay the current year’s prepayments of €2,800 by 23 January.

On 14 January, the corporation sends €3,500 to the Tax Administration’s bank account quoting the reference for income taxes. The intention is to settle the additional prepayment and the employer contributions. However, the Tax Administration uses €2,000 of the payment for the additional prepayment and the remaining €1,500 for January’s prepayment. The payment has now been used up, so there is nothing left for the employer contributions.

The corporation should instead have paid the prepayment with the appropriate reference for income taxes, and correspondingly, the corporation should have quoted the reference number for self-assessed taxes when paying the employer contribution because the contribution is a self-assessed tax. In other words, the corporation could pay €1,500 by the due date of the self-assessed taxes, i.e. 12 January, quoting the reference for self-assessed taxes, and pay €2,000 by the due date of the additional prepayment, i.e. 21 January, quoting the reference for income tax. This way, the corporation can avoid any charges for late payment.

This business taxpayer’s self-assessed taxes – €1,000 in excise duty (on alcohol) and €2500 in employer contributions – fall due 12 March. The business taxpayer sends €3,500 to the Tax Administration’s bank account on 10 March. The reference number for self-assessment is quoted. The Tax Administration will apply the arrived amount on the excise duty and the employer contributions that fall due on 12 March, the same day.

As shown by this example, it is possible for a business taxpayer to just make one payment to settle all of its self-assessed taxes also including excise duties.

A business taxpayer will have to pay self-assessed taxes – €3,000 in VAT and €2000 in employer contributions – that fall due on 12 March. In addition, a prepayment of €1,000 falls due on 23 March. Her intention is to settle both taxes on 9 March. She sends €6,000 to the Tax Administration’s bank account quoting the reference number for self-assessed taxes.

The taxpayer has selected ‘immediately after processing’ as her refund time setting: €5,000 of the payment will be used for the self-assessed taxes that fall due on 12 March. The remaining €1,000 will be kept waiting. A payment made with the reference for self-assessed taxes will be used for other than self-assessed taxes at the end of the month or if it would otherwise have to be refunded. For this reason, the remaining €1,000 is not used for the prepayment until 31 March, which means that late-payment interest will be calculated on the prepayment for 24–31 March.

Please note: If the taxpayer’s refund time setting is ‘immediately after processing’, unused payments will not be refunded except at the taxpayer’s request.

In this example, it would be advisable for the taxpayer to pay

• €5,000 in self-assessed taxes by the due date of 12 March quoting the reference for self-assessed taxes
• €1,000 in prepayments by the due date of 23 March, now quoting the reference for income tax

This way, the taxpayer avoids any late-payment charges.

On 12 September, €800 in employer contributions falls due. In addition, this business taxpayer has also been imposed back taxes, and the due date of the first €200 instalment is 1 September.

The business taxpayer’s intention is to pay the overdue employer contributions and back taxes in one go on 15 September, and they make a payment in MyTax using the reference number for overdue taxes.  The payment is used first for the back taxes and their late-payment interest and then for the employer contributions and their late-payment interest.

€500 in real estate tax falls due on 6 October. Of self-assessed taxes, €2,400 in VAT and €600 in employer contributions fall due on 12 October. In addition, the taxpayer also has €1,000 in prepayments to pay, and the due date is 23 October. The taxpayer is registered for VAT.

The taxpayer sends €4,500 to the Tax Administration’s bank account on 12 October. The reference number for overdue tax is quoted. The taxpayer’s intention is to pay, in one go, the self-assessed taxes falling due on 12 October, the real estate tax falling due on 6 October, and the prepayment falling due on 23 October.

Refund time setting: ‘immediately after processing’: Part of the payment is used immediately on 12 October to pay the real estate tax and its late payment interest, and then €3,000 is used for self-assessed taxes. The remaining amount is kept waiting for taxes falling due later. At the end of the month, on 31 October, the remaining amount is applied on the prepayment and the late-payment interest that has been charged. Interest is charged on the prepayment, starting 24 October and up to 31 October, and also on the real estate tax for 7–12 October.

In this example, it would be advisable for the taxpayer to pay

• the real estate tax by 6 October, its due date, quoting the reference number for real estate tax
• the self-assessed taxes by 12 October with the reference for self-assessed taxes
• the prepayment by 23 October with the reference for income tax.

Eddie Entrepreneur must pay real estate tax in 2 instalments of €600 each. The due dates are 6 August and 6 October. In addition to real estate tax, he also has to pay €500 in VAT; the due date is 12 August. Eddie does not owe any overdue taxes from before.

He wants to pay both the real estate tax and the VAT at once. He sends €1,100 to the Tax Administration’s bank account on 6 August quoting the reference for real estate tax. As a result, the Tax Administration applies €300 on the first instalment and another €300 on the second instalment of Eddie’s real estate tax. The rest of his payment is then refunded unless there is an obstacle to refunding. In this example, the reference for real estate tax causes the amount to be allocated to real estate tax, including instalments that are not yet due. It is not applied on any taxes of other categories because Eddie does not have any other taxes overdue.

In other words, Eddie should pay his real estate tax with the appropriate reference for real estate taxes, and his VAT quoting the reference for self-assessed taxes, so every amount gets matched with the right tax. If he does this, he avoids late-payment interest for VAT.