Tax Strategy Group Papers – Employment Taxes

Following the publication of the Tax Strategy Group Papers on 16 September, a number of possible changes and outcomes may appear in the areas of tax arrangements for remote working, Transborder Workers' Relief and PRSI rates. Copies of all papers are available here.

1. Review of Tax Arrangements for Remote Working

Government policy is to facilitate and support remote work. The national remote work strategy aims to ensure that remote work is a permanent feature of the Irish working experience in a way that maximizes the economic, social, and environmental benefits. The TSG paper focuses on options for further enhancements to the current tax arrangements for remote working. The current arrangements are based solely on non-statutory concessions, under which the Revenue Commissioners permit employees to be given relief for additional costs associated with remote working in two ways, either;

  • Payment by their employer of a per diem rate of €3.20 per day, or
  • By claiming a deduction for a portion of light, heat, and broadband costs, based on actual expenditure incurred

Possible Changes

  • The introduction of a statutory per diem rate of €1.50 per day, payable for days when the employee is working from home
  • An increase in the fixed percentage of home heating costs etc that may be claimed as a deduction, also to be placed on a statutory basis
  • The introduction of a scheme of accelerated capital allowances that would enable employers to fully write off the cost of office equipment provided to facilitate remote working in the year the expense is incurred

Likely Outcome

  • No significant change

The placing of the present arrangements on a statutory footing seems inevitable, given the number of employees now availing of remote working arrangements. The likelihood of any significant increase in the per diem rate (or indeed a reduction in same) seem less likely. The TSG paper indicates that the present rate is more or less in line with that allowed in comparison to European countries, although some limited increase might be justified having regard to rising energy costs, including the impact of carbon taxes.

2. Review of Transborder Workers' Relief

Transborder Workers’ Relief is for people who are resident in the State but travel daily or weekly to work in another country and pay tax in that other country. The effect of the relief in many cases is to limit the tax payable on the earnings to the tax already paid in the other country. When first introduced it was largely aimed at individuals living in the border counties and working in Northern Ireland. In the absence of the relief, such individuals would face an Irish tax bill at the year end if the overall rate of UK applied to the earnings were less than the Irish rate. TBWR largely eliminates this additional charge.

Possible Changes

  • Making permanent the Covid-19 concession that allowed TBWR claimants to perform some of their duties in the State, in cases where restrictions on movement prevented them from performing their duties in another country
  • Limiting the availability of the relief to certain types of occupation
  • Placing a cap on the overall level of earnings on which it can be claimed

Likely Outcome

  • No change

Substantive change in the legislation, particularly as regards permitting non-incidental duties to be performed in the State, is not favoured in the report and for that reason, such change appears unlikely.  An earnings cap on the relief, which could be justified on grounds of equity, is a possibility, but might not be considered a priority at this time and would be unlikely to generate any significant additional tax revenue.

3. Future funding of the Social Insurance System and Options for Setting PRSI Rates

The paper reviews the financial position of the Social Insurance Fund (SIF) at the end of 2020, including the impact of the Covid-19 pandemic. The paper also considers funding for the SIF into the future, analyses current social insurance contribution rates and thresholds, including a comparison to EU standards, and sets out a number of proposals for maintaining the viability of the Fund into the future.

Possible Changes

  • Reducing the threshold above which employees are liable to pay a social insurance contribution
  • Starting in 2023, to progressively increase the current employee PRSI contribution rate of 4% to achieve a Class A contribution rate of 5.5% by 2027
  • Starting in 2023, to progressively increase the current employer PRSI contribution of 11.05% to achieve a Class A contribution rate of 12.55% by 2027
  • Increasing the social insurance contribution rate of self-employed contributors to that of the proposed rate of employer social insurance contribution – this would see the PRSI rate for self employed contributors rise from its current rate of 4% to 12.55% over the period from 2023 to 2027
  • This last change would be matched with a merging of the benefits regime, so that self employed contributors would be eligible for the same range of PRSI benefits as employees

Likely Outcome

  • Significant changes, which are likely to be implemented over an extended period

Any review of the funding of the SIF is inextricably linked to future policy on the State Pension and will be influenced by the forthcoming report on setting the State Pension retirement age. Some change in PRSI contribution rates appears inevitable, having regard to future demands on the SIF, although these are likely to be phased in over an extended period.