Karshan Settlement Disclosure Opportunity for Employers

BDO Ireland
Insights
2025
Karshan Settlement Disclosure Opportunity for Employers

Karshan Settlement Disclosure Opportunity for Employers

The Revenue Commissioners have published details of a settlement opportunity relating to workers who may have been misclassified as self-employed contractors and for whom tax was not accounted for through the PAYE system.

Following the Supreme Court’s 2023 decision in Revenue vs Karshan (Midlands) Ltd. t/a Domino’s Pizza, Revenue published guidelines for determining employment status. These guidelines have clarified how businesses must determine employment status for tax purposes. This change may impact your business if you have engaged individuals as self-employed, and who, under the new framework, should be treated as employees.

What Does This Mean for You?

The Supreme Court’s judgement brought much-needed clarity to the question of who an employee is for tax purposes. This may, however, mean that in some instances, workers previously treated as self-employed contractors should, post the judgement, be treated as employees, potentially giving rise to outstanding PAYE/PRSI liabilities for their employers.

Recognising that previous legal uncertainty led some employers to act in good faith, Revenue is granting an opportunity to correct worker classification errors. If an employer identifies employees wrongly engaged as contractors in 2024 or 2025, they can now voluntarily disclose this to Revenue on favourable terms.

Favourable Terms:

No interest or penalties will apply to the late payment of payroll taxes.
There will be no gross-up of the amounts paid to the individuals incorrectly treated as contractors.
Income tax rate of 20% and USC blended rate of 3.5% are to be used in determining the payroll taxes due.
Actual PRSI rates for employee and employer are to be used.
In the event an individual has already filed their personal tax return for 2024, a credit will be applied when calculating the net payroll taxes due by the employer.

In order to qualify for these terms, the settlement must be filed with Revenue no later than 30th January 2026. These terms will only apply to cases where misclassification was genuine and not previously under Revenue intervention.

Qualifying Disclosure:

The qualifying disclosure must include details of each individual affected. This will include name, PPSN, employment dates, gross pay, and calculation breakdowns.

Submission of the disclosure should be made via ROS together with payment of the underdeclared taxes. Revenue will agree to a phased payment arrangement on a case-by-case basis.

Separately, PRSI records will need to be manually updated in ROS for each employee to secure their social welfare entitlements.

Finally, the impacted individuals should be advised not to declare this income in their 2024 or 2025 tax returns to prevent double taxation.

Example

An example of how the settlement terms would be calculated are as follows:

Gross Pay	Income Tax (20%)	USC (3.5%)	PRSI (EE)	PRSI (ER)	Total Liability
€20,000	€4,000	€700	€463	€1,765	€6,928
€26,000	€5,200	€910	€1,047	€2,880	€10,037
€30,000	€6,000	€1,050	€1,208	€3,323	€11,581
Total					€28,546

What Happens If You Don’t Act?

If you fail to disclose before the deadline and Revenue later uncovers misclassification, you will be liable for the full taxes, plus interest and penalties. Revenue will treat this as a significant compliance failure. The potential liability would be a multiple of the liability that would apply under the terms of the settlement opportunity. The revised estimated tax liability without this favourable treatment would be as follows:

Net Pay	Re-grossed Pay	Income Tax (40%)	USC (8%)	PRSI (EE)	PRSI (ER)	Total Liability
€20,000	€33,333	€13,333	€2,667	€1,333	€3,683	€21,017
€26,000	€43,333	€17,333	€3,467	€1,733	€4,788	€27,322
€30,000	€50,000	€20,000	€4,000	€2,000	€5,525	€31,525
Total						€79,864

In addition, any settlement may also be published in the Revenue’s defaulters list.

Why Take Action Now?

Avoid penalties and interest and avail of a favourable basis for settlement.
Protect your employees’ social welfare entitlements.
Avoid possible publication.
Secure peace of mind for your business.

How We Can Help:

We can guide you through the process of making a settlement, including:

Reviewing your workforce model and identifying risks.
Calculating your payroll tax liabilities.
Preparing and submitting your disclosure.
Ensuring accurate PRSI records.
Communicating with your employees.