Employment tax

The Minister’s Budget speech introduced enhancements to some existing initiatives designed to ease the financial burden on PAYE workers. However, the published draft of Finance Bill has introduced both additional benefits and some unexpected limitations to these measures.

The Bill confirms several positive changes, such as enhancements to the Small Benefit Exemption (SBE), and an extension to some temporary measures regarding company vehicles, including a BIK exemption for electric vehicle chargers provided at the homes of employees. At the same time, the Bill introduces some less favourable employment tax measures, including a sunset clause for the SBE and new limitations on employer pension contributions.

The Bill confirms and expands upon budget day announcements regarding the SBE which will come into effect from 2025 onwards.

Under the current SBE rules an employer can provide  two small tax-exempt benefits to an employee in a year with value up to an annual limited of €1,000. The annual limit for the exemption will now be increased to €1,500 and employers may provide up to five small tax-exempt benefits in a year. These enhancements should facilitate greater flexibility to employers in providing non taxable rewards to their employees throughout the year as they see fit.

However, in an uannounced move the Bill has introduced a new provision which stipulates that the SBE will cease to have effect from 2030 onwards. This represents a disappointing development for both employers and employees. It is currently unclear whether a replacement scheme is planned from 2030 onwards or if this valuable tax relief will cease entirely at that time.

In recognition of the negative financial impact of the BIK rule changes for company provided vehicles, in March 2023 the government provided for a reduction of €10,000 to the Original Market Value (“OMV”) of vehicles in the A to D emissions categories which cover most vehicles.

This temporary measure was due to expire at the end of 2024 however, in a positive development, the Bill confirms that this concession will remain in place until the end of 2025. 

Current legislation provides for a fixed reduction in the open market value (OMV) of electric vehicles (EV’s)  for the purposes of BIK calculation on their provision to employees. Under the Bill, the current €35,000 OMV discount is proposed to continue for 2025 but will taper down to €20,000 in 2026, €10,000 in 2027 and nil in 2028.  EV owners in the A to D emissions categories will also benefit from the additional temporary €10,000 reduction to OMV for 2025.

Additionally, a BIK exemption is being introduced for the expense incurred by corporate employers on the provision of electric vehicle chargers at the homes of directors and employees. The Bill confirms that this exemption comes into effect from 2025 onwards.

The continuation and expansion of these measures acknowledges the ongoing financial pressures faced by employees and should provide greater certainly to employers regarding fleet management. It also aligns with the broader government initiatives to encourage the use of lower emission vehicles.

The Bill contains some important and welcome amendments to the SYT rules applicable to cross-border employees who arrive in or depart from Ireland for extended work purposes.

Under the Irish tax residence rules, an individual is regarded as either resident or non-resident for a full tax year. The current SYT rules are designed to prevent double taxation on employment income for cross-border employees by deeming the employee to be

• tax resident in Ireland from the date of their arrival where they are Irish tax resident in that year, have not been Irish tax resident in the prior year and will be tax resident in the subsequent year;
• Non-Irish tax resident from the date of their departure where they are an Irish tax resident in that year and will not be so resident in the subsequent year

Contrary to established practice going back a number of years, Revenue has recently been disallowing SYT claims where the taxpayer failed to elect for the relief by the end of the year of arrival/departure causing issues for many taxpayers.

In a positive development, the Bill seeks to address this issue by providing that, with effect from 2026, even where an individual does not make a formal SYT election in year of arrival or departure, the relief will still apply if the residence conditions described above are met by the individual in respect of each of the noted years. 

The legislation continues to provide for an election by an individual for the application of SYT in the year of arrival or departure based on future residency intentions.

The amendments are overall positive developments in view of the current experience whereby multiple claims are being disallowed by Revenue. This will provide a greater degree of certainty and simplification of the tax treatment for mobile employees going forward.

The Bill has introduced a number of significant legislative changes to limit the tax relief available on employer contributions to both PRSAs and PEPPs. Any employer pension contributions above the “employer limit” will be treated as a taxable BIK.

The Bill defines the employer limit as 100% of the employee’s remuneration for the year assessment. Where the employee’s remuneration for the current year is less than the prior year, the prior year remuneration is taken as the employer limit where the difference is due to one or more of the following:

• The employee was in receipt of Social Welfare payments which are deemed to be employment income for income tax purposes, e.g., maternity benefit, paternity benefit, old age (contributory) pension etc;
• The employee took a period of unpaid leave; or
• The employee was on sick leave, with the employer paying the employee reduced/no pay during this period.

The Bill also provides that only employer contributions to PRSAs/PEPPs within the employer limit will be deductible for corporation tax purposes.