Mark Hynes
Head of Employment Taxes, BDO Dublin
The deadline for filing a PAYE Settlement Agreement (PSA) application with Revenue for the 2023 tax year is 31 December 2023.
Since the introduction of Real Time Reporting in 2019, employers are obliged to report details of taxable benefits, either the day the benefit is provided to the employee or the earlier of either the next pay date or 31 December of that year.
Employers often provide employees with certain ad-hoc taxable benefits or expenses throughout the year. Still, they may not consider it practical or appropriate to operate the PAYE system on these benefits. Examples of these taxable emoluments include gifts, awards, certain staff entertainment or other non-cash awards.
A PSA is a practical way of enabling employers to settle the income tax, USC and PRSI on these taxable benefits provided to employees without the requirement to report these taxable benefits through the PAYE Real Time Reporting process.
How does the PSA process work?
In order to avail of a PSA, an application must be filed with Revenue by 31 December of the same year. E.g. for the 2023 tax year, the application must be filed with Revenue no later than 31 December 2023.
The PSA, together with the corresponding tax liability, must be submitted to Revenue no later than 23 January of the following year. E.g. for the 2023 tax year, the submission and payment must be made by 23 January 2024.
In calculating the taxes due on these benefits, the employer must treat the value of the benefit as an after-tax amount received by the employee and then re-gross this value based on the employee’s marginal tax rate for the year in question. Employer PRSI must also be calculated on the re-grossed amount.
The total taxes due and PSA submission can be processed via the Revenue On-line System (ROS).
Historically, Revenue only required the PSA submission post-year end to provide details on an aggregate basis (as opposed to employee by employee), namely, the aggregate amount of the qualifying emoluments, the total number of employees in receipt of these emoluments and the taxes due on a grossed-up basis.
However, in recent years, there has been a noticeable increase in Revenue activity on PSA submissions seeking more granular detail on the benefits provided. We fully expect this approach to continue.
What benefits qualify?
The employer may avail of a PSA to remit the taxes arising on benefits that meet all of the following criteria:
If any of the above criteria are not met, the benefit must be taxed through the PAYE system as normal.
How can BDO Help?
There has been a significant increase in Revenue PAYE compliance checks over the last 18 months, with minor and irregular benefits being a feature of these reviews. The PSA process provides employers with the opportunity to carry out a full in year review of benefits that may not have been processed through payroll but may meet the qualifying criteria for inclusion on a PSA. This approach is a very effective simplification of the expenses and benefits processes enabling employers to reduce reporting requirements, ensure payroll tax compliance is managed appropriately and help with employee reward.
We can help with application and calculation processes. Still, more importantly, our tax experts can help you understand the extent to which exemptions may apply and the conditions that need to be applied.
We can help with the application and calculation processes. Still, more importantly, our tax experts can help you understand the extent to which exemptions may apply and the conditions that need to be met, so that your budget for staff incentives and entertainment is expensed in the most tax efficient manner.
Mark Hynes