As Accountants, Personal Tax Advisors and Payroll Tax Consultants, the distinction between what constitutes an employee and what are the requirements to be considered a self employed contractor has occupied our minds for many years. It is often very difficult to determine with complete accuracy whether an individual has been employed under a contract of service or if that same individual could be deemed to be a Sole Trader, providing a contract for services. Over the years a number of tests have been developed to determine the status of the taxpayer. There has also been considerable case law on this matter.
On 20th October 2023, the Supreme Court delivered its unanimous decision in The Revenue Commissioners v Karshan (Midlands) Ltd. t/a Domino’s Pizza [2023] IESC 24 (the “Karshan Case.” It was held that delivery drivers of Domino’s Pizza should be treated as employees and not independent contractors. Today Revenue published their “Guidelines for Determining Employment Status for Taxation purposes” which outlines a five step decision making framework to determine the employment status of individuals for tax purposes: eBrief No. 140/24
According to Revenue:
“Where an individual is engaged under a contract of service, i.e., as an employee taxable under Schedule E, income tax, USC and PRSI should be deducted from his or her employment income through their employer’s payroll system on or before when a payment is made.
Where an individual is engaged under a contract for service, i.e., as a self-employed individual taxable under Schedule D, he or she will generally be obliged to register for self-assessment, to pay preliminary tax and file their own income tax returns using the Revenue Online Service (ROS).”
The guidance material asks the following questions:
In other words, there must be an exchange of work for wage/remuneration before a working relationship can be categorised as a “contract for service.”
A contract is considered to be an engagement where there is a payment by the business to the individual regardless of whether or not there is a written contract in place.
This test distinguishes between a situation where a worker provides services to a business personally versus where it’s possible for that worker to engage others to provide the services on his/her/their behalf.
The court judgment placed a strong emphasis on the degree of freedom the individual has to decide how the work is carried out.
It is essential to establish the level of control the business has over the individual worker. For example, can it decide what the particular duties are, as well as how, when and where the work should be carried out?
Is the worker carrying on the business of the organisation he/she/they work(s) for or is this individual working on their own account?
In other words, to what degree is the worker/individual integrated into the business?
Apart from reviewing any written agreement in place, it is vital that the facts of the working arrangement are examined to establish if the individual is working for the business or is providing services on his/her/their own account.
If the answer to any of the first three questions set out above are “No”, a contract of employment is not deemed to exist and the individual should not be treated as an employee.
If, however, the answer to the first three questions is “Yes”, then questions 4 and 5 of the framework must be considered to determine if a contract of employment exists.
The Guidelines also include nineteen practical examples which demonstrate the application of the five step framework to assist in determining how workers, in a number of different situations, will be taxed.
For Tax Advisors and Accountants, the most significant difference is the requirement on an employer to pay employer’s PRSI in respect of payments to employees, currently at the rate of 11.05% on weekly salaries over €441 or 8.8% if the weekly remuneration is below €441 per week.
Class A is applicable to most private sector employees with payroll taxes deducted at source:
Class S is applicable to Self-employed individuals:
The tax implications are not the only issues that should be focused upon. Employee rights must also be considered by Employers. These include:
Please be aware that the information contained in this article is of a general nature. It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.
The Special Assignee Relief Programme (“SARP”) was introduced on 1st January 2012 to provide Income Tax Relief for eligible employees assigned to work in Ireland from abroad. It was due to expire for new entrants on 31st December 2022, however, Finance Act 2022 extended the relief for a further three years, up until 31st December 2025.
Prior to 1st January 2023, an individual was required to earn a minimum basic salary of €75,000 per annum (excluding all bonuses, benefits or share based remuneration) in order to be eligible for SARP (Special Assignee Relief Programme).
From 1st January 2023 onwards the employee must have a minimum base salary of €100,000 per annum. This amount excludes all bonuses, commissions or other similar payments, benefits or share-based remuneration.
A number of conditions need to be satisfied for this relief to apply, as follows:
Mark arrived in Ireland from USA on 17th October 2019 on a 5-year contract.
He was not Irish tax resident in 2019.
As Mark was tax resident in Ireland in 2020, he was entitled to claim relief under SARP.
His first year of claim was, therefore, 2020.
He can continue to claim SARP up to and including 2025 if he continues to satisfy the relevant conditions for the Relief.
The relief operates by:
Relief is not extended to Universal Social Charge (USC) so the individual must pay USC on the full amount of his/her/their salary.
The specified amount is not exempt from PRSI, unless the employee is relieved from paying Irish PRSI under either an EU Regulation or under a bilateral agreement with another jurisdiction.
The relief operates by providing a deduction for income tax purposes from remuneration based on the following formula:
(A-B) X 30%
A = Qualifying Remuneration i.e. total remuneration. This includes:
B = €100,000 (prior to 1st January 2023 it was €75,000)
Thomas arrived in Ireland on 1st January 2023 and meets all the above conditions to qualify for SARP relief.
His salary is €120,000, his bonus is €15,000 and he receives a benefits in kind (e.g. medical insurance) valued at €3,000.
A = €138,000 i.e. €120,000 + €15,000 + €3,000
B = €100,000 i.e. qualifying Income Threshold
SARP Deduction = (€138,000 – €100,000) = €38,000 @ 30% = €11,400
Thomas’s marginal Income Tax rate in Ireland is 40%, therefore his Income Tax saving is €4,560 i.e. €11,400 x 40%
It’s important to keep in mind that 8% USC and 4% PRSI, if applicable, will apply to this employment income.
SARP Relief can be claimed by the employee in one of two ways:
An employee who receives SARP Relief is considered to be a “chargeable person” for Income Tax purposes. He/she/they is/are required to submit an Income Tax Return to the Irish Revenue Commissioners in respect of each year for which relief is claimed. The Form 11 Tax Return may be filed by way of a paper form or through the Revenue’s On-Line Service (ROS).
Employees who have registered and qualify for SARP must file a Form 11 Tax Return by 31st October following the end of the tax year.
By completing Part C of Form SARP 1A and submitting it to Revenue, SARP Relief can be granted at source through the employee’s payroll.
The employer is required to make this application only once.
Relief can be granted at source through payroll for the duration of the assignment, up to a maximum of five years, providing the employee continues to satisfy all the relevant conditions.
Please be aware that the information contained in this article is of a general nature. It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.
Your residency affects your tax treatment in Ireland. As an Irish resident, ordinarily resident and Irish domiciled individual you will be taxed on your worldwide income wherever it arises. You will be taxed on all Irish and foreign source income in full and where possible you will be entitled to a tax credit for any foreign tax paid on foreign source income.
You will be considered to be Irish tax resident if you are present in the state for:
a) 183 days during the tax year in question or
b) 280 days or more over a period of two consecutive tax years.
Notwithstanding b), if you are present in Ireland for 30 days or less in a tax year you will not be treated as resident for that year unless you elect to be resident.
If you are not tax resident in the year of arrival under the above rules, you may elect to be tax resident for the year of arrival.
If you have any queries relating to whether or not you should elect to become Irish resident, please contact us.
You will be considered ordinarily resident if you have been resident in the state for the previous three consecutive years.
Regardless of whether or not you are actually resident in the state in the fourth year, you will be considered ordinarily resident for the fourth year.
If you leave Ireland, you will cease to be ordinarily resident when you have been non resident for three consecutive years. You will not be considered to be ordinarily resident from the fourth year.
Domicile is a general legal concept.
It is relevant to you in relation to how certain foreign source income will be taxed in Ireland.
Under Irish law, every person acquires a domicile of origin at birth. In most cases this is the father’s domicile, however, in situations where the parents are unmarried or the father has died prior to the individual’s birth, the domicile of the mother is taken.
Your domicile can change if you acquire a domicile of choice.
As a non resident, but ordinarily resident and Irish domiciled individual you will be taxed on all Irish and foreign sourced income in full.
The following income is exempt:
a) Income from a trade or profession, all duties of which are exercised outside Ireland.
b) Income from an office or employment, all duties of which are performed outside the state.
c) Foreign income providing it does not exceed a threshold amount of €3,810 in a tax year.
As a non resident, non Irish domiciled but ordinarily resident individual, you will be taxed on all Irish source income in full and foreign source income to the extent that it has been remitted into Ireland.
a) Income from a trade or profession, all duties of which are exercised outside Ireland.
b) Income from an office or employment, all duties of which are performed outside the state.
c) Foreign income providing it does not exceed a threshold amount of €3,810 in a tax year.
As non resident, non domiciled and non ordinarily resident, you will be taxed on Irish source income in full and on foreign source income in respect of a trade, profession, employment or office where the duties are exercised in Ireland.
As an Irish resident and ordinarily resident but non Irish domiciled individual, you will be taxed on Irish source income in full and on remittances of foreign source income.
For further information, please click: https://www.revenue.ie/en/jobs-and-pensions/tax-residence/index.aspx
as well as:
https://www.revenue.ie/en/jobs-and-pensions/tax-residence/resident-for-tax-purposes.aspx
Please be aware that the information contained in this article is of a general nature. It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.