The recent Finance Bill provides some clarity on the new increased Income Tax levies announced by the Minister for Finance in his budget speech on 7 April 2009. A composite rate (combination of the lower and higher rates) will apply for the whole of 2009 as set out in the table below. The increase in the levy therefore applies to income earned from the start of the year with the effect of catching any exceptional payments such as bonuses paid before 1 May 2009.

The Finance Bill clarified that the old rates (and not the composite rates) apply to the taxable element of any redundancy payments made before 1 May 2009.

The employer must operate the levy at the old rates (1%, 2% and 3%) up to 30 April 2009 and at the new rates (2%, 4% and 6%) on or after 1 May 2009. The employer has no obligation to re-adjust the income tax levy deducted at the end of the year to ensure that the overall levy deducted is at the composite rate.

Additional levies could be payable by an individual at the end of the year where there is an uneven spread of income over the year, for example where a bonus is paid prior to 1 May 2009 or a pay cut applies to a salary after 1 May 2009.

Interestingly the legislation does not provide much detail on how the Revenue Commissioners will collect any shortfall of income tax levies where the individual’s only income is PAYE. The legislation simply provides that the Revenue Commissioners shall raise assessments on individuals where an assessment to income tax would not otherwise have been made. The Revenue Commissioners have also been given the power to make regulations. It is likely that regulations will be issued providing details as to the collection of any additional levies payable.