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New Revenue guidelines clarify employment status for businesses

Businesses now have new guidelines to follow for determining whether a worker is an employee or self-employed for tax purposes. Revenue recently published a manual, called Guidelines for Determining Employment Status for Taxation Purposes. The manual is available to download as a PDF from the Revenue website.

The manual follows last year’s landmark Supreme Court judgment in Revenue Commissioners v. Karshan (Midlands) Ltd. t/a Domino’s Pizza. This set out a five-step decision-making framework businesses need to use. The manual explains what the judgment means for businesses and gives guidance on each step they need to take. It also includes 19 examples to show how to apply the decision-making framework in practice.

Businesses are responsible for ensuring that they deduct the correct taxes from their employees’ pay and report this through the PAYE system. When the judgment was published last October, Revenue encouraged all businesses that were engaging contractors, sub-contractors or other workers on a self-employed basis to familiarise themselves with the judgment and review their workforce model.

Revenue also advises any business which has not yet self-reviewed its workforce model in light of the Supreme Court judgment, to do so.

Below, we outline seven key points from the manual.

Determine the correct status for workers

Once businesses have applied the five-step framework to workers’ circumstances, Revenue expects there will be an increase in the number of workers that are determined to be employees for tax purposes. In cases where a business previously treated a worker as self-employed, rather than as an employee, but reviewing these arrangements using the five­step framework indicates that they are employees for tax purposes, the business must rectify that position by treating the relevant workers as employees and operating PAYE.

Regularly review working arrangements

As contractor relationships tend to change over time, businesses should regularly review their arrangements to ensure application of the framework at that later point in time would not result in a different determination.

Previous decisions by Deciding Officers no longer apply

Until now, some businesses may have relied on previous decisions of Deciding Officers of the Department of Social Protection to treat workers as self-employed for tax purposes. They can no longer rely on those previous decisions in determining the correct tax treatment.

No change for Personal Services Companies

Personal Services Companies or Managed Services Companies are common structures for supplying contracting services. Revenue’s treatment of these services has not changed. Revenue do not look through corporate structures, except in very limited circumstances specifically provided for in the Taxes Consolidation Act. There is no change in the tax position for businesses that engage companies to carry out work on their behalf.

More details on certain sectors

Paragraph 4.2 of the manual includes general commentary on certain sectors including construction, part-time, casual and seasonal workers, workers engaged in a domestic setting, couriers and other transport providers, media, public sector, and platform operators.

Joint Code of Practice on the way

Revenue is working with the Department of Social Protection and the Workplace Relations Commission to update the Code of Practice on Determining Employment Status to reflect the Supreme Court judgment.

Supreme Court judgment concerns tax treatment only

As the manual makes clear, the Supreme Court judgment was solely concerned with the proper tax treatment of the workers concerned. In the 2023 case, the broader question of employment rights, for PRSI purposes or otherwise, was not before the Supreme Court and it did not need to consider this issue.