At the time of writing this article, there is a strong sense of positivity that an end to COVID-19 is on the horizon, and with it a renewed sense of optimism that we can once again imagine a world without social and economic restrictions. Claire Davey, Head of PAYE & Personal Tax Compliance, explains how this may affect employment taxes.

Such restrictions fundamentally changed our daily lives and routines unlike we have ever witnessed before, and Irish employers who were required to adapt quickly to these changes and respond nimbly to a constantly evolving employment tax landscape, were no exception.

Whilst this new environment set forth many challenges for employers, it also provided many opportunities for employers to reshape their existing work practices, employment tax models and attract a broader talent pool.

Keeping employers up-to-date

Understanding the many employment tax changes, including temporary COVID concessions introduced at the early stages of the pandemic, was important and necessary to help employers manage their compliance obligations effectively during the pandemic and minimise the cost impact to their business.

As Ireland reopens and restrictions are eased it is imperative for employers to keep abreast of any employment tax updates in the area and to ensure they are not relying on COVID concessions which are no longer available in practice.

This article aims to bring employers up-to-date on the most recent employment tax developments in the area, as employers look ahead to the future, including recommended actions they should consider in a post-COVID environment. 

Employment Wage Subsidy Scheme (EWSS)

Central to the government’s response to the serious impact of the pandemic has been the EWSS and its predecessor, the Temporary Wage Subsidy Scheme (TWSS), which has provided much needed cashflow assistance to employers, amid difficult trading conditions.

These COVID income support schemes have been instrumental in serving to keep many businesses operational whilst also supporting job retention and income protection for employees.

For employers already availing of EWSS on 31 December 2021, the scheme is due to close on 30 April 2022 with a phased exit scheme. 

Principally, following the recent Finance Act changes, the enhanced wage subsidy rates have been reduced for February and further again for March and April to a flat rate subsidy of €100 per week per qualifying employee, with a return to full rates of employer PRSI, with effect from March 2022.

Helpfully, in response to the Public Health Regulations (PHR) in place between 20 December 2021 and 22 January 2022, Revenue announced some variations to the phased exit for employers directly impacted by these restrictions. This typically includes businesses in the hospitality sector, e.g., hotels, restaurants, bars, wedding venues etc.

For such employers they should review their situation to determine whether they qualify for the enhanced rates for an additional month to 28 February 2022, and also for an extension to the conclusion of the scheme to 31 May 2022.

Benefit in Kind (BIK) COVID Concessions

The taxation of BIKs has seen some temporary Revenue concessions being applied “for the period of the COVID-19 restrictions”. 

Until recently it was unclear precisely when these concessions would be withdrawn. Following a Revenue announcement in December 2021 some clarity has now emerged, and so employers need to be aware of these details in order to ensure accurate and timely operation of their payroll going forward.

A brief summary is provided below: 

Employer-provided vehicles

In response to the COVID-19 pandemic, it was necessary for Revenue to introduce some temporary measures in relation to the operation of BIK on employer-provided vehicles. 

The business mileage performed by an employee each year is paramount to the determination of the taxable BIK which can range from between 6% and 30% of the Open Market Value of the vehicle (OMV) provided. Under the COVID-19 concessions available, Revenue allowed the BIK to be based on the business mileage performed in January 2020 in order to determine which percentage of the OMV is subject to BIK taxation. Without this concession, there would almost certainly have been a significant reduction in business mileage performed during that period and as a result, a higher BIK charge on the employee.

In their most recent update, Revenue has confirmed that this measure will apply for the 2020 and 2021 years of assessment. For 2022, Revenue have agreed that the measure will only apply for the period where there is a public health guidance requirement for all employees to work from home, unless it is necessary to attend the workplace in person.

As such, from 1 January 2022, where public health guidance no longer requires an employee to work from home, the BIK charge on an employer provided vehicle should be calculated based on actual business mileage performed. 

COVID testing/flu vaccination

Under the recent update, where an employer incurs an expense in the provision of COVID-19 testing and facilitation of flu vaccination, there will be no taxable BIK arising in 2022, and subsequent years will be provided for on a statutory basis.

Taxi fares

Revenue also agreed that a charge to tax will not arise where an employer provides a taxi or pays for a taxi to transport an employee to or from home and the workplace due to health and safety concerns arising from the COVID-19 pandemic.

This concession is due to continue until 30 June 2022 but will be subject to further review before that date.

Small benefit exemption

The tax rules have traditionally permitted employers to provide a voucher or incentive to an employee without giving rise to a charge to tax where certain conditions are met. This is commonly referred to as the “small benefit exemption.”

Following the start of the COVID-19 pandemic, Revenue has in certain circumstances concessionally waived the requirement that only one voucher issues per year for the 2020 and 2021 tax years. 

It applies where the additional award is related to an employee's exceptional efforts during the COVID-19 pandemic and where the employee continued to work during the restricted period.

Provided the maximum cumulative value of incentives does not exceed €500, under the concession, it is possible to provide more than one tax free voucher per tax year.

This concessionary treatment will continue to apply for 2022.

Remote working at home and cross border

COVID-19 has significantly altered the way in which we work and indeed from where we work. With the steep rise in remote working over the last couple of years, with effect from 2020 Revenue now permit a tax deduction for a proportion of employee home utility bills to be deducted against employment income. Alternatively, Revenue allows employers to make a flat rate tax free payment of €3.20 for each day worked at home.

Revenue also permits employers to provide the necessary equipment for remote working (e.g., computer equipment and office furniture) without tax consequences, so long as the equipment provided is primarily used for work purposes and private use is incidental. It is important to note that the employer must provide the equipment to the employees. Employees incurring the cost of the provision of such equipment and then seeking reimbursement from the company will not qualify for tax-free treatment.

The trend of home/remote working seems set to continue as the government is currently introducing legislation providing greater rights for employees who wish to work remotely.

Aside from the need for employers to stay aware of the inevitable employment law matters about to surface, they need to stay aware of Revenue tax rules regarding home working.

In particular, where employees seek to base themselves outside of Ireland for extended periods, this can carry foreign employment tax risks as well as other issues beyond employment taxes, including personal taxes, social security, corporation tax and even immigration. Advice should be sought before agreeing to employees spending extended time working remotely outside the jurisdiction.

Real Time Reporting (RTR) for PAYE…. a final word

The introduction of RTR from 2019 has fundamentally changed the PAYE landscape, in particular the way employers interact with Revenue.

Revenue is now accessing taxpayer data in real time to reduce the risk of under reporting and non-payment of tax. Revenue was lenient during 2019 to allow employers to get to grips with the new system but had promised a harder approach thereafter. COVID-19 has no doubt deferred this intention, and it would now seem an opportune time for additional Revenue scrutiny in the form of PAYE audit and interventions.

Indeed, at a Revenue branch meeting held in late 2021, Revenue announced that they continue to identify errors in PAYE reporting and will be focusing on data quality in this area through 2022.

Underpinning this intention, Revenue released a new Code of Practice for Revenue Compliance Interventions on 11th February. 

The revised Code will come into effect on 1 May 2022 and replaces the current Code of Practice for Revenue Audits and other Compliance Interventions 2019.

This update reflects Revenue’s new Compliance Intervention Framework (the Framework) which will come into operation on 1 May 2022. The Framework introduces changes to Revenue’s long-standing approach to compliance interventions with consequential changes to disclosure opportunities.

Given this renewed Revenue compliance focus, the progressive nature of employment taxes and of course the many challenges brought about by COVID-19, now is an ideal time for employers to undertake a self-review of their PAYE operation including processes and procedures to ensure they are fully tax compliant.

This article first appeared in the Chamber Chronicle and is reproduced here with their kind permission.

Get in touch

If you have any queries regarding employment taxes, please contact Claire Davey, Head of PAYE and Personal Tax Compliance at KPMG in Ireland. We'd be delighted to hear from you.

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