QS Solutions: Advanced Income Tax and Social Welfare Practice Report

This memorandum, prepared for the Managing Director of QS Solutions Limited by the Payroll Manager, offers advice on advanced tax-related issues, specifically focusing on PRSI (Pay Related Social Insurance) and USC (Universal Social Charge) implications in various employee scenarios. The report details the tax treatments for employees facing situations such as international assignments, temporary postings from the US, marriage and potential career breaks, and self-employment contracts. It thoroughly analyzes residency status, bonus taxation, company car benefits, standard rate cut-off points for married couples, and redundancy payments. The report emphasizes the importance of understanding Irish tax regulations, including PAYE, and the impact of bilateral social security agreements. It also provides insights into trans-border worker relief and the implications of USC contributions. The analysis includes practical examples and calculations to illustrate the tax implications for each scenario, providing a comprehensive guide to managing payroll and tax liabilities for QS Solutions.

Advanced Income Tax and Social
Welfare Practice
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Memorandum
To: The Managing Director
QS Solutions Limited
From: Payroll Manager
Date: 01/07/2019
Subject: Advice on advanced tax related issues, PRSC and USC implications on the
specified events
PRSI –
Pay Related Social Insurance (PRSI) stands for the amount contributed by the Irish employees
over 16 years of age (Citizensinformation.ie, 2019). The amount paid for the purpose of PRSI by
the employer and his employees are directed based on the social class in which the later belongs.
The social insurance class is being determined by the income earned and sorts of work
contemplated by the staff. The employer deducts the PRSI contribution from the pay of the staff
as per instruction of the Department of Employment affairs and Social Protection. As per the
legislations of the Payment of Wages Act 1991, the deduction owing to PRSI need to be
reflected in the pay slip of the employee. The employer on his part as well contribute an
equivalent amount of PRSI contribution channelled to the Social Insurance Fund.
USC –
USC stands for Universal Social Charge which is a tax levied on revenues for the purpose of
health contribution and has been in operations since 1st January, 2011. The employee is required
to pay for USC if he draws a gross revenue above the worth of €13,000 annually
(Citizensinformation.ie, 2019). USC for the married couples or civil partners are to be
contributed individually if they earn over the prescribed limit and it is independent of the income
tax issue.
1st scenario –
Jim Burrow is a full-time employee of QS Solutions Ltd for the past 10 years. He is a local and is
due to leave the country for Malaysia on 1st April, 2019 for 2 years as deployed by his company.
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He would return after the completion of two years, say after 31st March, 2021 and re-join his post
in the Irish chapter. In the due process he is supposed to receive a bonus of worth €10,000 in
December, 2019 for the responsibilities committed in the same year which would be credited in
his local bank account.
Tax treatment:
It is noted that income earned are liable for taxation along with USC and PRSI and the fiscal year
followed at Ireland is from 1st January to 31st December. Burrow is supposed to join his
Malaysian assignment from 1st April, 2019 and would not be back in the country unless the
expiry of the 2-year contract. So for Burrow to be liable as per the Irish legislations need to
undergo the residence status. As per the residence status if the individual stays at Ireland for 183
days or more or for 280 days and more in the tax year and previous year with a minimum of 30
days in the respective years (Your Europe - Citizens, 2019).
So in consideration of the current year – 2019, Burrow could not be counted as a resident as his
stay in Ireland was for the months of January, February and March which altogether would not
qualify for the 183 days. But taking consideration of the 2nd instance of 280 days Burrow would
definitely qualify as a resident of Ireland as his requisite stay in the country for 30 days has
already been met in the 1st quarter of 2019. Therefore Burrow would be treated as an Irish
resident and bound to pay tax to the authorities in line with the current rules and regulations. He
is supposed to receive a bonus of worth €10,000 which is supposed to be taxed. Basically
Burrow owing to his residential status would be supposed to be liable for taxation on his global
income, the income that he is supposed to earn while his stay at Malaysia.
So Burrow would come under the purview of the Irish legislation of Pay as You Earn (PAYE)
based on the bonus of €10,000 and other income supposed to be earn while in Malaysia. As per
the law of the land, he would also be entitled for the contribution of PRSI and USC. It is
supposed that the income of Burrow would cross the mark of €13,000 making him liable to
contribute for USC. So for the PRSI contribution is concerned, Burrow could continue to pay for
availing the benefits while stationed abroad but the Irish PRSI would not be valid for a period of
12 months typically when the contributor is posted elsewhere (Citizensinformation.ie, 2019).
This is because Ireland does not have a Bilateral Social Security Agreement with Malaysia, the
situation would have been different if the posting would have been in any EU country. Again
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Burrow would be entitled to take the benefit of Trans-border Worker Relief which would be
helpful in reducing the tax burden of the individual as he would be paying taxes on the income
earned in Malaysia (Citizensinformation.ie, 2018).
2nd scenario –
Zack Reynolds an employee of QS Solutions USA Inc. is to be temporarily posted in October,
2019 for a 4 years at a row. The American draws an annual package of €160,000 and while in
Ireland he is entitled for a company car at a worth of €10,000 annually. He would also be entitled
for a company sponsored trip to US once annually to spend time with his family there.
Tax treatment:
Reynolds is supposed to start his work tenure in Ireland from the month of October, 2019 so to
understand his tax implications his residential status need to be determined. As per the residential
status indications an individual need to stay in the country for 183 days or more or for 280 days
and more in the tax year and previous year with a minimum of 30 days in the respective years.
Ireland follows the fiscal year starting on 1st January of the year and ending on 31st December.
The tax liability of the individual concerned would depend on his period of stay in Ireland during
his scheduled stay in the country. In this case Reynolds would arrive in the country on October,
2019 and his stay for the last quarter of the fiscal year would not sum up as 183 days negating
the idea of his being resident in Ireland. So for the fiscal year of 2019 Reynolds would not be
required to pay any sort of tax to the Irish authorities as his brief stay in the country for about the
last 3 months.
For the fiscal year of 2020, Reynolds would be required to pay tax as he would qualify as an
Irish resident. This is due to his stay in the country for the requisite number of days emancipating
the condition of staying 280 days and more in the tax year and previous year with a minimum of
30 days in the respective years. So far the case of Reynolds is concerned his stay in Ireland for
about 280 days for the fiscal year of 2019 and 2020 with a minimum stay of 30 days in 2019 as
he would be arriving on October, 2019. It would definitely qualify the American to be an Irish
resident for the year 2020 and liable to pay the taxes on the income earned in the Irish land. The
American would earn an income of €160,000 which would be broken into a few slabs, say unto
an amount of €35,300 a tax rate of 20% and on the balance a tax of 40% would be applicable.
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Reynolds got a car of worth €10,000 for his personal use say transportation purpose while his
stay in Ireland and the same would definitely come under the purview of taxation (Revenue.ie,
2019).
3rd scenario –
Finola Doyle an employee with QS Solutions is getting married on September, 2019 and eager to
know of her tax status, PRSI and USC treatments. She is eager to concentrate on her family life
and would be back if she is given a proper compensation say €24,000 annually and her would-be
earns €80,000 yearly.
Tax treatment:
Doyle is a locale and there is no doubt of her residential status indicating her tax liability full-
fledged. She desires to have a yearly package of €24,000 and at the same time Doyle along with
her spouse could take benefit of the standard rate cut-off points applicable in the Irish taxation
system. According to the legislation of the Irish taxation, the married couple while both of them
are earning would be taxed at the rate of 20% on their accumulated earnings unto an amount of
€70,600 and the balance amount would be taxed at a rate of 40%. But in this juncture Doyle
along with her husband could take the advantage of their marital status to reduce the tax burden.
It is because their original income is supposed to be - $24,000 + $80,000 = $104,000.
So on this particular amount unto €70,600 a tax obligation of 20% would be levied followed by a
tax rate of 40% for the balancing amount of €33,400. The original taxation scenario would have
been = €70,600 x 20% + €33,400 x 40% = €14,120 + €13,360 = €27,840
In such a scenario the married couple has the option to put into action the standard rate cut-off to
ease their tax burden for an amount of €44,300. In case both the husband and wife are working
the amount has the scope to be reduced either by €26,000 or the earnings of the spouse with the
smaller amount (Citizensinformation.ie, 2019). The lower amongst the two amount would be
applicable in this case. It is seen that Doyle is supposed to have an income of €24,000 while her
husband draws an amount of €80,000. So Doyle has the lower income which would be
considered for the purpose of standard rate cut-off wherein the treatment would be done on the
earnings of a single partner and it would be computed in the following manner –
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Husband’s income as per standard rate cut-off - €44,300, this particular amount to be added with
that of Doyle’s €24,000. So for the standard rate cut-off for the amount of €44,300, the tax rate
of 20% would be levied while for the balance amount of €24,000, 40% tax rate would be
charged. So in this way the newly married couple could save a substantial amount of tax like:
= €44,300 x 20% + €24,000 x 40% = €8,860 + €9,600 = €18,640
Therefore it is seen that it would come as a big savings for the Doyle couple as they would be
able to save (€27,840 – €18,640) or €9,200 using the standard rate cut-off mechanism in terms of
joint assessment over their separate assessment.
Again it is to be noted that the couple would be liable to pay for the purpose of USC as their
income exceeds the limit of €13,000. In this case the married couple would be treated
individually as it is concerned about their individual pension contribution and both Doyle and her
would-be husband has an annual income over €13,000. It is due to the fact that Doyle supposedly
draws €24,000 annually while her partner draws €80,000.
Doyle stated that she would take a career break owing to her marriage and probable motherhood
in the forthcoming years would be treated as reckonable absence under the statutory redundancy
method with the QS Solutions management (Citizensinformation.ie, 2016). The redundancies in
this case would be considered only if the worker has been continuing for the last 3 years and it is
considered that the service length of Doyle with the company was over a period of 3 years. The
amount owing to redundancy payment if received in a lump sum it would generally be
considered as tax-free. So it would be in favour of Doyle to ask for the redundancy payment off
the USC contribution in a lump sum mode for taking the tax advantage.
4th scenario –
QS Solutions appointed Pierre Landreau as a Project Manager to complete the company projects
on a self-employed basis. Landreau has a team of 10 employees who would work for 8 hours on
a daily basis and receive a compensation for €120,000 along with profit sharing arrangements as
well. He would receive other benefits like a paid phone by the company and business cards and if
all goes well the company would consider the options of Restricted Shares and Restricted Stock
Units in favour of Landreau.
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Tax treatment:
Landreau would be working as a self-employed Project Manager to contemplate the projects
undertaken by QS Solutions Ltd. Since his engagement with the company is on a self-
employment basis it would be regarded as a business for the individual concerned and required
to pay tax on the income earned off the self-employment arrangement in this regard. Being self-
employed Landreau would be required to pay the taxes filing as per the self-assessment system
which needs to be filed on or before 31st October each year for the previous year. The self-
employed one need to keep supporting records of the receipts and payments like bank
statements, invoices and cheque stubs in case of an inspection on behalf by the Revenue
Department (Citizensinformation.ie, 2019).
The self-employed being is supposed to have the tax credit and reliefs on the likes of Earned
Income Tax Credit for a worth of €1,350 as well as the Employee Tax Credit. But the tax credit
owing to these two provisions are not supposed to exceed the limit of €1,650. So it would be
quite suitable for Landreau to keep tap on his various expenses and revenues to take advantage of
the tax scenario. Again the self-employed has the provision to claim for the business expenses
incurred by them like buying of materials, rent and rates, wages, operating expenses,
accountancy fees and payment for business loans and leases as well as personal pension
contribution. Landreau has a team of 10 employees who are being paid and subsequently the
payment benefits get accounted as a claim for taxation. Again the various expenses undertaken to
run the business operations would be accounted for Landreau to take its benefit as well for filing
his tax return as a self-employed being.
It is seen that Landreau would act as a freelancer Project Manager with QS Solutions Ltd earning
a compensation of €120,000 and also has the probability to work with other parties. So it is quite
probable that he would have an income exceeding the amount of €120,000. In this case Landreau
would be required to get himself registered for Value Added Tax (VAT) as his annual income
exceeds over the amount of €37,500 being the supplier of a service (Citizensinformation.ie,
2019). So being a service provider, Landreau is required to file for VAT and also charge VAT on
the services being provided by him to QS Solutions Ltd. In this way the VAT would be borne by
the ultimate customer and not by the service provider like Landreau.
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Accordingly Landreau being a self-employed individual is required to abide by the USC
contribution and for the self-employed individual if the income exceeds over €100,000 an
additional rate of 3% would be applicable. It is seen that Landreau is supposed to earn an amount
of €120,000 from QS Solutions Ltd qualifying him to contribute an additional rate of 3% for the
purpose of USC contribution. So Landreau would be required to pay 11% on his drawings of
€120,000 but would not be applicable for the purpose of social welfare.
In the same manner Landreau would be required to abide by the PRSI clause of self-employed
people Class S PRSI on their annual revenue. As per the clause the self-employed individuals are
supposed to abide a rate of 4% on Class S PRSI for income tax purpose with consideration of the
gross income deducting allowable expenditures (Citizensinformation.ie, 2018).
QS Solutions Ltd is also giving a thought to avail Landreau of the benefits of Restricted Shares
and Restricted Stock Units. In restricted shares the employer is supposed to impose certain
restrictions on the amount of shares to be disposed for the purpose. In this particular scheme
Landreau has the scope to reduce the amount of income tax, PRSI and USC and this sort of
reduction would be determined based on the period of restriction. It provides a chance for
Landreau to reduce the tax liability as the shares are being awarded by the company if the
individual strives to sell them or transfer it someone else or use it as a loan guarantee.
The concept of restricted stock units (RSUs) stands for a grant or promise by the company to the
individual on accomplishment of a vesting period. In such a scenario the individual is due to
receive certain stocks of the company or equivalent cash resources. It would be better for the
company to provide for RSUs to Landreau as he is working with the company on a freelancing
basis and suppose to have a share of profit. So it would be better for QS Solutions to offer this
scheme after completing a substantial period and delivering a satisfied outcome.
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References
Citizensinformation.ie, 2016. Redundancy payments. [Online]
Available at:
https://www.citizensinformation.ie/en/employment/unemployment_and_redundancy/
redundancy/redundancy_payments.html
[Accessed 01 July 2019].
Citizensinformation.ie, 2018. Class S PRSI. [Online]
Available at: https://www.citizensinformation.ie/en/social_welfare/irish_social_welfare_system/
social_insurance_prsi/class_S_prsi.html
[Accessed 01 July 2019].
Citizensinformation.ie, 2018. Employment tax credits and reliefs. [Online]
Available at:
https://www.citizensinformation.ie/en/money_and_tax/tax/income_tax_credits_and_reliefs/
employment_tax_credits_and_reliefs.html
[Accessed 01 July 2019].
Citizensinformation.ie, 2019. How your income tax is calculated. [Online]
Available at: https://www.citizensinformation.ie/en/money_and_tax/tax/income_tax/
how_your_tax_is_calculated.html
[Accessed 01 jUly 2019].
Citizensinformation.ie, 2019. Paying social insurance (PRSI). [Online]
Available at: https://www.citizensinformation.ie/en/social_welfare/irish_social_welfare_system/
social_insurance_prsi/employer_s_duty_to_pay_social_insurance_prsi.html
[Accessed 01 July 2019].
Citizensinformation.ie, 2019. Tax for self-employed people. [Online]
Available at: https://www.citizensinformation.ie/en/money_and_tax/tax/income_tax/
taxation_of_self_employed_people.html
[Accessed 01 July 2019].
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Citizensinformation.ie, 2019. Universal Social Charge (USC). [Online]
Available at: https://www.citizensinformation.ie/en/money_and_tax/tax/income_tax/
universal_social_charge.html
[Accessed 01 July 2019].
Revenue.ie, 2019. Private use of company cars. [Online]
Available at: https://www.revenue.ie/en/employing-people/benefit-in-kind-for-employers/
private-use-of-company-cars/index.aspx
[Accessed 01 July 2019].
Your Europe - Citizens, 2019. Income tax. [Online]
Available at: https://europa.eu/youreurope/citizens/work/taxes/income-taxes-abroad/ireland/
index_en.htm
[Accessed 01 July 2019].
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