Introduction

The changes in Finance Bill 2013 relating to taxation of maternity benefit and termination payments bring previously tax exempt payments within the charge to PAYE/PRSI/USC. Employers will need to implement these changes in 2013. It is hoped that this additional work load may be balanced to some extent by the simplified initiative announced in the Action Plan for Jobs 2013, targeted at employers and due to be launched by the end of June 2013.

Finance Bill 2013

The Finance Bill was published on 13 February 2013. The issues covered in this section are based on the legislation as initiated.

Taxation of Maternity Benefit

Section 8 of the Finance Bill brings Maternity Benefit, Adoptive Benefit and Health and Safety Benefit within the charge to tax. The amounts paid are deemed to be emoluments arising from an employment. The payments are chargeable under Schedule E and PAYE applies. Benefits payable on or after 1^st July 2013 will be taxable. Social Welfare Benefits are exempt from the USC and PRSI. Increased payments for qualified child dependants are not taxable.

Maternity Benefit is payable by the Department of Social Protection. The amount paid is based on the claimant's PRSI record and the weekly payment is 80% of gross income, subject to a maximum weekly payment of €262 in 2013. It is paid for 26 weeks. Adoptive Benefit is paid at a similar rate for 24 weeks. Health and Safety Benefit is paid to pregnant or breastfeeding claimants and whose employer cannot provide a “risk free” working environment under the Maternity Protection Act 1994.

The operation of PAYE on these benefits will be similar to those introduced for Illness Benefits.¹ The amount of benefit will be notified to employers by the Department of Social Protection and this should be included as taxable pay. It is likely that employers will be obliged to use the personal weekly rates of benefits where there is no notification from the Department. The procedures to be followed will depend on whether the employee continues to be paid by the employer whilst on sick leave. USC and PRSI will not apply to the amounts of the Maternity Benefit payable but will be deductible from salary (either full or partial) which continues to be paid during the maternity leave period. It is also assumed that Forms P60, P45 and P35L will be adapted to include details of taxable Maternity Benefits.

Full information on the application of PAYE to Maternity benefits is likely to follow, after the passing of the Finance Act 2013, in PAYE Regulations and Revenue Leaflets.

The impact on payroll operations may be less of a burden if the same procedures that are in place of Illness Benefit are followed. However, employees on maternity leave may face a substantial decrease in net payment as a result of the new provisions from 1^st July 2013. Employers will need to explain the impact of the changes to employees. It is likely that employers making a “top up” payment to employees on maternity leave may now reduce the amount of this payment as the net cost will increase due to the maternity benefit being taxable. Therefore, tax advisors need to be mindful of both the PAYE compliance for the employer as well as the impact of the reduction in net pay for the employee. For example, will employees want to return to work earlier than planned and what are the employment law implications? The taxation of maternity benefit may also affect the take up of additional maternity leave under the revised EU Parental Leave Directive which extends parental leave from 14 weeks to 18 weeks. This directive was signed by the Minister this month.

Termination Payments

The Finance Bill includes the provisions introduced by Financial Resolution on Budget night which removed Top Slicing Relief for termination payments over €200,000 and also introduces further restrictions. A summary of the changes are:

• Top Slicing Relief, which gave relief by taxing the taxable portion of a termination lump sum at the average rate of tax over the previous 3 years will not apply to termination payments of €200,000 or more made on or after 1^st January 2013
• Foreign Service Relief – which could be claimed on termination payments where the employee had foreign service – is abolished. Some employees could have claimed full exemption under these provisions. This will apply to payments made from the date of the passing of the Finance Act
• The exemption for payments made on account of death or disability of an employee or director is being limited to €200,000 for payments made on or after the passing of the Finance Act

The above changes may have the greatest impact on the employee but will also be of relevance to employers. Any payments currently being negotiated where foreign service relief may apply or being made on account of the death or disability of the employee need to take account of the changes taking effect from the passing of the Act.

Employers will also have increased redundancy costs resulting from the abolition of the 15% Employer Rebate on statutory redundancy. This change, which was included in the Social Welfare Bill, has effect from 1^st January 2013.

Universal Social Charge

Section 3 of the Finance Bill gives effect to the Budget changes for USC rates for the over 70s and full medical card holders. Prior to the change the top USC rate for full medical card holders (of any age) and all those over 70 was either 4% or 7%. For employment income, the top rate was 4%. The 7% rate for these two categories applied to non employment income in excess of €100,000. From 1^st January 2013, the reduced rates will only apply where the income chargeable to USC is €60,000 or less.

Employers should review any cases where a USC exemption applied for 2012 and check if the income limit of €60,000 will affect this rate for 2013. This will mainly affect employees with full medical card holders. The introduction of the €60,000 income cap for the over 70s is likely to affect pension payrolls but will apply to any employees over 70 and will include directors.

PRSI Free Allowance

The first €550 per month (€127 per week) for employees was not liable to PRSI. This PRSI free allowance has been abolished from 1^st January 2013 and was announced in the Budget.

Local Property Tax – Employers

The Finance (Local Property Tax) Act 2012 has a provision that may impact on employers. The Act provides for deduction of Local Property Tax (LPT) at source where the person liable to pay the tax does not pay the liability. Revenue has power to instruct employers to deduct the LPT from employees’ pay. LPT can also be deducted from any refund of PAYE, PRSI or USC by an employer to an employee who has not paid the LPT due. Employees will also have the option to request deduction of LPT at source from salary by choosing this option on their Form LPT1.

Employer Incentives

Two employer incentive reliefs are to be withdrawn and replaced later this year by a new incentive.

The Finance Bill provides for the abolition of Sections 88A and 472A 1997. These two sections grant relief for employment of long term unemployed individuals. The reliefs are known as the Revenue Job Assist Scheme.²

The schemes are to cease on a date to be appointed by the Minister for Finance. These schemes will be replaced by “fixed grant payment to businesses for each new employee”, as announced by Joan Burton on 22^nd February 2012. This is provided for under the 2013 Action Plan for Jobs.

Section 88A TCA 1997 gives employers a double tax deduction for 3 years for emoluments paid to certain long term unemployed individuals

• The employee must be in receipt of jobseeker benefit, one parent family allowance or be attending a qualifying course prior to taking up employment
• The employment must be of 30 hours or more per week and be capable of lasting more than 12 months
• The double tax deduction includes Employers’ PRSI

Section 472A TCA 1997 allows qualifying employees claim additional personal and child allowances for a 3 year period. The employee must have been unemployed for a 12 month period. This can include time on certain training courses and JobBridge. The employment must meet the same conditions as set out above for Section 88A relief. Relief is allowed at the marginal relief of tax and is tapered over three years.

	Additional Personal Tax Allowance	Additional Child Allowance
Year 1	€3,810	€1,270
Year 2	€2,540	€850
Year 3	€1,270	€425

The second scheme which will be replaced by the new incentive announced in the Governments Action for Jobs 2013 is the Employer PRSI Incentive Scheme. This scheme grants an employer exemption from PRSI for 18 months for new employees who have been unemployed (or on JobBridge or a qualifying training course) for 6 months or more. The job must be for at least 30 hours per week and last for 6 months. The exemption applies to a maximum of 5% of the workforce or 5 new jobs for smaller business. The Employer PRSI relief can be claimed in addition to the double wages deduction under Section 88A outlined above.

2013 Action Plan for Jobs

The Government announced the 2013 Action for Jobs on 22^nd February 2013. This plan contains “...seven Disruptive Reform measures that are Government priorities for 2013 and have been identified as having potential to have a significant impact on job creation,...”

Disruptive Reform 5 outlines plans for the JobsPlus Initiative. Its stated ambition is “to provide a beneficial, easily identifiable and user friendly initiative targeted at employers who take on additional employees from the Live Register.”

Under JobsPlus, the Employer PRSI Incentive and Revenue Tax Assist Schemes will be replaced by a simplified initiative. The rationale for this change is the low take up of the existing schemes and the following statistics are included in the report.

	Employers	Employees
Revenue Job Assist	794 (2011) 342 (2010)	650 (2010)
Employer PRSI Scheme	780 (prov to Q4 2012)	1,030

JobBridge is considered by the report as being exceptionally successful with a take up of 13,232 since the scheme commenced in July 2011.

The new scheme will provide a fixed grant payment to businesses for each new employee. It will be operated by the Department of Social Protection. There will be two levels of grants, payable on a monthly basis, over 2 years. The scheme is due to be launched by the end of June 2013. A promotional campaign has been included in the action plan.

Length of Unemployment	Incentive Amount
> 12 months < 24 months	€7,500
>24 months	€10,000

The typical value of the incentive over two years has been estimated at 23% of the gross national minimum wage, including employer PRSI.

Conclusion

The changes introduced in the Finance Bill 2013 have an immediate impact on employers. Employers will need guidance on the following

• the need to review payroll systems for compliance with the taxation of maternity benefit before July 2013 and informing employees of the impact of changes on net pay
• Payroll adjustments to include deduction of LPT from July 2013.
• Reviewing maternity benefit arrangements to assess potential additional costs
• USC exemptions no longer applying to certain employees or pensioners with income over €60,000
• current negotiations on termination payments prior to the passing of the Finance Act 2013
• information and updates on the new JobsPlus initiative expected in June 2013

Patricia Quigley is Principal of Quigley Tax Consulting

Email: patricia@quigleytax.ie

Tel: 01 400 3620

1.Revenue Leaflet IT 22 and tax.point article September 2012

2.Revenue Leaflets IT 58 and 59