Chartered
Tax
Consultant
Stage 3 Module 3
Remuneration and
Reward
Patricia Quigley
10/11 June 2011
Chartered Accountants
House
www.charteredaccountants.ie
EDUCATING
SUPPORTING
REPRESENTING
Module 3 - Learning Objectives
What should you be able to do?
• Advise clients - employer and employee
perspectives of remuneration and reward
• Read and interpret tax legislation, EU
case law and direct tax policy
• Compliance issues – obligations and risks
• PRSI, health & Income Levy – advise and
calculate
Overview – 5 Topics
1.
2.
3.
4.
5.
Employed v Self Employed
Remuneration Issues
PRSI and Levies
Share Schemes
Pensions
Employed or Self Employed?
• “Employed” or “Self Employed” not defined in
Taxes Acts or Social Welfare Act
• For PRSI “Employed Contributor” where
contract of service (First Schedule SWCA
2005)
• Contract for service therefore taxed as self
employed
Is there a contract of service or a contract for
services?
Contract of Service
• Employer/Employee status
• Employer PAYE/PRSI liability and
obligations
• Employment law, pension provision,
public liability insurance
• Module 3 covers the tax and social
security implications
Contract for Services
•
•
•
•
•
Self Employed
Schedule D Case II
Self Assessment for Income Tax
PRSI for the self employed
VAT Registration may apply
Employed v Self Employed?
• Determination can be difficult
• Key - determine if contract for services or
contract of services exists
• Case Law and Published Guidelines
• Each case to be considered on its own
facts
• Consider advice of other professionals
Case Law-Employed v Self Employed
• Three sources of Case Law
1. Tax Cases
2. Social Welfare Cases
3. Employment Law
UK Case Law is relevant in Ireland
Case Law
Case
Principles Established
Market Investigations
“..no exhaustive list..can be compiled..”
Ltd v Minister for Social “ is the person…in business on his own
Security (1969) 2 QB 173 account?..”
•Who supplies equipment?
Panel of part time
•Can he hire helpers?
interviewers for market
•What financial risks does he carry?
research co – found
•Profit opportunity?
insured person for UK
•Extent of his responsibility for investment
National Insurance
and management?
Roche v Kelly (1968) IR
100
Construction of barn for
farmer
Principal test = right of master to direct
servants as to what is to be done and how it
is to be done
The control test
Case Law
Case
Principles Established
Re Sunday Tribune (1984) •Difficulties with Control Test in modern
HC
context. Skilled workers told what to do but
not how to do it.
Two journalists doing
•Held one an integral part of ST and the
similar work. Distinction as other a freelance
to how the work was to be •Facts of each case different – subtle
done by each.
differences determine employment status
Ready Mixed Concrete v
Min of Pensions and NI
(1968) 2 QB 497
Three tests for contract of service
1. Personal service given
2. Master servant relationship (Control)
3. ERs owns significant assets; financial
risk and profit opportunity
Case Law
Case
Principles Established
Hall v Lorimer (1993) 66
TC 349
Freelance vision maker
Services to 20 companies
Revenue viewed each
contract on its own
Court of Appeal took
wider view
•No one test to be applied
•Consider all aspects of work activity
•Not a mechanical checklist exercise
•“Paint a picture” and stand back to evaluate
•Overall effect ≠ sum total of individual details
•Details may vary in importance from one
situation to another
•Casual v regular employment remarks
EP O’Coindealbhain v
Thomas Mooney (HC
1988)
SW Branch Manager.
•HC held contract for services
•No requirement to perform work personally
•Provided premises and staff
•Fees could be varied – not called wages
•Control specified what to do but not how
Case Law
Case
Principles Established
The Denny Case
Leading Irish case
HC 1995 & SC 1998
•Control Test – under control of co
Supermarket demonstrator –
contract of service existed
Substance of contract over
form
•Integration Test –Integral part of co
business
•Economic Reality Test - employment
•Entrepreneurial Test – Not in business
on her own account and could not profit
from her services
Denny ruling followed in:
•Tierney v An Post 2000
•Castleisland Cattle Breeding Society v Min for Soc Welfare 2004
•ESB v Minister for SCFA 2006
Case Law
Case
Principles Established
Minister for Agriculture and
Food v Barry and Others
(2008) IEHC 216
•EAT held employees
Case of 5 temporary Vet
Inspectors
Each case to be considered in
light of facts “and of the
general principles which the
courts have developed”
•High Court reversed the decision of EAT
•Held Ent Test was only one of Denny
tests to be considered
Published Guidelines
• Tax Briefings 33 and 82
• Code for determining Employment v Self
Employment Status of Individuals
2002/2007 (TB 43)
• eBrief 05/2010
• Important reference tools
• Not legally binding
• Open to alternative interpretation
Published Guidelines
Tax Briefing 33 1998
•Guidelines and factors listed
•VAT Registration ≠ Self Employed
•Directors on PAYE – SE PRSI can apply
Code of Practice for determining
Employment of Self-Employment Status
Employment Status Group (ESG)
•Is work done “as a person in business on their
own account?”
•Scope Section and Form Ins 1
•Follows Denny case
Tax Briefing 82 Dec 2009
Locums
Medicine, Health Care and Pharmacy
Refers to Code and Denny case
Absence of continual agreement ≠Self
employment
eBrief 05/2010
Sec 955(4) TCA 1997
Revenue Audits
Expression of doubt do not extend to Emp v SE
Revenue Audit Code applies in Rev Audit
Unprompted Qualifying Disclosure?
Employment Tax Issues - Overview
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•
•
•
•
•
•
•
•
Non PAYE Income
Expenses and BIKs
Foreign Employments
Salary Sacrifice
Termination Payments
Inducement Payments/Restrictive Covenants
PRSI and Levies
Share Schemes
Pension Plans
PAYE
•
•
•
•
PAYE Regulations SI No 559 of 2001
Revenue Employer’s Guide to PAYE
PAYE applies to payment of emoluments
Sec 983 TCA 1997 – “anything
assessable to Schedule E”
• Sec 985 TCA 1997 – PAYE deductible at
time of payment
PAYE
• S19 TCA 1997 charges tax under Sch E
• S112 TCA 1997 – basis of assessment for
Sch E
• “…all salaries, fees wages,
perquisites..computed on the amount..for
the year of assessment.”
• Earnings basis applies
• Employer obligation satisfied under PAYE
PAYE – Earning Basis
• XML Ltd pays 2009 bonus in March 2010
of €10,000 to employee
• PAYE deducted @ 41%
• Employee liable at 20% in 2009
• Tax Return filed for refund of tax
• Income levy at 2010 rates
PAYE Taxpayers – Self asst?
• Non-PAYE income can be coded-Sec 986(1)(k) TCA
1997
• Tax Briefing 62 – determining if a PAYE taxpayer is a
chargeable person
• Obligation to file if Revenue request a Tax Return
Non PAYE Gross Income > €50,000
Self Assessment applies even if nil assessable
non-PAYE income (losses etc)
Non PAYE Gross Income < €50,000
Not Self assessment if assessable non-PAYE
income < €3,174 and coded against PAYE credits
Proprietary Directors >15% control OSC
Chargeable persons
Social Welfare payments/pensions and
maintenance payments
Excluded from “non PAYE income”
Expenses in Employment
• Round Sum
Expenses
•
•
•
• Expenses incurred
•
wholly, exclusively
•
and necessarily
•
•
• Payment of
•
expenses under
Revenue Guidelines •
PAYE Reg 10(3)
ER PAYE Guide
Gross Up
Sch E Sec 114 TCA 97
Approved pension cons
CA on P&M eg car/van
Vouched expenses
Flat Rate Expenses
Subsistence Expenses
Schedule E Expenses
• S117 TCA 1997 – treats expense
payments as a perquisite under S112
• S114 TCA 1997 – claim for deduction if
“wholly, exclusively and necessarily
incurred in the performance of the duties”
• Contrast with s81(2)(a) TCA 1997 for
Case I/II expense deduction – “wholly and
exclusively” test
Sch E Expenses-Case Law
Nolder v Walters
1930
•Car expenses from home to work not allowable.
• Expenses while performing duties allowable.
Emms v
Revenue 2008
•Professional Rugby player cost of nutritional
supplements disallowed
•Incurred to enable him perform his duties
•Not incurred in the performance of duties
•Benefitted outside of job
Revenue v
Decadt 2008
•Training expenses
•Must be necessarily incurred
•Not enough to be obliged to incur them
Madeley v
Revenue 2006
•Agent’s fees paid by employer to negotiate
contract
•Not incurred in performance of duties
Vouched Expenses
• Employee claims expenses with receipts
• Employer reimburses amounts incurred
• Reimbursed expenses not treated as pay if
incurred “wholly, exclusively and
necessarily” in carrying out duties of
employment
• Excludes entertainment – Sec 840 TCA 97
• Restrictive test
• Travel and subsistence – separate rules
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•
•
•
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•
•
•
•
Flat Rate Expenses
Revenue list - www.revenue.ie
Electrician
Dentists in employment
Driving Instructors
Firefighters
Freelance Actors (PAYE)
Home helps
Journalists
Nurses
RTE orchestra
Deduction
• €153
• €376
• €125
• €272
• €750
• €256
• €381
• €733
• €2,476
Subsistence Expenses
• Revenue Leaflet IT 54
• Daily basis system  “per diems”
• Flat rate expenses paid – Civil Service
Rates
• Internal control system vital – Revenue Audit
issues
• Revenue approval not required
• Rates for Ireland and overseas subsistence
Subsistence Expenses
Class of
Night Allowances
Allowance
Normal Reduced
Rate
Rate
A Rate
€108.99 €100.48
€54.40
Day
Allowances
10
5 hours
hours but less
or
than 10
more
hours
€33.61 €13.71
B Rate
€107.69 €92.11
€53.87
€33.61 €13.71
Detention
Rate
Motoring Expenses
• Kilometric allowance scheme
Official motor Engine Capacity
travel in a
calendar year ≤ 1,200cc
1,200cc-1,500cc >1,500cc
≤ 6,437km
39.12 cent
46.25 cent
59.07 cent
6,437km
21.22 cent
23.62 cent
28.46 cent
Foreign Employment Issues
• Irish employments – duties exercised abroad
• Irish source of income – S984 TCA 97
applies PAYE
• S 821 TCA 97 – non resident not liable
• S984 TCA PAYE exclusion Order “remedy” –
all duties outside Ireland*
• Temporary assignments/No Irish
duties/temporary Foreign Students
*Incidental duties allowed in Ireland - up to 30 days
Foreign Employment Issues
• Temporary Foreign Students
• PAYE Exclusion Order – certain exchange
programmes - USIT, IAESTE or AIESEC
• Maximum stay 4 months
• Irish tax credits covers income tax liability
ALL PAYE EXCLUSION ORDER CASES
• Employer responsible for PAYE Exclusion Order
• PRSI deductible – not HC
• Income Levy not deductible if employee resident in
DTA country
Foreign Employments in Ireland
• Foreign employment contract = foreign
possession – Case III?
• Section 18(2)Case III(f)
• Income attributable to performance of duties in
the State – Schedule E
• Sections 985C, 985D, 985E, 985F
• Revenue SP IT/3/07 – employee payroll issues
for non Irish employments
Remittance Basis?
• Non domiciled, residents individuals
• Foreign employment contract liable under
Schedule E if duties exercised in Ireland
• Income attributable to duties outside
Ireland liable under Sec 71(2) TCA 97
• Consider separate employment contracts
if duties both in Ireland and other
countries
Limited Remittance Basis
•
•
•
•
•
Non domiciled high earners
Special Assignment Relief Programme
Assignment ≥ 1 year
Resident for first time 1.1.2010 onwards
Previously resident and employed by
same employer in DTA country
SARP – Sec 825B TCA 1997
• Tax restricted to greater of:
1. Amounts earned and remitted or
2. An amount of €100,000 + (50% of
emoluments > €100,000 )
• PAYE operated during tax year
• Refund claim must be made
• Claw back if employment income
subsequently remitted
SARP Example
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•
•
•
•
•
Qualifying employee -US Salary €350,000
Remittances for 2010 = €75,000 (net)
PAYE deducted = €45,000
Sec 825B: Taxable on greater of
€120,000 or
€100,000 + (€350,000-€100,000) *50% =
€225,000
• Claim refund on €350,000-€225,000
PAYE – Foreign Employments
Sec
985C
•Payments of emoluments made by
intermediary on behalf of employer
•Not confined to foreign employer situations
•Employer liable if intermediary does not
remit PAYE
Sec
985D
•Employee working in Ireland – remains
employed by foreign employer
•Foreign employer obliged to operate PAYE
•Irish entity liable to PAYE if foreign employer
does not operate it
•Applies mainly where employees on
assignment to Ireland – “shadow payroll”
PAYE – Foreign Employments
Sec •Employment not wholly exercised in Ireland
985E •Time spent working in Ireland unascertainable
•Revenue “PAYE direction” – amount liable to
PAYE
•Revenue direction not required for “temporary
employees” – Chap 4 SP IT/3/07
Sec •Revenue feels PAYE will not be operated to
985F employer where contracted to another person
•Revenue may direct entity where workers
contracted to operate PAYE
•Applies PAYE to the “economic employer” and not
“legal employer”
PAYE Direction?
•Employee of US company PAYE deductible on full
sent to work to Ireland for salary
10 months
•Employee of German bank PAYE on 2/5ths salary.
works 2 days a week in Irish No PAYE direction required
subsidiary and 3 days in
German HQ
•Employee of UK company
works in Ireland and other
EU countries – irregular
work pattern
PAYE on total salary unless
PAYE direction issued
Temporary Assignees SP IT/3/07
Short Term Business Visits
DTA Resident
Cost not borne by Irish P/E
PAYE exempt
As above but > 60 days
DTA Employment article
conditions
Revenue will grant PAYE
exemption
•Income exempt under DTA
Employment article
•Duties ≤ 60 days
•Not resident in Ireland
•Payroll taxes in home country
•≤ 183 days in Ireland
•Employer registered for
PAYE/connected company
responsible
Short term visits from non DTA •Non resident employee
countries
•Incidental duties in Ireland
PAYE Exempt
•≤ 30 days working in Ireland
SP IT/2/07 – Travel & Subsistence
• Limited tax free regime for short term
assignees - first 12 months of assignment
• Assignments ≤ 24 months and assignee
employed outside Ireland for ≥ 3 months
• Intention to return to original foreign
employer location
• Vouched or flat rate expenses
• Reasonable accommodation and utilities
• Travel to/from Ireland/one round trip
Benefits in Kind
• Perquisite or BIK?
• BIK cannot be converted into money
• Accommodation/Travel/Use of company
assets
• Employee generally taxed on cost to employer
– special valuation rules for some benefits
• Deduction for amounts “made good” by
employee
• BIKs liable to PRSI and Levies
Benefits in Kind
Sec 118 TCA 1997
Charging section for body
corporates
Accommodation/Entertainment/
domestic/other benefits
Sec 112 TCA 1997
BIK amount taxable under Sec 112
Sec 114 TCA 1997
Employee/director entitled to claim
Sch E expense
Sec 120 TCA 1997
Unincorporated employer bodies
within charge –
partnerships/individuals etc
Sec 897 TCA 1997
Form P11D – Return of benefits to
Revenue
BIK Valuation
• Cost to employer or realisable
value to employee
Example
• TVs/White goods provided –
where employer is manufacturer
of goods BIK = > expense of
producing and RV to employee
Specific Rules • Vehicles/Pref Loans
/Accommodation
Revenue Emp • Good reference source
Guide
General
BIK Living Accommodation
• Sec 118 – annual value + expense
incurred
• Open Market Value Rent – tenant
responsible for usual expenses
• Revenue Guide – 8% of MV
• Vouched figure of estimated rent
BIK- Medical Insurance
•
•
•
•
BIK = Gross premium paid by employer
ER pays premium net of TRS
ER pays TRS to Revenue with IT/CT
EE claims TRS – can be done through tax
credit cert
Gross premium paid by ER of €3,000
Notional pay through payroll is €3,000
TRS* due to EE €3,000 @ 20% = €600
*Must be claimed by employee
Preferential Loans Sec 122 TCA 97
•
•
•
•
Charge on Specified Rate – Actual Rate
2010 SR = Residential 5%; Other 12.5%
SR can be lower for “trade lenders”
Relief may be available under S 244 TCA
97 for home loans
Preferential Loans Sec 122 TCA 97
• S 122(1)(b) TCA 97 – anti avoidance
• Loans to/from connected parties of
employer/employee
• Loans prior to employment and to ex
employees
• Loans written off
Preferential Loans
• Loan of €80,000 @4%
• Granted to employee
as home loan
• Interest paid 2010 =
€3,200
• Specified Rate is 5%
• €10,000 of loan written
off
• BIK 2010
• Interest @ 5% = €4,000
Interest paid = €3,200
BIK
€800
• Liable to PAYE, PRSI and
Levies
• Tax Relief S 244
• €10,000 BIK
Company Cars
• Cash equivalent rules S 121 TCA 1997
• OMV of vehicle on first registration
• Second hand cars -MV when new (not 2nd
hand cost)
• Cash discount up to 10% normally allowed
• BIK reduced by employee reimbursement
• Old rules-cars provided in 2008 and earlier
• New Rules-cars first provided in 2009 and
later
Company Cars
Category
CO2 Emissions (g/km)
A
B
C
D
E
F
G
≤120
>120-140
>140-155
>155-170
>170-190
>190-225
>225
Company Cars
Kilometres
A,B,C
D,E
F,G
0-24,000
30%
35%
40%
>24,000-32,000
24%
28%
32%
>32,000-40,000
18%
21%
24%
>40,000-48,000
12%
14%
16%
>48,000
6%
7%
8%
Company Cars
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•
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•
•
Alternative Basis – lower mileage
Annual Business usage < 24,000km
20% reduction in BIK where:
> 20 hours per week (average)
≥ 70% working time away from base
Detailed log kept
Revenue agreement needed
BIK also reduced where car not available
Company Vans
•
•
•
•
•
Lower BIK charge than for cars
“Van” defined – Sec 121A TCA 97
BIK is 5% of OMV
No travel reduction for vans
Exemption where only private use is work
to home travel and employee obliged to
keep van overnight at home
• 80% of employee time is away from ER
base
What is a Van?
• Sec 121A TCA 1997
1. Carriage of goods design or construction
2. Roofed area/area to rear of driver
3. No side windows or seating in rear area
4. Gross vehicle weight ≤ 3,500 kgs
Pooled Cars
• Sec 121(7) TCA 1997 – no BIK charge
• Very narrow definition – often
misunderstood by employers
• Restrictive conditions
1. Used and made available to > 1 EE
2. Private use is incidental
3. Not normally kept overnight by EE
BIK Exemptions
Small benefit
Exemption
Shares
•Non cash benefit
•Value ≤ €250
•Christmas Gifts/Vouchers
•One benefit per employee
•Certain share schemes
•Employee responsible for income tax
•RTSO
Pensions
•S 118(5) exemption
•Pensions/annuities/lump sums on death
•ER contributions to approved schemes
•ER contributions to PRSA excluded
Permanent Health
Insurance
•S 471(3) – tax on PHI paid by employer
•EE can claim deduction
•No net charge if 10% limit not breached
BIK Exemptions
Travel Passes
•Employer purchases Pass
•Recouped from employee
•S 118(5A) – popular exemption
•CIE/LUAS – Licence under RTA 1932
•Commuter Ferries
E Working
S 118(5B),(5C), (5D)
•Mobile phones, internet, computer
equipment where private use incidental
•Facilitates e working from home
Cycle to Work Scheme
S 118(5G)
Once every 5 years
•ER spends up to €1,000 on bike/safety
equipment
•New equipment used mainly for travel to
work
•No BIK if provided free or subsidised to
all staff
Canteen Meals S 118(4)
Form P11D
• Sec 897 TCA 1997
• Revenue can give notice to file Form
P11D
• BIKs no longer included – now subject to
PAYE and included in P35LF
• Penalties if employer does not comply
Salary Sacrifice
• Sec 118(2)(B) TCA 1997
• TB 70 issued Dec 2008
• Reduction in salary in exchange for
benefit
• EE remains liable to PAYE/PRSI on gross
salary
• Potential double charge – Pay and BIK
Salary Sacrifice
• Exemptions for Travel Passes; Cycle to
Work and APPS
• Benefit and sacrifice must be in same
year
• Benefit cannot be provided to
spouse/dependant
• Flex benefit schemes need reviewing –
S118B implications
Salary Sacrifice TB 70
Salary foregone = Value of
Benefit
Amount “made good” = Salary
sacrifice
Salary foregone < Value of
Benefit
Amount “made good” = Salary
sacrifice
Salary foregone > Value of
Benefit
Amount “made good” = Salary
sacrifice
Taxable on New Salary+Salary
foregone+ BIK
Amount “made good” = BIK
No difference in taxable amounts
Taxable on “new” Salary +Salary
Foregone+ BIK
Amount “made good” < BIK
Taxable amount > Salary before
sacrifice
Taxable on “new” Salary+Salary
Foregone+BIK
Amount made good > BIK NIL BIK
No difference in taxable amounts
Salary Sacrifice
• Bonus Pyts
S118B?
• Contractual entitlement v
True discretionary bonus
• Review contracts and
ascertain entitlements
• Is employer pension con a
• Pensions
salary sacrifice?
• Revenue
• ER contributions on
Manual
terminations
• Special
contributions on • Sec 123 TCA?
termination
• Does entitlement arise
Termination Payments
• S123 TCA 1997 – charging section
• S201 and Sch 3 TCA 1997 – Exemptions
and Reliefs
• Compensation for loss of office
• Testimonials or ex gratia payments
• PILON
• No contractual entitlement or Sec 112
• Transfer of assets valued at date of transfer
Termination Payments
• Payments under S 123 taxable under
Schedule E
• Employer reporting requirements Sec
123(1) TCA 1997 – to Inspector in writing
within 14 days of end of tax year
• Payment treated as paid on date of
termination
Payments not Chargeable
• Sec 201(2) TCA 1997
• Payments on death, injury or disability
– Advance Revenue approval and Reporting
• Pension commutation lump sums
• Qualifying Foreign Service payments
• Pension payments where employer con was
taxable as emolument
• Statutory Redundancy
• Restrictive Covenants –Sec 127 TCA 97
Employment Law - Payments
• Sec 192A TCA 1997
• Recommendation, decision or
determination of Rights Commissioner,
EAT, Labour Court, Circuit or High Court
• Payments made under mediation process
settlements
• Does not apply to S 123 or S480 payments
• Review settlements –multiple
claims/headings
Reliefs and Exemptions
• Basic Exemption €10,160 + €765 per
completed year of service – Sec 201(1)
and (5)(a) TCA 1997
• Increased Exemption – increase basic
exemption by max of €10,000
– Revenue approval
– No claim for previous lump sum in previous 10
years
– Reduced by tax free pension commutation,
present or future
Pension Commutation
• Sch 3 Para 1 TCA 1997
• “Relevant capital lump sum”
• Tax free lump received or receivable from
approved pension scheme
• Actuarial valuation needed for NPV
• Option to waive future lump - no reduction
in increased exemption or SCSB
• Compare additional tax free sum with
potential future pension lump sum
SCSB
•
•
•
•
•
Standard Capital Superannuation Benefit
(A x B)/15 –C
A = average salary* last 3 years
B = No of complete years’ service
C = Present or future value pension
commutation
*Includes taxable biks and ee pension contributions
• Employer can grant SCSB or employee can
claim – 4 year time limit
Solution
Basic Exemption
€10,160 + (€765 * 11)
€18,575
Increased Exemption
€18,575+(€10,000-€10,000)
€18,575
SCSB
(€60,000*11/15)-€12,000
€32,000
Taxable Lump Sum
€75,000-€32,000
€43,000
Foreign Service Exemption
• Sec 201(4)
• “Foreign service” - emoluments were not chargeable to
Irish tax or taxable under RBT
• Termination payment exempt where foreign service was:
All Cases
¾ of whole period
Service > 10 Years
Whole of last 10 years
Service > 20 Years
½ of service period including
any 10 of last 20 years
Foreign Service –Remittance Basis
Period of Service
Foreign Service
Pre 1/1/2006
Non Irish/UK contract
Duties exercised by non dom/Irish
citizen NOR
1/1/2006-31/12/2007
Non Irish/UK contract
Duties exercised outside Ireland by
non dom/Irish citizen NOR
From 1/1/2008
Non Irish contract
Duties exercised outside Ireland by
non dom or Irish citizen* NOR
*From 1/10/2010 – remittance
basis for non doms only
Foreign Service Deduction
• Sch 3 Para 9
• Deduction for foreign service where
exemption under Sec 201 not available
• Deduction from taxable lump sum:
• Taxable Lump Sum x Years FS
Years TS
Top Slicing Relief
•
•
•
•
•
•
•
Sch 3 Para 10
Claimed after tax year end
Lump sum taxed @ average rate of 3 years
A-(P*T/I)
A = tax on lump sum
P = taxable lump sum
T/I = tax/income for 3 years prior to year of
termination
Inducement Payments
• Sec 112(2)(b) TCA 1997
• Anti avoidance provision
• Payments made prior to commencement of
employment for future services
• Tax Briefing 32
• Case Law Jarrold v Boustead; O’Connell v
Keleghan; Shilton v Wilmshurst
• Likely Revenue challenge
Restrictive Covenants
• Sec 127 TCA 1997 – to counter Beak v
Robson
• Undertaking by employee to restrict conduct
• Usually non compete agreement
• S 127 to payments to restrict activities for
compensation
• Payment liable to PAYE, PRSI and Levies
• Deduction allowed to employer
Employing Family Members
Spouse
Children
•Use of standard rate band
•2010 €27,400 available
•Must be a genuine
employment
•Joint assessment cases
•No PAYE credit for proprietary
director
•Tax savings
•Income Levy savings possible
•PAYE/PRSI must be operated
•PAYE Credit where income >
€4,572 and PAYE
operated/child is an employed
contributor for PRSI
•Employer entitled to
deduction
•PAYE/PRSI must be operated
PAYE Underpayments
• Employer liable for shortfall – Reg 28(3)
direction if deliberate underpayment
• Error made in good faith – Revenue may direct
that underpayment recovered from employee
• Sec 997A anti avoidance - 15% directors &
employees – no credit unless documentary
evidence
• Late filing surcharge for proprietary directors on
liability before PAYE
Unpaid Remuneration
•
•
•
•
Sec 996 TCA 1997
Remuneration deducted as expense
If unpaid after 6 months – deemed paid
PAYE/PRSI and interest from “relevant
date”
• Relevant date usually last day of AP
• Check at time of tax review of accounts
VAT Issues – Non Cash awards
• Consider VAT issues if employer provides
goods or services to employee instead of
cash
• Does VAT arise?
– Is the employer supplying goods or services?
– Is the supply for consideration or is it a gift?
– What amount is VAT chargeable on?
– What is the employer’s VAT status?
– Was there an entitlement to reclaim VAT input
on acquisition?
VAT Issues
Medical/Health Insurance
No VAT - exempt
Childcare Services
Healthcare – exempt
Recoverability issues where employer
provides the service on premises
Canteen/Catering Services
Tax Briefing 65
Payments made by employees – VAT
Fully subsidised – VAT on running costs
No VAT if incidental use
May be VAT due or restriction on input if
private use> incidental
No VAT if employer not entitled to VAT
input
2010 ECJ Astra Zeneca – VAT on
vouchers to staff
Private Use of Employer
Assets
Employee acquiring Employer
Assets
PRSI and Levies
•
•
•
•
•
•
•
•
Employed Contributors
Self Employed Contributors
Directors
PRSI Refunds – Pension contributions
PRSI Classes and Benefits
Voluntary Contributions
International Aspects
Health and Income Levies
PRSI Introduction
• Social Welfare Consolidation Act 2005
• SW (Consolidated Contributions and
Insurability) Regulations 1996 (SI No 312
of 1996)
• Other SW legislation and Regulations
• EU Council Regulations 1408/71
• Where conflict between Irish SW law and
EU Regs EU Regs take precedence
Employed Contributors
• Sections 12-17 SWCA 2005
• What is an “employed contributor”?
• Sec 12 “every person..over 16 and under
pensionable age..in any of the
employments specified in Part 1 of
Schedule 1..shall be an employed
contributor ..”
• Generally Class A
Insurable Employment
• First Schedule SWCA 2005 includes:
• Employment in Ireland under a contract of
service
• Employment under a contract of service of
crew of ship/aircraft registered in Ireland
• Most Civil Service and Local Authority
employments
• Gárdaí
• Employment Agency work
Excepted Employments
•
•
•
•
Part 2 Schedule 1 SWCA 2005
Employment by spouse
Casual employment not for trade/business
Employment by prescribed relative in
common house of employer and employee
• Subsidiary employments- Article 89 SI
312/1996
• Employment of inconsiderable extent
Earnings for PRSI
• “Reckonable earnings”
• Includes all earnings – non pecuniary and
benefits in kind
• Spouses treated separately for PRSI
• Deductions from earnings limited to
– AVCs under approved schemes
– PRSA and RAC contributions
– PHI approved scheme contributions
Payments Exempt from PRSI
• Termination payments – no PRSI due on
taxable and exempt portion
• Maintenance Payments under S1025
• No PRSI due by payor
• Check if refund due under SI 133/2001
Benefits in Kind
• PRSI is due on taxable BIKs
• Advise employer’s on obligations in
estimating benefits and deducting PRSI
• Exemptions for non taxable BIKs
– Travel passes
– Canteens
– Long Service Awards
– Cycle to Work Scheme
– Small benefits - €250
Calculation of PRSI
• PRSI free amount - €127/€550 for each
week/month of liability
• Employee’s annual ceiling – 2010
€75,036
• Employee Income Threshold – 2010 €352
per week
• Employer Rate 10.75% - no ceiling
Employer Job PRSI Incentive Scheme
•
•
•
•
•
•
•
Exemption from ERs PRSI for 12 months
Creation of new or additional jobs
EE on Live Register for 6 months
Full time job
ER up to date Tax Clearance Cert
Max 5% of workforce or 5 jobs
Job must last for >6 months
Self Employed Contributors
•
•
•
•
•
•
Secs 20-23 SWCA 2005
Sec 20 defines SE Contributor
Over 16 and under pensionable age
Reckonable Income
Reckonable Emoluments
Class S
Excepted Self Employed PRSI
• Sch 1 Part 3 SWCA 2005
1. Prescribed relative of SE contributor
2. SE contributor in receipt of Job Seekers
allowance
3. Income < €3,174
4. Employed contributor with pension from
employment and no Case 1/11 income
5. People liable to Modified PRSI
6. Person NO or NOR with no Case 1/11
Excepted PRSI
•
•
•
•
•
Alex is an employed contributor Class A1
Rental Income of €10,000
Alex is an excepted PRSI contributor
No SE PRSI on rental income
What if he acquires Sch D Case 11 of
€100?
Alex liable to Class S PRSI on rental
income and €100
PRSI @3% = €300 and > Case 1/11
Reckonable Emoluments
• Non insurable employments
• Mainly directors
• Deductions only for approved pension
contributions
• No specific rules to determine insurability
of directors – Form INS ruling?
• Is there a contract of service?
• Does director have controlling interest?
• Remuneration in addition to director fees?
Directors
Executive Directors
Fees + Remuneration
Contract of service
Class A – Employed director
Non Executive Directors
Director’s Fee only
No contract of service
Class S Self Employed Contributor
Proprietary Directors
>50% shares/control – Form Ins 1?
No contract of service
Class S1
Non Resident Directors
Exempt from PRSI if not Case 1/11
income
Must be NR and NOR
Reckonable Income
• Income from trade/profession
• PRSI applies after deduction of CA only
• Tax exempt income including:
– Artists
– Childcare
– Woodlands
– Patent Royalties
PRSI Refunds – Pension Contributions
• S 38 SWCA 2005 – refund claim
• Self Employed contributors with
Reckonable Emoluments
• No refund for self employed with
RAC/PRSA (Case 1/11 only)
• Form CG PRSI 1
• 4 year time limit
• Minimum PRSI is €254 pa
PRSI Classes
•
•
•
•
•
11 Classes A,B,C,D,E,H,J,K,M,P,S
Sub Classes Codes O,X,L, 1 and 2
Eg Class AO, S1, A1 – Leaflet SW 14
Main classes are A and S
PRSI class paid determines benefits
which can be claimed
PRSI Classes A and S
Class A
Employer 10.75%
Employee 4%
EE ceiling €75,036
Private Sector Employees
Without full medical card
Not in receipt of certain
social welfare payments
Class S
Rate 3%
No ceiling
Minimum payment €253
Exempt if income <
€3,174
Self Employed
Certain Company Directors
Class A calculation
Class A1; Salary €50,000; BIK €5,000; Pension Con EE
€3,000 through payroll
AVC paid October 2011 €750
Salary
€50,000
BIK
€5,000
Pension
(€3,000)
Reckonable Earnings €52,000
ER PRSI @ 10.75%
€5,590
EE PRSI @4%
€1,816
AVC €750
Claim refund of €750 * 4%
(€52,000-€6,604) *4%
Class S calculation
Class S1; Dir* Salary €50,000; Case V €5,000; RAC Con
€3,750
*Prop Dir
Director Salary
Case V
RAC
Reckonable Income
PRSI @ 3%
€50,000
€5,000
(€0)
€55,000
€1,650
PRSI and Remittance Bases
• Non Domiciled individuals
• Liable to remittance basis on foreign
income
• Reckonable Income = Income liable to
Irish tax
• S1 PRSI is calculated on remittances
• Employed contributors liable on full
earnings if Irish PRSI due
Voluntary Contributors
•
•
•
•
•
•
•
•
Sec 24-Sec 30 SWCA 2005
Voluntary contributions
Persons previously insured
Under 66 years and 260 contributions paid
Claim within 12 months
Low rates – for future pension cover
Redundant individuals
Moving to non EU country –no PRSI cover
Foreign Workers - PRSI
• Three Categories
1. Countries where EU Regulations apply
2. Non EU countries – Social Security bi
lateral agreement concluded with
Ireland
3. Countries outside the above two
categories
Foreign Workers - PRSI
• Three Categories
1. Countries where EU Regulations apply
EU Regulation 1408/71
1. Non EU countries – Social Security bi
lateral agreement concluded with
Ireland
2. Countries outside the above two
categories
EU Regulation 1408/71
•
•
•
•
Protects cross border workers
Pay in only one EU country
Social Security entitlements protected
General Rule – Employee insurable in EU
country where he is employed
• Article 14(1) –Exception for “posted workers”
• Employee remains on home country SI
system for up to 5 years
• Form E101 procedure
Non EU – Bilateral Agreements
• Workers not covered by EU Regulations
• Ireland has bi lateral Social Security
Agreement with other country
• Social Security Totalisation Agreements
• Canada (and Quebec); US; Australia; New
Zealand; South Korea and UK for Isle of Man
• General Rule – Social Security in country of
employment duties
• Temporary assignments covered
Bi Lateral Agreements Posted Workers
Bilateral
Agreement
Period for Irish
PRSI
Health Contribution
included?
Australia
4 years
No
Canada
2 years
Yes
New Zealand 2 years
No
USA
5 years
Yes
South Korea
5 years
Yes
Non EU – No Bi lateral Agreements
Employees Leaving
Ireland
Employees Coming to Ireland
Non EU/Bilateral Country
•SI No139/1961
•Temporary transfer
outside Ireland
•Remains compulsorily
insurable in Ireland for
first 52 weeks
•Can be extended
•Protects employee
•Does not exclude
foreign Soc Insurance
•SI No139/1961
•Exemption for first 52 weeks
•Employer not ordinarily resident in
Ireland
•Employer’s principal place of
business not in Ireland, N Ireland,
Great Britain or Isle of Man
•Must be applied for
•Given where assignment not> 52
weeks
•Tightly monitored by DSP
Health Contribution
•
•
•
•
Health Contribution Act 1979
Regulations – SI 107/1979 & 719/2003
2010 Rates – 4% and 5%
Payable on Reckonable: Emoluments,
Earnings, & Income
• PAYE system applies to earnings and
emoluments
• Self assessment for non employment income
• Assessed separately for married couples
Health Contribution
Reckonable
Earnings
Deduct
through
payroll
•Same as for PRSI employees
•Schedule E income and BIKs
•Deduct approved pension contributions/PRSA/PHI
•AVCs not deducted through payroll – no deduction
Reckonable
Emoluments
Deduct
through payroll
•Emoluments and BIKs from non-insurable employments
•Directors fees, over 66
•Deduct approved pension contributions/PRSA/PHI
•AVCs not deducted through payroll – no deduction
Reckonable
Income
Pay through
Self
Assessment
•Same as PRSI but excludes exempt income
•Deduction for Capital Allowances
•No deduction for RAC
•Remittances by non Doms liable
•Foreign employment liable if duties in Ireland
Health Contribution Exemptions
• Sec 11(1) Health Contribution Act 1979
• Exempts individuals in receipt of certain
benefits and pensions under SWCA 2005
– Survivor’s Pension; One Parent Family
Allowance; similar EU benefits
• Full Medical Card Holders – Sec 45
Health Act 1970 or equivalent EU
• Over 70 years
• Above are exempt from HC on all income
Health Contribution Exempt Income
• Weekly income of €500 – annual €26,000
• Maintenance Payments made under
legally enforceable separation
agreements
– Payer is exempt, payment taken into account
for recipient
• Irish dividends paid to non residents
• Life Policies and offshore fund income
within tax regime for lower tax rates
Income Levy
•
•
•
•
•
•
•
Sections 531A-531N TCA 1997
Revenue FAQs
Payable on Gross Income – no deductions
Payable on emoluments paid in the year
Employer pension contributions not liable
PRSA payments by employer are liable
Exemptions for social welfare income, full
medical card holders and where income <
€15,027 (€20,000 for over 65s)
Income Levy
• Income Levy collected through PAYE system
for employment income
• Self assessment for non PAYE income
• Relevant Emoluments = Employment income
• Relevant Income = Income other than
employment income
• Exclusions for Social Welfare payments and
excluded emoluments
IL Excluded Emoluments
•
•
•
•
•
•
•
•
•
Appendix B Revenue FAQs
Travel Passes, Cycle to Work Scheme
Sec 189 TCA 97 – compensation income
Termination payment exemptions Sec 123
Statutory Redundancy
APSS/ Approved Share Options/SAYE
ER Pension – not PRSA
Irish deposit interest/funds
Child Benefit
Income Levy
• Reimbursement of expenses Reg 10(3)
PAYE Regs not liable
• PAYE Exclusion Order under Sec 984(1)
TCA 1997 for DTA country – no liability
• Maintenance payments made not liable
• Share Options Gains are liable to IL- pay
under self assessment
• Artists/Woodlands etc exemptions ignored
• IL = Income for DTA purposes
Income Levy Rates 2010
Portion of
Aggregate Income
Income Levy Rate
First €75,036
2%
€75,036-€174,980
4%
> €174,980
6%
Employee Share Schemes
• Method of rewarding employees
• An incentive to improve performance
• Increase company value = increase in share
value
• Employees granted options to acquire shares
• Employees awarded free/discounted shares
• Up to 2010, PRSI and Health Con saving
• Employer saving 10.75%/Employee 9%
Employee Share Schemes
Share Options
Share Subscriptions
Stock Units
•EE has future right to purchase
shares
•EE can let option lapse
•Approved and Unapproved
Schemes
•EE acquires shares at a discount
•Shares can be awarded free
•EE can acquire shares or cash
equivalent of share values
Employee Share Schemes
Share Option Schemes
Approved and Unapproved and SAYE Schemes
Approved Profit Sharing Schemes
Employee Share Ownership Trusts
Restricted Stock Schemes
Forfeitable Shares
Convertible Shares
Restricted Stock Units
Share Subscription Schemes
Approved Schemes Criteria
• All employees/full time directors eligible
• Service criteria of max 3 years
• Shares in parent co of group or quoted on
SE
• Grants/Awards made at MV or at a specific
discount to MV
• 3 year holding period for options/shares
• Participation on “similar terms”
– Variable by reference to service/appraisal
Unapproved Share Option Schemes
• Attractive for employer rewarding on
selective basis
• Used where ER want to defer employee
equity
• Taxed under Sec 128 TCA 1997
• Taxed on “..a right to acquire any asset..”
• Option price fixed on date of grant
• EE hopes for increase in share value by
exercise date
Unapproved Share Option Schemes
• Tax charge can arise on:
• Grant, Exercise, Release or Assignment of
share option
• Sec 128(5) TCA 97 – Charge on date of
grant if option is capable of being
exercised > 7 years from date of grant and
option price < MV @ date of grant
Unapproved Share Option Schemes
Option Granted
1/3/2010
End of Option Period
28/2/2018
Option Price
€3
MV @ date of Grant
€5
No of Shares
1,000
Taxable Amount
€2,000
Exercise, Release or Assignment
• Sec 128(4) TCA 1997
• Chargeable under Sch E
• Gain = MV @date of exercise less Option
Price
• Sec 128B TCA – RTSO1
• Pay and file within 30 days of exercise
• Rate of tax is higher rate
• Revenue approval for lower rate needed
Exercise, Release or Assignment
•
•
•
•
Employee brought within Sec 950 TCA 97
Self assessment applies for relevant year
Tax Return filing and Preliminary Tax due
If cash received on release or assignment
of option, PAYE/PRSI applies
• Revenue explanatory leaflet on
Unapproved Share Option Schemes
• TBs 36,40,41,46,48,50,52,53,55,59 & 63
CGT Issues
• CGT arises where employee holds shares
and sells at a gain
• No CGT is shares sold at time of exercise
• Base Cost of shares = MV @ date of
exercise
• MV @ date of exercise = Option Price +
amount charged to tax
CGT and Base Cost
• Tax Briefing 63 -Mansworth v Jelley
• Sec 547(1)(c)(iii) TCA 1997 – MV does not
apply where no “corresponding disposal”
• Where shares acquired are existing shares 
there is a “corresponding disposal” on
acquisition
• Base cost could be MV + Amount charged to
Income Tax- CGT Loss?
• TB 63 states base cost will be MV @ exercise
Share Option Example
Option Granted 3,000 Shares
Option Price €1.50
MV @ Exercise €2
Sold after 3 years
for €3
MV Date of Exercise
Option Price
€6,000
€4,500
Option Gain
€1,500
Income Tax Due RTSO @ 41%
Income Levy Due Self Assessment (4%)
Sales Proceeds
€615
€60
€9,000
Cost- MV @ exercise
Liable to CGT
€6,000
€3,000
Employee Share Purchase Schemes
• Sec 128 TCA 97 applies to “rights” to
acquire shares
• ESPS grant a right to acquire shares 
Sec 128 may apply
• Common in US multinationals
• Employee normally has deductions made
from salary to acquire shares
• RTSO and self assessment applies
Reporting Requirements
• FA 2010 – introduced mandatory reporting
for share awards
• Form RSS1 applies from 2009
• Replaces previous forms and SO2
• Companies, Irish branches and agencies
• Submit Form RSS1 by 31st March
• Irish company responsible where options
granted by foreign parent company
International Aspects
•
•
•
•
•
•
OECD Model Convention
Gain between grant and exercise = income
Gain on disposal after grant = capital
Prior to April 2007 – Revenue TB 31
Residence of employee @ time of grant
TB 31 applies to options granted prior to 5th
April 2007
International Aspects
• Revenue SP IT/1/07
• Deals with legislation and DTA treatment
• Options taxed based on vesting period
attributable to duties of employment
• Vesting period = time from grant to date
option first exercisable
• Revenue practice follows OECD
interpretation
• Articles 15/16 OECD Model Convention
International Aspects
• DTA provisions apply to options exercised
on or after 1st January 2004
• Gain time apportioned – Irish work days in
vesting period
• Irish portion of gain liable to Irish tax
• Non DTA - double charge – fully liable in
Ireland with deduction for foreign tax
• Amount chargeable to income tax in DTA
country allowed as part of CGT base cost
Example
• Assumptions
• 1/1/2001 – Share Option granted to Irish
resident employee over 1,000 shares
• Option price €1
• Vesting period 1/1/2001-31/12/2003
• Employee moved to US on 1 Jan 2003
• 1/1/2005 – share option exercised
• MV @ date of exercise = €7
Example
Vesting Period 780 days
Irish days 520 US days 260
MV date of exercise
€70,000
Option Price
€10,000
Option Gain
€60,000
Article 15 Irish/US Treaty
€60,000 * 520/780
Restricts Irish option gain to
Irish days
€40,000
Approved Share Option Schemes
• Tax Efficient
• Restrictive conditions
• Most multinational group schemes would not
qualify
• Very few schemes approved
• Sections 519D and Schedule 12C TCA 1997
• No charge to income tax/income levy
• CGT charge on disposal
• Reporting Requirements – RSS1 by 31 March
SAYE Share Option Schemes
• To enable employees acquire shares under
share options without borrowing money
• Encourages employee share participation
• Sec 519A-519C, Sch 12A and 12B TCA 97
• Revenue approval needed
• Schemes use a Qualified Savings Scheme
contract with tax free return
• Employee saves €12-€500 per month
SAYE Share Option Schemes
• Employee can exercise shares @ end of
savings period or
• Take saving as cash or
• Continue to invest with financial institution
• Tax free bonus at end of savings period to
purchase shares in employer company
SAYE Share Option Schemes
•
•
•
•
Conditions for Revenue Approval
All employees -Service period of 3 years max
Participation on similar terms
Shares are OSC in grantor or company
having control of grantor
• Fully paid up and not redeemable
• Quoted shares or in a company not under
control of another company
• Options may be granted at a discount of up to
25% of MV of shares
Comparison
1/1/2007 Option Granted 10,000 shares @ €1 – MV €1.30
3/1/2010 Option Exercised MV €7
SAYE Option
Unapproved
Options
Option Gain
€60,000
€60,000
Income Tax
€0
€24,600
After Tax
€60,000
€35,400
Approved SAYE
• No Income Tax or Income Levy on exercise >
3 years from date of grant
• If exercised < 3 years  IT and IL apply
• No IT, IL or DIRT on contractual savings
interest or bonus
• SAYE schemes hit by recession
• Contractual schemes cannot meet interest
rates required
• Reporting on Form SRSO1 – 31st March
Approved Profit Sharing Schemes
•
•
•
•
•
•
•
•
APSS – Revenue Approval required
S509-518 & Sch 11 TCA 1997
Shares up to €12,700 per annum
Salary sacrifice allowed – max 7.5% basic pre
tax salary or bonus if lower TB 71
Employer places funds in a Trust
Trust acquires & holds shares for benefit of
employee
Shares must be held in Trust for 3 years
Trustees must be Irish resident
Approved Profit Sharing Schemes
• All employees/similar terms
• Non redeemable shares in ER co or parent
• Annual limit increased to €38,100 if appropriated
from ESOT to APSS
• Trust has legal ownership/Employee beneficial owner
• Employee has voting and dividend rights
• Employer gets deduction for funds
• Trustee report on Form ESS1 – 31st March
ESOTs
•
•
•
•
•
Sec 519 & Sch 12 TCA 1997
Employee Share Ownership Trusts
ESOT can acquire shares with no limit
ESOT can borrow to acquire shares
Warehousing mechanism – mainly for SemiState bodies being privatised
• Tax efficient if linked to an APSS
• ESOT + APSS = ESOP
ESOTs
•
•
•
•
•
•
Tax free distributions of €12,700
Can be increased to €38,100 with conditions
Established as a Trust – Rules and conditions
All employees/directors participate
Similar terms
Shares part of founding company, OSC and
not redeemable
• ESOT shares can be transferred to APSS
ESOTs
• Distributions of cash or shares form
ESOT are taxable
• Dividend income tax free if used for
“qualifying purposes”
• Gross roll up on shares – transfer of
shares to APPS not liable to CGT
• Reporting Form ESOT1 31st March
Restricted Share Schemes
• Shares can be offered on restrictive basis
• S128D TCA 1997
• Shares in employer company or company
controlling it
• Restriction on sale for a specified period
• Restriction must be in writing
• Shares held in a Trust
• Abatement on tax charge – income tax and
income levy saving
• NO PRSI on amount chargeable
Restricted Share Schemes
Restriction on Sale
Abatement
1 Year
10%
2 Years
20%
3 Years
30%
4 Years
40%
5 Years
50%
>5 Years
60%
Sale within abatement period – adjustment to tax liability
CGT base cost includes amount charged to Income Tax
• Filing – Form RSS1 31st March
Forfeited Shares
•
•
•
•
•
•
•
•
Sec 128E TCA 1997
Shareholder forfeits on cessation of employment
Written contract – trigger events
Consideration ≤ Price paid
Employee participation – protection for ER
Taxed/IL at time of acquisition – no reduction
Refund of tax if shares forfeited
Form RSS1 31st March
Convertible Shares
• Low value share with restricted rights attached –
potential to convert into more valuable securities
• Sec 128C TCA 1997 -Anti avoidance
• Prior to FA 2008, gain on shares liable to CGT
• Security acquired by employee/director
• Low initial value – conversion rights
• Income Tax and IL since 31/1/2008 on conversion
• MV of converted share – Price paid for right
• Complex legislation
• Form RSS1 – 31st March
Restricted Stock Units
•
•
•
•
•
•
•
•
•
RSU = grant or promise to future shares or cash
Award based on share price movement
Tax Briefing 63
Taxable Sec 112 TCA 1997 – no tax on grant
Sec 985A Self assessment
Income Tax and IL @ date of vesting
Dividend equivalents taxable under PAYE
Cash payments liable to PAYE
Form RSS1 if shares vested
Share Subscription Scheme
• Sec 479 TCA 1997
• Lifetime deduction €6,350
• Purchase of new shares in qualifying
company
• Company incorporated and solely Irish
Resident
• Shares held for 3 years
• CGT base cost is reduced by amount that
qualified for income tax relief
Partly Paid Shares
•
•
•
•
Sec 122A TCA 1997
Shares acquired at undervalue
Amount not paid = “notional” interest free loan
Charge under Sec 112 on amount of
undervalue and charge under Sec 122A TCA
• Preferential Loan Rates per s122
• Charge to PAYE/IL if loan written off
Partly Paid Shares
• 1/6/2010 5,000 Shares acquired
• Cost €5; MV €6; €2 paid 1/6/2010; €3 due1/6/2011
Sec 112 TCA 1997
Sec 122A TCA 1997
€15,000*12.5%*7/12 = €1,094
IT/IL @ 45%
= €492
MV
€30,000
Cost
(€25,000)
Undervalue
€5,000
IT/IL @ 45%
€2,250
MV
€30,000
Price Paid
(€10,000)
Sec 112
(€5,000)
Notional Loan
€15,000
Pension Plans Employees/Directors
Occupational Pension •Large organisations
Schemes
•ER and EE contributions
•Defined Benefit/Defined
Contribution
Small Self Administered •< 12 members
Schemes
•Detailed Revenue Rules
•Similar to Occupations Schemes
•Members > control over investments
Company Schemes for
Director controlled
companies
•Advantages over personal pension
•Significant Employer contribution
•Advantage of setting up a company
Pension Plans
•
•
•
•
•
•
Non Tax Issues
Consult professional pension consultant
Funding/Investment/Valuations
Current and previous benefits
Pensions Act 1990
Family law issues
Occupational Pension Schemes
•
•
•
•
•
•
Revenue approval needed
Sec 770-782 & Sch 23 TCA 1997
ER contribution deductible for CT – paid basis
EE contribution – limited % based on age
NRE limit of €150,000 for 2010
Corporate pension scheme – creditor
protection
• Revenue Pensions manual
Occupational Pension Schemes
Provision of retirement benefits to
employees/dependents
Trade or undertaking in State by
resident person
Employer contributes
Written details to employee
No refund of EE contributions
Normal Retirement 60-70 years
>5% Dirs and AVCs – ARF option
Spouses of >20% directors where
genuine employment
Option of tax free lump sum
1.5 final salary
1/60th final remuneration- max 40
years -2/3rds Final Pay
Lump Sums on Death – max 4
times remuneration
Compliance with Pensions Act
1990 and EU Directives
Administration by resident person
Employer Contributions
• CT deduction of ER contributions/legal and other
expenses
• Pension Scheme profits and gains exempt
• No BIK for employee –Sec 778 TCA 97
• Top Up ER contributions allowed
– CT deduction may be spread over max of 5 years
• Period is lesser of 5 years or sum determined by
Once-off top-up arrears payment
Annual recurring pension contributions
Salary Sacrifice?
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Rev Pen Manual 3.8/TB 70
ER contribution -S118B TCA?
Bona Fide salary & benefits ?
Genuine Discretionary Bonus?
Does employee have “option” on
remuneration package payments?
• ER contributions to pension scheme on
termination of employment – employee
entitlement to pay/compensation?
Employee Contributions
• Contirbutions to an approved scheme
allowable as an expense
• Deductible under Sch E
• Max deduction function of employee’s age
and NRE
• NRE - €150,000 for 2010
• NRE = total emoluments + fees + BIK +
bonuses etc.
EE Limits on Pension Contributions
Age
Max Contribution
< 30
15%
30-40
40-50
20%
25%
50-55
55-60
30%
35%
>60
40%
Employee Contribution
Employee age 48
Salary €160,000
Max Pension €150,000 * 25%
EE annual contribution
Monthly EE Pension
€3,500
ER annual pension
€16,000
€37,500
€42,000
Excess
€4,500
Carry Forward to 2011
€4,500
No BIK on ER Contribution
PAYE/PRSI on €122,500
Additional Voluntary Contributions
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Employee can also make AVC
Voluntary contributions
Top up retirement benefit
Also provide greater flexibility on
retirement
• Max tax deductible amount aggregated
with contributions and based on age and
NRE
Employee AVCs
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Max €150,000 * 25% = €37,500
Contributions by EE = €20,000
AVC – max for 2010 = €17,500
Net Pay Arrangement
AVCs/ Pension Contributions can be made by
31st October of year end
• €17,500 AVC must be paid by 31st October
2011
PRSAs
• Sec 787A-787L TCA and Chapter 24
Pensions Manual
• PRSA products approved by Revenue and
Pensions Board
• Employer contributions possible
• EE can use PRSA for AVCs
• ER obliged to make deductions from pay
• ER not obliged to contribute to PRSA
PRSAs
• NRE of €150,000 applies
• Employer’s contributions included in EE limit
• Tax charge if ER and EE contributions > %
age limit
• Simultaneous deduction through payroll
• Income Levy due on ER contribution
• Payments made by 31st October tax filing
deadline allowed
Small Self Administered Schemes
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Sec 772 TCA 1997
Proprietary Directors – SSAPs common
5% Directors – ARF options
Form of Revenue approved occupational
pension schemes – additional conditions
• Business owners = members/trustees
Small Self Administered Schemes
• Members <12 = “small”
• > 12 members  >65% investments for
directors with >20% shareholding then SSAP
• Revenue approved “Pensioner Trustee”
• Annual accounts & actuarial reports to
Revenue
• Strict investment rules for SSAPs
Revenue Conditions
Arm’s Length Investment
Loans to members prohibited
Property investments – Revenue approval needed
No self- investment
No investment in works of art, jewellery, vintage cars, yachts
Investment in private company < 5% scheme assets/10%
shares
Certain transactions = pension payments
Earnings Limit
• TB 74 & 79
• Earnings from employment and self
employment
• Payments to occupational and personal plan
• Single €150,000 applies
• Occupational Scheme contributions first in
determining if €150k NRE limit reached
• Balance < €150K to RAC, PRSA
• GPS, Hospital Consultants
PRSI/HC/Income Tax
Type
PRSI
Occupational
Deductible
Pension Scheme AVCs Refund
claim
SSAP
Deductible
AVCs Refund
claim
Health Contribution
Income Tax
Deductible
AVCs Refund claim
Deductible
Deductible
Deductible
AVCs not through payroll
no deduction
Deductible
Deductible
If paid through payroll
PRSA employment
Deductible
PRSA –no
employment
No deduction No deduction
Deductible
RAC
No deduction No deduction
Deductible
Retirement - Options
• Standard Fund Threshold
• Applies to Occupational Schemes, RACs,
PRSAs
• SFT 2010 €5,418,000 (PFT >€5m
7/12/2005)
• BCE – entitlement under pension scheme
• Tax free lump sum, annuity, transfer to
ARF/AMRF
• Pension Rates > 5% or CPI + 2%
SFT
• Tax @ 41% on excess of Capital Value >
SFT/PFT
• Charge occurs when there is a BCE
• Restriction on maximum tax-free lump sum
• 25% of SFT
• Chargeable excess liable under Sch D Case IV
• Administrator and individual jointly and
severally liable
• Tax Return and tax due within 3 mths of BCE
Occupational Schemes
• Option – pension of 2/3rds final remuneration
or
• Tax Free Lump Sum and reduced pension
• Max Lump sum = 1.5 * final salary
• Balance of fund used to purchase annuity
• Proprietary directors have other options
– Purchase annuity or ARF option
ARFs & AMRFs
• Tax Free Lump Sum – 25% fund
• €63,500 transferred to AMRF or used to
buy annuity
• AMRF until aged 75
• No AMRF where guaranteed pension
€12,700 pa
• Income and Gains of ARF/AMRF tax free
• Payments out liable to PAYE
ARF – Who can opt?
• Proprietary Directors/Employees >5%
control
• Employees/directors – PRSAs/RACs
• Self employed with RAC
• Non proprietary directors/employees with
AVCs in Occupational Scheme
AMRF
• Requirements must be satsified before
other options taken
• Lower of €63,500 or balance must be
transferred to an AMRF
• Can purchase an annuity
• AMRF requirements do not apply if over
75 years or pension of at least €12,700 for
life
• Section 784C TCA 1997
ARFs
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ARF and AMRF – QFM manager
QFM – Banks, POSB, Stockbrokers, CIUs
Sec 784A TCA 1997
ARF funds remain property of individual
QFM responsible for tax on distributions
ARF/AMRF Tax Treatment
Exempt from tax on income and gains
Withdrawals taxable as emoluments under Sch E
Deemed distribution from ARF of 3%
Death of ARF holder – income/CAT issues
ARF transferred to spouse ARF – no Income Tax
ARF Example
Proprietary Director; Pension fund value €500,000
Tax Free Lump Sum €500,000*25% = €125,000
AMRF €63,500
Balance of Fund €311,500 invested in ARF
2010 ARF Income €15,000 Gain €20,000
2010 actual withdrawal €5,000
ARF Value 31/12/2010
Deemed Distribution 3%
Actual Distribution
Balance
Tax by QFM 31/3/2011 @41%
€346,500
€10,395
€5,000
€5,395
€2,212
ARF on death
• ARF forms part of estate of holder
• AMRF converted to ARF on death
Transfer to Spouse ARF
To child under 21
To child over 21
ARF continues
Tax deferral until withdrawals
made
Exempt from Income Tax
CAT is > threshold
Income tax @ standard rate
No CAT
Others – including Spouse Income tax/HC/PRSI @ marginal
rate of deceased
Pension Payments
• Payments under annuity, AMRF, ARF
subject to PAYE system
• PRSI Class K1 on payments – no PRSI
liability
• HC unless >70/widowed
• Income Levy if no medical card
Round Up
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Employed v Self Employed
Case Law – Main Cases?
Each case considered on its facts
ESG Code of Practice for Determining
Employment or Self Employment
• Employment Law/Pensions
• Keep up to date
Remuneration Issues Round Up
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PAYE legislation – detailed knowledge
Sec 985C- 985F TCA 1997
SP IT/2/2007 – Tax Free Subsistence
BIKS – Notional Pay/Valuation Rules
Specific Rules – Cars/Vans/Pref Loans
and Accommodation
• BIK exemptions – mobile phones; e
working; canteen travel passes
Remuneration Issues Round Up
• Sec 123 TCA 1997 – Termination
Payments
• Exemptions and Reliefs Sec 201 & Sch 3
TCA 1997
• Contractual Rights
• PILON
• Basic/Increased Exemption and SCSB
• Foreign Service Relief
• TSR
Remuneration Issues Round Up
• Salary Sacrifice
• Inducement Payments
• PAYE underpaid – when is credit denied?
Round Up PRSI and Levies
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PRSI/Health Contribution/Income Levy
SWCA 2005 and Regulations
Insurable employment
Deductions for pension contributions
When to claim relief by way of refund?
BIKs and PRSI – what is exempt?
Round Up PRSI and Levies
• Revenue Guide to PAYE
• Department of Social Protection PRSI
Guide
• PRSI for self employed
• Income Levy – Sec 531B TCA 1997
• EU Regs 1408/71 – Articles 13 & 14
• EU posted workers
• Bi lateral Social Security Agreements
Round Up – Share Schemes
• Legislation and Revenue practice
• Detailed and specialist area
• Read and understand governing
documentation
• Strict reporting requirements
• Encourage employee loyalty
• Sec 128 v Sec 112 TCA 1997
• No PAYE on share option schemes
Pensions – Round Up
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Revenue Pensions Manual
Type of schemes?
Other professionals
Salary sacrifice issues
Limits on contributions
Earnings cap
Pensions – Round Up
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Retirement Options
PRSA/RAC/5% directors and AVC funds
ARF and AMRFs
ARF withdrawals
ARF on death
SFT/PFT and BCE
TB 74 – contributions to employed and
self employed schemes
Learning Outcome
• Key Sections of tax legislation –
remuneration and reward
• EU Case law and policy
• Calculations
• Compliance Issues
• Risk Management Issues