The Revenue’s Annual Report for 2011 highlighted a 20% increase in the number of audit and assurance checks carried out in 2011 compared to 2010. One area of focus is the operation of the PAYE system by employers.

Tax legislation is constantly changing. This increases the risk that employers may misapply certain rules. The unwary employer risks facing fixed penalties as well as back payments of employer’s PRSI (with interest) and taxes.

Below are some of the key risk areas:

• Self-Employed Contractors
  It is important to ensure “self-employed” contractors are correctly categorised. A finding that such individuals are in fact “employees” can be expensive once back payments of PRSI and interest are made. This is a current area of Revenue focus and is also an area of concern from an employment law perspective.
• Directors
  Revenue recently issued a reminder that directors of Irish companies, wherever those directors may be resident, are liable to withholding tax under the PAYE system. 
• Cross-Border Employees
  Care should be taken to ensure the correct application of the PAYE rules to cross-border employees.

  For example, employers (including foreign employers) who have employees exercising duties of employment in Ireland may be required to register for and apply PAYE, unless an exemption applies. Prior Revenue approval for an exemption is required in some cases. 

• Share Based Remuneration & Other Benefits
  Special attention is warranted in the area of share based remuneration given recent changes which increased the burden on employers.
   
  The concept of “salary sacrifice” is also an issue in relation to benefits generally. If an employee foregoes remuneration in return for a benefit (e.g. a pension contribution), the remuneration foregone is taxable in full and subject to PAYE.
• Reporting
  There are a number of reporting requirements on employers, with penalties for failure to comply. 

Companies are usually conscious of the need to focus on the tax implications of the big transactions. However, the everyday operation of the PAYE system can also prove costly in the event of a Revenue audit or where issues are identified as part of a corporate due diligence. As with most things, prevention is better than cure.

Contributed by Niamh Keogh.
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