The Universal Social Charge (USC) was introduced in December 2010’s budget and is effective from 1st January 2011. It was described as replacing the income levy (itself only introduced in 2009) and the health levy, and even its name characterises it as an all-encompassing charge. However, there are a number of significant differences between the USC and both the income levy and the health levy, particularly for the lower paid.
The income levy did not apply to any person earning less than €15,028 per year, €1,252 per month or €289 per week.
The health levy did not apply to any person earning less than €500 per week. This is the equivalent of €26,000 per year.
The new USC will now apply to anyone earning above €4,004 per year, €334 per month or €77 per week. Effectively, the USC applies to the vast , vast majority of earners in the country. And the rates are as follows:
- The first €10,036 per year is at 2%.
- From €10,036.01 to €16,016 is at 4%.
- The remainder is at 7%.
The Revenue Commissioners issued the following warning this week:
The recent ruling by the Appeals Commissioner that medical locums are now to be treated as PAYE employees rather than self-employed self-assessed tax payers highlights the sometimes fine line between an individual being classed as an employee or self-employed. This is an area of importance both for employers (and individuals or companies engaging a self-employed contractor) and for employees (and self-employed individuals).
As the medical locums case shows employers who are found not to have been applying the PAYE system to payments to employees will be held liable by the Revenue Commissioners for the taxes that they should have collected, along with any interest and penalties.
Erroneous failure to apply the PAYE system can also be damaging to the employee, as they are treated as self-employed, which carries the following responsibilities and characteristics:
- They are not entitled to redundancy payments.
- They are not automatically entitled to Jobseekers Benefit.
- They have an obligation to file an annual income tax return.
- They may be obliged to charge VAT.
It is therefore to the benefit of both employers and employees that the PAYE system is applied when it is correct to do so.
Whether a worker is characterised as an employee or self-employed is not a matter of choice. It depends on the terms and conditions of the individual’s engagement. In most instances it is relatively straightforward to determine if an individual is an employee or self-employed but it is not always obvious. However, there are certain characteristics that indicate the status of the worker. An employee is generally:
- Under the control of another person who directs how, when and where the work is to be carried out.
- Supplies labour only.
- Receives a fixed hourly/weekly/monthly wage.
- Is not exposed to financial risk in carrying out the work.
- Does not supply materials.
- Does not have the opportunity to profit from sound management of the work engagements.
A self-employed individual generally:
- Owns their own business.
- Is exposed to financial risk.
- Has the opportunity to profit from sound management of the work engagements.
- Has control over how, when and where the work is done.
- Is free to do the work themselves or hire other people.
- Provide materials for the job and equipment and machinery to carry out the job.
These are not exhaustive lists and in any one circumstance different characteristics may lead to different conclusions as to the nature of the engagement. Ultimately, the overriding test is whether the person performing the work does so as a person in business on their own account.
A new year and a new blog.
And for this new blog I have a simple first message.
If you are a self-assessed tax payer I would encourage you to have your income tax return for 2009 prepared as early as possible. Preparation of your income tax return will confirm for you if you are due a refund or have a liability and the amount of that liability. Should you have a liability you will then have until October 31st (online pay and file deadline to be confirmed) to pay it.
Preparing your income tax return early will provide you with certainty with regard to the income tax you will be paying in 2010 and this will assist you with cashflow management for the coming year.
If you are a PAYE tax payer and have not yet claimed all the tax credits due to you then I would encourage you to do so. Claiming previously unclaimed tax credits will result in a tax refund to you, and again, any tax refund may be of assistance to you in the current climate.