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Stage 3 Module 2 Remuneration and Rewards

Stage 3 Module 2 Remuneration and Rewards. Chartered Tax Consultant. 15 th /16th June 2012 Chartered Accountants House. Module 2 - Learning Objectives. What should you be able to do? Advise clients - employer and employee perspectives of remuneration and reward

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Stage 3 Module 2 Remuneration and Rewards

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  1. Stage 3 Module 2 Remuneration and Rewards Chartered Tax Consultant 15th/16th June 2012 Chartered Accountants House

  2. Module 2 - 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 and USC– advise and calculate

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

  4. Overview – Legislation SWCA 2005 – PRSI – Irish Statute Book Part 5 TCA 1997 Schedule E Sec 112 - Charge Sec 113-115 - Computation Sec 116-122A - Expenses and BIK Sec 123 - Termination payments Sec 127 - Restrictive Covenants Part 42 Chapter 4 TCA 1997 Sec 983 – 997A TCA 1997 PAYE

  5. Overview – Legislation 3. USC Part 18D TCA 1997 Sec 531AL - 531AAC TCA 1997 4. Share Schemes Part 17 TCA 1997 Sec 128 – 128E Share Schemes Sec 509 TCA – 59D TCA – Approved Share Schemes 5. Pensions Part 30 TCA 1997 Sec 770-790C TCA 1997

  6. Legislation Summary

  7. 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?

  8. Contract of Service Employer/Employee status Employer PAYE/PRSI liability and obligations Employment law, pension provision, public liability insurance Module 2 covers the tax and social security implications

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

  10. 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 from other professionals

  11. 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

  12. Case Law

  13. Case Law

  14. Case Law

  15. Case Law

  16. Case Law

  17. 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

  18. Published Guidelines

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

  20. 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

  21. 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

  22. PAYE – Earning Basis XML Ltd pays 2010 bonus in March 2011 of €10,000 to employee PAYE deducted @ 41% Employee liable at 20% in 2010 Tax Return filed for refund of tax USC at 2011 rates

  23. 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

  24. 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

  25. 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

  26. Sch E Expenses-Case Law

  27. 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

  28. 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

  29. 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

  30. Subsistence Expenses

  31. Motoring Expenses Kilometric allowance scheme

  32. 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

  33. Foreign Employment Issues Temporary Foreign Students coming to Ireland 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 USC not deductible if employee resident in DTA country – eBrief 82/2011

  34. Foreign Employments in Ireland Foreign employment contract = foreign possession – Case III? Section 18(2)(f) Case III 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

  35. 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

  36. Limited Remittance Basis Non domiciled high earners Special Assignment Relief Programme Sec 825B TCA 1997 Assignment ≥ 1 year Resident for first time 1.1.2010 onwards Previously resident and employed by same employer in DTA country

  37. SARP – Sec 825B TCA 1997 Taxable amount 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

  38. SARP Example Qualifying employee -US Salary €350,000 Remittances for 2011 = €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

  39. PAYE – Foreign Employments

  40. PAYE – Foreign Employments

  41. PAYE Direction?

  42. Temporary Assignees SP IT/3/07

  43. 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

  44. 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

  45. Benefits in Kind

  46. BIK Notional Payment PAYE applies to BIKs since 2004 Value of BIK = notional payment by employer Where net salary less than amount of PAYE due on BIK Employer obliged to pay PAYE to Revenue Where employee reimburses employer by 31st March, amount repaid not treated as emolument Otherwise Sec 985A(5) TCA 1979 treats PAYE as taxable emolument

  47. 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

  48. 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

  49. 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

  50. Preferential Loans Sec 122 TCA 97 Charge on Specified Rate – Actual Rate 2011 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

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