A good place to start when considering current income tax and PRSI updates is with topics covered in recent Revenue eBriefs. These include changes to Civil Service Subsistence Rates, PAYE Exclusion Orders, the Foreign Earnings Deduction (FED) and the Special Assignee Relief Program (SARP).

Civil Service Subsistence Rates eBrief 063/15

The daily and overnight subsistence rates have been changed with effect from 1 July 2015. The rates payable have increased for most categories whist the distance from normal place of work for the daily allowances has increased from 5 km to 8 km. The changes result from an agreed recommendation under the scheme of conciliation and arbitration for the civil service.

Whilst the highest rate payable for the overnight category is lower than it was prior to reductions in March 2009, it has increased by over 14% from 1 July 2015. The second class of allowances has been abolished, making for easier administration. The rates are those paid to civil servants and for private sector employers represent the maximum amounts that can be paid.

Where employers in the private sector are paying less than the prior maximum amounts, there may be no immediate impact from the changes. However, the higher rates may be beneficial in some cases and employers also need to note the change to the distance requirements from the normal place of work. These are a 100 km minimum for overnight subsistence and 8 km for daily allowances.

Employers need to ensure that proper records and controls are maintained where subsistence payments are made. The meaning of business travel and normal place of work are critical to the proper operation of a subsistence scheme. This is an area of close scrutiny during Revenue Audits.

Leaflet IT54 has been updated by Revenue as has Part 05-02-04 of the Tax and Duty Manual. The revised subsistence rates are set out below.

Employers should review both the current rates being paid in light of the changes and the distances travelled for the daily allowances.

Revised subsistence rates
Overnight Allowances – 100 km			Day Allowances – 8 km
Normal Rate	Reduced Rate	Detention Rate	10 hours or more	5 hours < 10 hours
€125.00	€112.50	€62.50	€33.61	€14.01

PAYE Exclusion Orders eBrief 003/2015

Employers are obliged to operate PAYE/PRSI/USC on payment of emoluments to an employee unless Revenue has issued a PAYE Exclusion Order under section 984 TCA 1997. A PAYE Exclusion Order must be applied for and is normally issued where an employee will not be tax resident in Ireland and is exercising all of the duties of the employment abroad.

In cases where an employer recruits non-resident employees who work wholly outside Ireland there was an obligation to apply for a PAYE Exclusion Order which meant that the employees had to obtain an Irish PPSN followed by tax registration before the PAYE Exclusion Order could be obtained.

Revenue eBrief No. 003/2015 confirms that in certain circumstances the employer need not apply for a PAYE Exclusion Order and the employee does have to obtain a PPSN. The conditions are that the employee:

• Is not tax resident in Ireland
• Has been recruited abroad and carries out all duties abroad
• Is not a director of the company
• Is not within the charge to tax in Ireland

This is a welcome change for Irish resident employers who carry on business abroad and recruit non-resident employees to work abroad. The employers need to obtain professional tax advice in the foreign countries as payroll obligations are likely to apply.

Foreign Earning Deduction eBrief 106/2014

The Foreign Earnings Deduction (FED) is provided for in section 823A TCA 1997. FED provides for a tax deduction for employees who are resident in Ireland and who carry out employment duties abroad in certain countries. Its scope has been extended in recent Finance Acts.

Finance Act 2014 extended the list of qualifying countries, reducing the number of qualifying days and allowing for travel time to be included in the calculation of qualifying days. These are welcome amendments and should be beneficial to SMEs where employees are sent abroad for business trips which may not be for shorter periods.

The amendments apply for the years 2015, 2016 and 2017. The full list of countries qualifying for FED are shown below. The qualifying countries added by Finance Act 2014 are marked with an asterisk.

The number of qualifying days has been reduced from four to three consecutive days. The individual must have 40 (previously 60) qualifying days in a tax year or a continuous 12 month period. Direct travel to and from Ireland or between relevant States is treated as a day spent in the qualifying State. This will include trips made from Monday to Friday, which previously did not meet the required criteria, in the calculation of qualifying days.

FED is a deduction from employment income for income tax purposes only. There is no relief from USC or PRSI. The maximum deduction is €35,000 which gives a maximum tax benefit of €14,000 for 2015.

There are other conditions applying before FED can be claimed and employment income that qualified for certain other reliefs does not qualify for FED.

It is hoped that the amendments to FED will increase the number of claims from the 2012 level of 83 and extend the relief to employees of smaller businesses.

Special Assignee Relief Program

The Special Assignee Relief Program (SARP) provides relief from income tax for certain employees who are sent on assignment to work in Ireland. Whereas FED is aimed at employees working abroad, SARP is aimed at incoming employees. SARP is covered in section 825C TCA 1997. Finance Act 2014 amended the scope of the relief for employees coming to Ireland in 2015, 2016 and 2017 with a view to making the relief more attractive. The amendments include:

• The removal of the salary ceiling of €500,000
• The condition which specified that the employee must not be resident elsewhere other than Ireland is removed
• The employee must be employed for six months (previously 12) prior to secondment to Ireland
• The duties of the employment must be exercised in Ireland for 12 months of first performing these here (previously 12 months from becoming resident in Ireland)
• The employer has reporting requirements by 23 February each year
• The employer must also certify with Revenue within 30 days of the employee’s arrival that certain conditions are met.

Countries qualifying for FED
Brazil	South Africa	Ghana	Tanzania	UAE*	Vietnam*	Kuwait*
Russia	Algeria	Kenya	Japan*	Qatar*	Thailand*	Mexico*
India	Dem Rep of Congo	Nigeria	Singapore*	Bahrain*	Chile*	Malaysia*
China	Egypt	Senegal	Saudi Arabia*	Indonesia*	Oman*	South Korea*

SARP can be a valuable relief giving a 30% deduction for tax (not PRSI/USC) for earnings over €75,000 once all the conditions are met.

Individuals claiming SARP are within the self-assessment system and have payment and filing obligations for the year(s) of claim.

Entitlement to SARP also brings scope for tax free payment of school fees and home trips by the employer, as defined in the legislation.

Relevant employers are companies incorporated and resident in a country having a double tax agreement or tax exchange agreement with Ireland. The employer can be an associated company which would include an Irish incorporated or resident in Ireland which is controlled by or is under the control of the relevant company.

Employers need to check the detailed legislation in section 825C TCA 1997. There are detailed worked examples in the Revenue Operational Manual at Part 34.

PRSI on Investment Income

Section 3 of the Social Welfare and Pensions Act 2013 removed, with effect from 1 January 2014, the exemption from PRSI on investment income that applied to employed contributors with income liable under Schedule D Case 1 or 11. Prior to 2014, individuals paying Class A PRSI or in receipt of a pension from a previous employment did not pay PRSI on unearned income unless the individual had professional or trading income. Investment income is liable to PRSI from 2014 at a rate of 4% where the individual is between 16 years and pensionable age (currently 55). Class K PRSI applies which does not buy any entitlements to PRSI benefits.

The charge to PRSI will not apply where the individual is not a “chargeable person” under section 959B TCA 1997. This includes cases where the individual’s main source of income is from emoluments apart from other income which is coded to reduce the tax credits and standard rate band so that the tax due on the non-PAYE is collected through the PAYE system. To qualify for this treatment the total non-PAYE income cannot exceed €3,174. Where these conditions are satisfied the individual can stay outside the self-assessment system and not be liable to the PRSI 4% charge on the income. The position should be confirmed with Revenue and kept under review.

It is important to distinguish between cases where the individual is liable at Class S on unearned income and those where Class K applies. Class S PRSI will continue to apply to individuals who were not previously exempt from PRSI on unearned income.

Self-assessment individuals who were previously exempt form PRSI on unearned income and who based the 2014 Preliminary Tax payment on the 2013 liability may have a balance of tax to pay if PRSI is due for the first time on investment income. This will have cash flow implications as it is likely to increase the 2015 Preliminary Tax payment as well.

Conclusion

Finance Act 2014 introduced improvements to tax reliefs and many of these should benefit the SME sector. The Minister for Finance recently announced that the SME sector would get attention in Budget 2016. This is welcome news for this sector and is necessary for continued economic growth.

Patricia Quigley is Principal of Quigley Tax Consulting.

Email: patricia@quigleytax.ie

Tel: 01 400 3620