In keeping with the governments general theme of continuing to support workers and help tackle the cost-of-living crisis, Minister McGrath’s speech included positive enhancements to some existing employment tax initiatives, designed to ease the financial burden on PAYE workers, writes Claire Davey of our People Services team.
Benefit in Kind (BIK) for employer-provided vehicles
With effect from 1 January 2023, benefit-in-kind (BIK) on company-provided vehicles is calculated based the vehicle's CO2 emissions.
The CO2 emission rate of the vehicle now has a major impact in the calculation of the BIK, in addition to the Original Market Value (OMV) and annual business KMs driven.
In recognition of the negative financial impact of the new BIK rule on employee's net pay, the government announced in March this year, a temporary change to the 2023 rules.
While the CO2 categories have not changed, the temporary rules provide a reduction of €10,000 to the OMV of the vehicle in A to D categories which encompass most vehicles other. There is no reduction to OMV s for cars in the E emissions category.
Another helpful temporary measure saw the upper limit of the highest business mileage band (originally set at 52,000KM) reduced by 4,000KM to 48,001KM for 2023.
These temporary measures were set to expire at the end of 2023 however, in a welcome move, the minister confirmed that the above temporary amendments will remain in force for another year until the end of 2024.
BIK on electric vehicles
Finance Act 2022 extended the application of the special BIK rules on electric vehicles to 2025 which permit a fixed reduction in the OMV for the purposes of the calculation.
The Original Market Value (OMV) discount was set to be tapered to zero by 2025 with BIK calculations set to be based on full OMV of the vehicle thereafter.
In an effort to continue to encourage the adoption of greener vehicles, the Budget Day announcement confirms that the tapering of this discount will effectively be deferred by two years.
As a result, the €35,000 OMV discount will apply for both the 2024 and 2025 years of assessment and is scheduled to reduce to €20,000 for 2026 and €10,000 for 2027.
Key Employee Engagement Programme (“KEEP”)
KEEP was introduced in 2018 to improve the attractiveness of the Small and Medium Enterprise (SME) employment offering.
The scheme provides for tax advantageous share options specifically for employees and directors of certain qualifying SME companies.
While Finance Act 2022 gave effect to a number of positive enhancements to the scheme, there were some outstanding commitments which were subject to Ministerial Commencement Order. Following EU state aid approval, the minister confirmed that the government will shortly be able to deliver on these outstanding enhancements which include an extension of the scheme until 31 December 2025 and an increase in the lifetime company limit for KEEP shares from €3 million to €6 million.
While this is a positive move, it is not a new measure as such. There remain many practical issues with the KEEP scheme and it is hoped that the process of reviewing share based remuneration announced in the Budget will lead to further practical refinements to the KEEP measures that will make it more attractive for SMEs.
Review of share-based remuneration
Share-based remuneration is important in many industry sectors wherein employees expect share participation as part of their total remuneration package. This is particularly important in the technology and pharmaceutical sectors where Ireland as a country needs to remain competitive.
It is therefore crucial that our current tax system for share based remuneration is equitable, simplified and in sync with other OECD jurisdictions.
In his speech, Minister Mc Grath recognised the importance of share based remuneration for employers to incentivise and retain key employees and announced that a public consultation will shortly be launched and stakeholders will be invited to submit their views aimed at modernising this area.
PRSI contribution rates increase
In Minister Donohue’s speech, it was announced that the government is planning an increase of 0.1% to all PRSI contribution rates with effect from 1 Oct 2024. This was described as a “modest” increase, but it was made clear that this will be the commencement of further increases over the coming years as part of a prudent approach to addressing the demands of funding of the state pension system.
It is assumed that this increase will apply to all classes of PRSI and not solely employee/employer Class A contributions, although the Social Welfare legislation when available will clarify the final intentions.
What PAYE workers need to know
Aside from announcing increases across a full spectrum of tax credits and tax bands and a well flagged reduction in USC rate of 4.5% to 4%, Minister McGrath also acknowledged that incredibly, millions of euro in income tax refunds goes unclaimed every year.
To address the fact that Irish taxpayers may not be claiming their full entitlement to all available tax credits and reliefs the Minister confirmed the Government would be embarking on a national information campaign to raise awareness of the various credits and reliefs available.
For more information on the quickest, easiest and most convenient way to submit your claims for tax back using PAYE Services in myAccount, click here for more information.
PAYE compliance
Payroll tax compliance remains an area of ongoing focus for Irish Revenue.
The Budget 2024 Tax Policy Changes publication notes that Revenue will be conducting a range of targeted compliance management activities in 2024.
The focus of these interventions is expected to include the operation of PAYE with a particular emphasis on share schemes as previously confirmed by Revenue.
Employer withholding and reporting obligations have undergone significant changes in recent years. The new Code of Practice for Revenue Compliance Interventions which came into effect 1 May 2022 has placed a greater focus on compliance with PAYE rules and regulations.
Increased Revenue scrutiny over employers adherence to the real time reporting requirements also emphasises the importance of having robust PAYE controls so employers recognise when PAYE obligations arise and account for them correctly.
With additional mandatory employer reporting requirements with respect to “reportable benefits” just around the corner, expected to come into force 1 January 2024, this will further enhance an already active PAYE intervention regime.
Given the progressive and ever changing employment tax landscape, it is now more important than ever that employers ensure they are up to date with legislative changes and have the right policies and procedures in place to meet their ongoing compliance obligations.
Consideration should also be given to conducting a PAYE health check in tandem with regular tax process reviews, to identify any payroll tax risks and corrective action that should be undertaken.
Queries? Get in touch
The measures announced in Budget 2024 will affect businesses and individuals across Ireland. If you have any queries on the topics covered above, please contact Claire Davey or Olive O'Donoghue of our Tax team.
We'd be delighted to hear from you.
Claire Davey
Director, Tax
KPMG in Ireland
Olive O’Donoghue
Partner
KPMG in Ireland
