Employment Tax
Ireland | Employment status for income tax purposes—New revenue guidance
Summary
On 21 May 2024 the Irish Revenue Commissioners issued a new and comprehensive set of guidelines on the determination of employment status of workers for income tax purposes.
The guidelines (which are complex and run to 58 pages) set out a framework on which employers will in future be expected to base their determination as to whether a worker is employed or self-employed.
The guidance is based on the Supreme Court judgement in the recent landmark case of The Revenue Commissioners v Karshan (Midlands) Ltd. t/a Domino’s Pizza, which concerned the employment status of pizza delivery drivers. The Supreme court found that the delivery drivers in question were employees for income tax purposes.
We have considered the new guidelines and set out below our initial view on how they are likely to impact on employers.
The detail
Background
To date, Revenue has published a periodically updated “Code of Practice” on the determination of employment status, most recently in 2021. That document set out the various tests arising from relevant case law up to that point in assessing the status of a worker, along with other factors to be considered in arriving at an assessment.
However, unlike the Code of Practice, the newly issued guidelines are based firmly on the recent findings of the Supreme Court and the framework set out by the court for the making of determinations, thereby making these more prescriptive and leaving less room for subjectivity. They also make clear that the guidelines extend to “Platform Workers” (i.e. those who find work through digital platforms) and to occasional or periodic “gigs” or “shifts” in what has become known as the “Gig Economy”.
It is intended that the existing Code of Practice will be updated shortly to take account of new guidelines.
The Framework
The framework set out by the Supreme Court is built around five criteria that it considered essential to the determination of employment status. While these are complex and were addressed at length by the court and by Revenue in the new guidelines, a brief overview of the criteria is set out below.
| 1. | The Work / Wage Bargain * | Does the contract involve the exchange of wage or other remuneration for work? This is a reframing of what was previously known as the “Mutual Obligations” test. |
| 2. | Personal Service * | Is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party, to the employer? This is otherwise known as the “Substitution” test. |
| 3. | Control * | Does the employer exercise sufficient control over the putative worker to render the agreement one that is capable of being an employment agreement? |
| 4. | All the arrangements of the employment | Whether the terms of the contract between the employer and worker, interpreted in the light of the facts, and having regard to the working arrangements between the parties, are consistent with a contract of employment, or with some other form of contract (e.g. a contract for services). |
| 5. | The Legislative Context | Whether there is anything in the particular legislative regime that requires the adjustment or supplementing of any of the considerations above. |
* Note: The Supreme Court took the position that, if any of criteria 1 – 3 is answered in the negative, there cannot be a contract of employment. These, therefore, act as a filter before progressing to 4 and 5. Be aware, however, that it does not necessarily follow that an employment exists merely because 1 – 3 are all answered positively. Criteria 4 and 5 must then be considered.
What the decision means for Employers
Revenue has made its position clear in relation to the application of the guidelines – it states definitively that “A worker’s employment status for taxation purposes is not a matter of choice” and that “the [Supreme Court] judgement provides clarity on the determination of employment status of workers for taxation purposes”.
It can, therefore, be expected that Revenue will seek to rigorously enforce the new guidance. It can also be expected that Revenue’s default position will be that an employment is more likely to exist, other than where it can be clearly shown to the contrary.
Furthermore, in terms of potential avenues of appeal against Revenue determinations of employed status, unless the facts of a case can be shown clearly to point to self-employed status having, regard to the Supreme Court framework, it is likely to be extremely difficult to overturn such determinations at the Tax Appeal Commissioners or in the Courts.
On a positive note, Revenue reconfirms in the guidance that “any engagement of companies by businesses cannot be contracts of service, or employments, for taxation purposes” i.e. there is no change in the tax position for businesses who engage companies to carry out work on their behalf.
Next Steps
Employers who currently employ or who may be considering the engagement of contractors (or Contingent Workers) will need to consider the robustness of the arrangements they have or intend to put in place. If in doubt, professional advice is strongly recommended.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Aoife Reid
Partner
Clara Flynn
Director
Further information on Vialto Partners can be found here: www.vialtopartners.com
Notes
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
©2024 Vialto Partners. All Rights Reserved.