By Sean O’Reilly, Manager, DBASS Chartered Accountants
Employers and payroll administrators should note that with effect from 1 July 2013 Maternity Benefit, Adoptive Benefit and Health & Safety Benefit, payable by the Department of Social Protection (DSP), will be taxed in full. USC and PRSI will not apply to these benefits.
For the beneficiaries of these benefits, this will mean less net income and for employers and payroll clerks, more administration and compliance checks.
Increasingly we are seeing Revenue putting the onus on employers to collect these increases in taxes from PAYE workers.
In terms of the taxation of Maternity Benefit, Adoptive Benefit and Health & Safety Benefit, this will be done by reducing the annual tax credits and cut-off points for employees in receipt of these benefits. It is therefore important that all payroll clerks review the employer tax credit certificates (P2C) files, available through the ROS system, before running any payroll computations for the period 1 July 2013 onwards. This is also around the time that we expect the Revenue to make any changes to the P2C files relating to the deductions at source for the Local Property Tax (LPT), so is essential to review your P2C files on a weekly basis going forward from 1 July 2013 as part of your overall payroll routine.
If the correct tax credits and cut-offs are not used by the employer when calculating the net income due to employees it will be the employer that may ultimately bare the increase in tax on these benefits.
I would strongly advise against small business owners paying staff on a net weekly amount. With the constant changes to P2C’s like the benefits above and also the likes of the LPT, you may end up paying your employees tax on other benefits and on their properties for them.
For non-PAYE individuals (e.g. self-employed individuals) the extra tax on these benefits will be collected when they are submitting the annual Form 11 Income Tax Return. It is very important that non-PAYE individuals advise their accountants/tax advisors that they are in receipt of these benefits as all Department of Social Protection databases are linked directly to the Revenue system (REAP). If the income is not returned on the annual Form 11 returns the REAP system will automatically detect the error and contact the tax payer. Errors of this nature may also increase the likely hood of an unnecessary personal Revenue audit, which we all want to avoid.