What is preliminary tax?
Revenue collects income tax in arrears — you file your return for 2025, for example, and pay the balance in October 2026. But Revenue also wants an advance payment toward the current year (2026) at the same time.
This advance payment is called preliminary tax. It is not a penalty or an extra charge — it is simply a deposit against a tax bill that has not been finalised yet. When you file next October, you pay the balance of what you actually owe after crediting the preliminary tax you already paid.
How to calculate preliminary tax
Revenue allows three methods. The first is by far the most commonly used:
| Method | How it works | When it is commonly used |
|---|---|---|
| Method 1 (most common) | Pay 100% of your previous year's final tax liability | Most sole traders — simple and safe |
| Method 2 | Pay 90% of your estimated current year liability | If you expect lower income this year — but risky if you underestimate |
| Method 3 | Pay 105% of the liability for the year before the previous year; only available with direct debit and not if that liability was nil | Predictable cash flow, suits some businesses |
Source: Revenue.ie — Preliminary tax ↗
The second-year double payment problem
In your first year in self-assessment, you may choose 100% of the previous year's liability, normally nil, so no preliminary tax is payable. Alternatively, you can pay 90% of the current year's liability. This is a payment timing rule, not a tax exemption.
By 31 October in Year 2 (subject to any applicable ROS extension), you file the Year 1 return and pay both the outstanding Year 1 balance and preliminary tax for Year 2. For example, if Year 1 liability is €4,000, nothing was prepaid, and you use the 100% previous-year method:
| What you pay in October Year 2 | Amount (example) |
|---|---|
| Balance of Year 1 tax liability | €4,000 |
| Preliminary tax for Year 2 | €4,000 |
| Total due in one payment | €8,000 |
Preliminary payments already made reduce the balance due. Later October payments still combine a prior-year balance and current-year preliminary tax; the amounts depend on actual liabilities and earlier payments.
What this means in real life
For a sole trader, preliminary tax means that an October payment can cover two different periods at once: the balance for the previous tax year and an advance amount for the current year. This is why the second year of self-assessment can involve a larger cash requirement even when the business has not suddenly become more profitable. The preliminary amount is credited against the final liability for that year when the return is later filed; it is not an extra lifetime tax. Revenue allows different calculation methods, but underpaying against the required test can lead to interest. The practical figures depend on actual profit, credits, earlier payments and the method used. The sole trader tax guide explains the wider income tax, USC and PRSI position.