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Stage 3 Module 3 Remuneration and Reward

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  1. Stage 3 Module 3 Remuneration and Reward Chartered Tax Consultant Patricia Quigley 10/11 June 2011 Chartered Accountants House

  2. Module 3 - Learning Objectives What should you be able to do? Advise clients - employer and employee perspectives of remuneration and reward Read and interpret tax legislation, EU case law and direct tax policy Compliance issues – obligations and risks PRSI, health & Income Levy – advise and calculate

  3. Overview – 5 Topics Employed v Self Employed Remuneration Issues PRSI and Levies Share Schemes Pensions

  4. Employed or Self Employed? “Employed” or “Self Employed” not defined in Taxes Acts or Social Welfare Act For PRSI “Employed Contributor” where contract of service (First Schedule SWCA 2005) Contract for service therefore taxed as self employed Is there a contract of service or a contract for services?

  5. Contract of Service Employer/Employee status Employer PAYE/PRSI liability and obligations Employment law, pension provision, public liability insurance Module 3 covers the tax and social security implications

  6. Contract for Services Self Employed Schedule D Case II Self Assessment for Income Tax PRSI for the self employed VAT Registration may apply

  7. Employed v Self Employed? Determination can be difficult Key - determine if contract for services or contract of services exists Case Law and Published Guidelines Each case to be considered on its own facts Consider advice of other professionals

  8. Case Law-Employed v Self Employed Three sources of Case Law Tax Cases Social Welfare Cases Employment Law UK Case Law is relevant in Ireland

  9. Case Law

  10. Case Law

  11. Case Law

  12. Case Law

  13. Case Law

  14. Published Guidelines Tax Briefings 33 and 82 Code for determining Employment v Self Employment Status of Individuals 2002/2007 (TB 43) eBrief 05/2010 Important reference tools Not legally binding Open to alternative interpretation

  15. Published Guidelines

  16. Employment Tax Issues - Overview Non PAYE Income Expenses and BIKs Foreign Employments Salary Sacrifice Termination Payments Inducement Payments/Restrictive Covenants PRSI and Levies Share Schemes Pension Plans

  17. PAYE PAYE Regulations SI No 559 of 2001 Revenue Employer’s Guide to PAYE PAYE applies to payment of emoluments Sec 983 TCA 1997 – “anything assessable to Schedule E” Sec 985 TCA 1997 – PAYE deductible at time of payment

  18. PAYE S19 TCA 1997 charges tax under Sch E S112 TCA 1997 – basis of assessment for Sch E “…all salaries, fees wages, perquisites..computed on the amount..for the year of assessment.” Earnings basis applies Employer obligation satisfied under PAYE

  19. PAYE – Earning Basis XML Ltd pays 2009 bonus in March 2010 of €10,000 to employee PAYE deducted @ 41% Employee liable at 20% in 2009 Tax Return filed for refund of tax Income levy at 2010 rates

  20. PAYE Taxpayers – Self asst? Non-PAYE income can be coded-Sec 986(1)(k) TCA 1997 Tax Briefing 62 – determining if a PAYE taxpayer is a chargeable person Obligation to file if Revenue request a Tax Return

  21. Expenses in Employment Round Sum Expenses Expenses incurred wholly, exclusively and necessarily Payment of expenses under Revenue Guidelines PAYE Reg 10(3) ER PAYE Guide Gross Up Sch E Sec 114 TCA 97 Approved pension cons CA on P&M eg car/van Vouched expenses Flat Rate Expenses Subsistence Expenses

  22. Schedule E Expenses S117 TCA 1997 – treats expense payments as a perquisite under S112 S114 TCA 1997 – claim for deduction if “wholly, exclusively and necessarily incurred in the performance of the duties” Contrast with s81(2)(a) TCA 1997 for Case I/II expense deduction – “wholly and exclusively” test

  23. Sch E Expenses-Case Law

  24. Vouched Expenses Employee claims expenses with receipts Employer reimburses amounts incurred Reimbursed expenses not treated as pay if incurred “wholly, exclusively and necessarily” in carrying out duties of employment Excludes entertainment – Sec 840 TCA 97 Restrictive test Travel and subsistence – separate rules

  25. Flat Rate Expenses Revenue list - www.revenue.ie Electrician Dentists in employment Driving Instructors Firefighters Freelance Actors (PAYE) Home helps Journalists Nurses RTE orchestra Deduction €153 €376 €125 €272 €750 €256 €381 €733 €2,476

  26. Subsistence Expenses Revenue Leaflet IT 54 Daily basis system  “per diems” Flat rate expenses paid – Civil Service Rates Internal control system vital – Revenue Audit issues Revenue approval not required Rates for Ireland and overseas subsistence

  27. Subsistence Expenses

  28. Motoring Expenses Kilometric allowance scheme

  29. Foreign Employment Issues Irish employments – duties exercised abroad Irish source of income – S984 TCA 97 applies PAYE S 821 TCA 97 – non resident not liable S984 TCA PAYE exclusion Order “remedy” – all duties outside Ireland* Temporary assignments/No Irish duties/temporary Foreign Students *Incidental duties allowed in Ireland - up to 30 days

  30. Foreign Employment Issues Temporary Foreign Students PAYE Exclusion Order – certain exchange programmes - USIT, IAESTE or AIESEC Maximum stay 4 months Irish tax credits covers income tax liability ALL PAYE EXCLUSION ORDER CASES Employer responsible for PAYE Exclusion Order PRSI deductible – not HC Income Levy not deductible if employee resident in DTA country

  31. Foreign Employments in Ireland Foreign employment contract = foreign possession – Case III? Section 18(2)Case III(f) Income attributable to performance of duties in the State – Schedule E Sections 985C, 985D, 985E, 985F Revenue SP IT/3/07 – employee payroll issues for non Irish employments

  32. Remittance Basis? Non domiciled, residents individuals Foreign employment contract liable under Schedule E if duties exercised in Ireland Income attributable to duties outside Ireland liable under Sec 71(2) TCA 97 Consider separate employment contracts if duties both in Ireland and other countries

  33. Limited Remittance Basis Non domiciled high earners Special Assignment Relief Programme Assignment ≥ 1 year Resident for first time 1.1.2010 onwards Previously resident and employed by same employer in DTA country

  34. SARP – Sec 825B TCA 1997 Tax restricted to greater of: Amounts earned and remitted or An amount of €100,000 + (50% of emoluments > €100,000 ) PAYE operated during tax year Refund claim must be made Claw back if employment income subsequently remitted

  35. SARP Example Qualifying employee -US Salary €350,000 Remittances for 2010 = €75,000 (net) PAYE deducted = €45,000 Sec 825B: Taxable on greater of €120,000 or €100,000 + (€350,000-€100,000) *50% = €225,000 Claim refund on €350,000-€225,000

  36. PAYE – Foreign Employments

  37. PAYE – Foreign Employments

  38. PAYE Direction?

  39. Temporary Assignees SP IT/3/07

  40. SP IT/2/07 – Travel & Subsistence Limited tax free regime for short term assignees - first 12 months of assignment Assignments ≤ 24 months and assignee employed outside Ireland for ≥ 3 months Intention to return to original foreign employer location Vouched or flat rate expenses Reasonable accommodation and utilities Travel to/from Ireland/one round trip

  41. Benefits in Kind Perquisite or BIK? BIK cannot be converted into money Accommodation/Travel/Use of company assets Employee generally taxed on cost to employer – special valuation rules for some benefits Deduction for amounts “made good” by employee BIKs liable to PRSI and Levies

  42. Benefits in Kind

  43. BIK Valuation General Example Specific Rules Revenue Emp Guide Cost to employer or realisable value to employee TVs/White goods provided – where employer is manufacturer of goods BIK = > expense of producing and RV to employee Vehicles/Pref Loans /Accommodation Good reference source

  44. BIK Living Accommodation Sec 118 – annual value + expense incurred Open Market Value Rent – tenant responsible for usual expenses Revenue Guide – 8% of MV Vouched figure of estimated rent

  45. BIK- Medical Insurance BIK = Gross premium paid by employer ER pays premium net of TRS ER pays TRS to Revenue with IT/CT EE claims TRS – can be done through tax credit cert Gross premium paid by ER of €3,000 Notional pay through payroll is €3,000 TRS* due to EE €3,000 @ 20% = €600 *Must be claimed by employee

  46. Preferential Loans Sec 122 TCA 97 Charge on Specified Rate – Actual Rate 2010 SR = Residential 5%; Other 12.5% SR can be lower for “trade lenders” Relief may be available under S 244 TCA 97 for home loans

  47. Preferential Loans Sec 122 TCA 97 S 122(1)(b) TCA 97 – anti avoidance Loans to/from connected parties of employer/employee Loans prior to employment and to ex employees Loans written off

  48. Preferential Loans Loan of €80,000 @4% Granted to employee as home loan Interest paid 2010 = €3,200 Specified Rate is 5% €10,000 of loan written off BIK 2010 Interest @ 5% = €4,000 Interest paid = €3,200 BIK €800 Liable to PAYE, PRSI and Levies Tax Relief S 244 €10,000 BIK

  49. Company Cars Cash equivalent rules S 121 TCA 1997 OMV of vehicle on first registration Second hand cars -MV when new (not 2nd hand cost) Cash discount up to 10% normally allowed BIK reduced by employee reimbursement Old rules-cars provided in 2008 and earlier New Rules-cars first provided in 2009 and later

  50. Company Cars