Budget employment tax measures

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. 

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.

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. 

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.