Employment Tax: Current Revenue Intervention Issues

The employment tax landscape in Ireland is constantly evolving. On 1 January 2024 Revenue introduced a new reporting requirement for certain employee benefits and expenses known as Enhanced Reporting Requirements (ERR). At the same time we have seen a shift in Revenue’s focus during PAYE interventions to staff entertainment, employee benefits and travel and subsistence expenses. 

Separately, the Supreme Court has recently handed down a landmark decision on employment status and we expect to see Revenue putting a renewed focus on the area of contractors going forward. 

Staff entertainment

Revenue are adopting an aggressive approach on staff entertainment and are seeking to apply payroll taxes to such expenses where they do not fall within one of the following categories:

1. Free or subsidised canteen meals which are specifically exempt from income tax under tax legislation provided available to all employees. 
2. Provision of staff events or parties which are reasonable and open to all employees.

Revenue’s concession on staff entertainment expenses provides that where an employer provides social events, such as Christmas parties, sports days or other inclusive events, no taxable BIK should arise where expenses are seen to be reasonable and the event is open to all employees. Revenue are not prescriptive in their outline of what may be considered ‘reasonable’ in the context of staff entertainment.

In our experience, Revenue may not regard staff entertainment expenses as being “reasonable” after three to four events are held in a year. Consideration should also be given to the cost of such events for the purpose of the reasonableness test.

Small benefits

Revenue have clarified that the first two benefits made in a year, that meet the small benefit criteria, (i.e. the provision of no more than two vouchers or benefits up to a combined value of €1,000 per annum), will be deemed to be a small benefit and therefore must be reported under ERR.

Revenue have stated that an employer may not opt to tax the first and/or second voucher/benefit in a year of assessment (whether via payroll taxes or by way of a PAYE Settlement Agreement) to allow an employee to avail of the exemption later in the year when further, perhaps larger benefits are granted. Care should therefore be taken by employers in timing such small benefits.

Travel and subsistence

A renewed focus on the correct application of payroll tax exemptions for travel & subsistence payments to employees has been driven by the new ERR reporting requirements. Reimbursement of travel and subsistence expenses may be made without the deduction of tax where:

1. The employee is temporarily away from their normal place of work in the performance of their duties; and
2. The expenses are necessarily incurred.

The question as to the location of the employee’s ‘normal place of work’ may not always be clear. The employer’s base may not always correspond with the employee’s normal place of work.

Revenue do not generally accept that ‘home’ is the normal place of work, other than where there is an ‘objective’ requirement for an employee to work at home. In essence, careful consideration of the employee’s normal place of work is required and may change through the course of their employment or indeed it may be possible for them to have more than one normal place of work.

Contractors

Following the Supreme Court’s judgement on 20 October 2023 in The Revenue Commissioners v. Karshan (Midlands) Ltd. t/a Domino’s Pizza, Revenue issued a press release stating that they encourage all businesses that engage contractors, sub contractors or workers on a self-employed basis to review the nature of these arrangements in light of this judgment.

The factual matrix of the contractor engagement may be one which is deemed to be akin to an employment arrangement for tax purposes and thus the engaging entity may be required to operate payroll withholding taxes.

Employers who engage contractors should therefore urgently review their tax status by reference to the five tests that were used by the Court in coming to their ultimate decision.

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At Grant Thornton, our specialist Employer Solutions team have extensive experience in managing compliance requirements for clients. If you would like to discuss, please contact a member of our Employer Solutions Team, or your usual Grant Thornton contact.

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