480 Relief for certain sums chargeable under Schedule E

Summary

This section provides a measure of relief from income tax in respect of certain lump sum payments which are chargeable to tax under Schedule E. The payments in question are those made to employees to compensate them for a reduction or possible reduction in future remuneration arising from a reorganisation of a business or change in work procedures, work methods or a change of place where the duties of the office or employment are performed. The relief is given by repayment of tax. The relief does not apply to a payment to which section 123 applies. Also, the relief is not available to proprietary directors or employees or to part-time directors or employers.

Details

Definitions and construction

(1)(a) “director” is —

• where a company is managed by a board of directors or other similar body, a member of that board or other body,
• where a company is managed by a single director or similar person, that director or similar person,
• where a company is managed by its members, a member of the company,

and includes any person who is or has been a director.

“proprietary director” is a director who is either the beneficial owner of, or is able directly or indirectly to control, more than 15 per cent of the ordinary share capital of a company.

“part-time director” is a director who is not required to devote substantially the whole of his/her time to the service of a company.

“proprietary employee” is an employee who is either the beneficial owner of, or is able directly or indirectly to control, more than 15 per cent of the ordinary share capital of a company.

(1)(b) For the purpose of the definitions of “proprietary director” and “proprietary employee”, any ordinary share capital of a company which is owned or controlled by a spouse, a civil partner, a minor child or a minor child of the civil partner of such an employee or director, or which is owned or controlled by a trustee of a trust set up for the benefit of persons including any such person or such director or employee, is deemed to be owned and controlled by the director or employee.

Application

(2)(a) The section applies to any payment chargeable to tax under Schedule E which is made to an employee to compensate for —

• a reduction or possible reduction of future remuneration arising from a reorganisation of the employer’s business or from a change in work procedures, methods, duties or rates of remuneration, or
• a change in the place where the duties of the office or employment are performed.

Exclusion

(2)(b) The section does not apply to —

• a termination lump sum payment to which section 123 applies,
• a payment made to —
  • a proprietary director,
  • a part-time director,
  • proprietary employee, or
  • a part-time employee.

Relief

(3) An individual on receiving a payment to which this section applies is entitled, on making a claim and proving the relevant facts to the satisfaction of an inspector, to have the total amount of tax payable by him/her for the year of assessment for which the payment is chargeable reduced to the total of the following amounts —

• the amount of income tax which would be payable by him/her if he/she had not received the payment, and
• an amount equal to tax on the whole of the payment computed at a special rate.

(4) The special rate at which the whole of the payment is to be taxed is determined by ascertaining the additional tax payable if 1/3rd of the payment where included in his/her total income for the relevant year, and then dividing this additional income tax figure by a sum equal to 1/3rd of the whole payment.

(5) Relief under this section is given by repayment. Relief is not available in respect of income the tax on which the claimant is entitled to charge against any other person, or to deduct retain or satisfy out of any payment which he/she is liable to make to any other person.

As Mr A paid tax of €4,990 in respect of his overall emolument, he will be entitled to be reclaim €690 (i.e. €4,990 – €4,300).

Relevant Date: Finance Act 2019