Global Mobility & Employment

Key measures

From an income and employment tax perspective there were a number of key measures introduced in this year’s Budget:

• There will be an increase in the standard rate income tax bands of €2,000 bringing the point at which a single person pays the top rate of tax up to €42,000 per annum.
•  The Universal Social Charge (USC) is to be amended so that the entry level for the second-rate band will increase from €22,920 to €25,760.
• The USC second rate of 4.5% will be reduced to 4% which will apply on income between €25,761 and €70,044.
• There will be an increase of €100 per annum in the personal tax credit, the employee tax credit, and the earned income tax credit. There is also an increase of €100 per annum in the home carers tax credit.
• The temporary universal relief of €10,000 applied to the Original Market Value of a company car (including vans) for vehicles in Category A-D is being extended to 31 December 2024.
• The tapering mechanism applied to benefit in kind relief for electric vehicles is being enhanced by extending the current Original Market Value deduction of €35,000 until end 2025, which in addition to the €10,000 above, means a deduction of up to €45,000 on the OMV.
• The Key Employee Engagement Programme (KEEP) 2019 and 2023 provisions are to commence shortly following European Commission approval. No new measures were announced.
• PRSI contribution rates will increase by 0.1% from 1 October 2024.

Our view

In light of the cost-of-living pressures, it was well flagged that Budget 2024 would include some tax giveaways. The increase in the standard rate tax bands is relatively substantial in a budget context and reduces the tax burden for a single individual earning over €42,000 by €400 per year. However, as our marginal rate remains at 52%, Irish employees still have one of the highest personal tax burdens in the OECD.

The Special Assignee Relief Programme is a valuable relief that encourages skilled individuals to relocate to Ireland by providing an income tax exemption for earnings in excess of €75,000 (€100,000 for entrants between 2023 and 2025) up to a cap of €1m. In our view, the current relief is insufficient and too restrictive, and it is disappointing that no changes to the relief were announced.

The aim of the Key Employee Engagement Programme (KEEP) is to help smaller firms who cannot compete with larger firms in cash remuneration terms to attract and retain talent in a challenging labour market. However, KEEP in its current design has ultimately failed to provide SMEs with an easy to implement and cost-effective way to offer shares to employees. The announcement of the commencement of 2019 changes with the additional 2023 amendments is a welcome development for many companies.

Currently companies are facing challenges of cost increases coupled with a constrained labour market and these businesses need to consider alternatives to cash remuneration. The introduction of KEEP was heralded as a mechanism to help SMEs retain and reward staff, but the current KEEP legislation has presented a number of difficulties in operating the scheme effectively which has put SMEs on the back foot in terms of competing in the labour market.

The provision for the buy-back of KEEP shares by the company is a very welcome change. However, it is difficult to see this having a real impact due to the 5-year holding requirement which would mean an employee would have to exercise their option, paying market value from grant date for the shares, and hold for 5 years to avail of the buy-back relief. In the UK EMI scheme, the holding period commences from the date of grant of the option – if this was replicated here the buy-back would be workable. In addition, some challenges may remain in relation to KEEP such as the definition of a holding company for KEEP and the lack of a safe harbour or Revenue guidance regarding the valuation of shares. We welcome the announcement of a public consultation on share-based remuneration at a time when companies need to offer competitive remuneration packages to attract and retain talent in a challenging global talent market.

In the Budget 2024 Tax Policy Changes publication it is stated “Revenue will conduct a range of targeted compliance management activities in 2024. It is expected that additional Exchequer receipts will arise from increased taxpayer compliance in the areas of eCommerce, payroll and expenses reporting and the cash/shadow economy.” The increased compliance activity is expected to raise €120m for the Exchequer.

The introduction of Enhanced Reporting Requirement (ERR) for travel and subsistence, the small benefit exemption and the cash e-worker allowance has been expected since Budget 2023. This was not mentioned today but the statement in relation to compliance management activities suggests an expected increase in receipts from compliance activities in relation to expenses. While employers generally have no issue in providing data to Revenue regarding these elements the current proposed requirement for employers to report on or before payment of same is extremely onerous. It is difficult to understand why this is a requirement rather than allowing employers to report these for a month following the end of the month. Many companies reimburse expenses to employees on a weekly basis and some daily. The drive for employers is to seek to ensure that employees are not out of pocket for business expenses. These expenses are not taxable as they will be incurred in the performance of duties away from the normal place of work. Where an employer reimburses expenses on a weekly basis, they will have a weekly reporting obligation under ERR as compared to a monthly obligation for payroll (where employees are monthly paid). This is, in our view, excessively onerous and unnecessary and could be avoided if the ERR was amended to allow for monthly reporting for the required elements. In light of the Ministers comments in his budget speech that it is his priority to ensure we have an environment which allows businesses to thrive, we hope that the on or before requirement is removed before the planned commencement of this reporting obligation on 1 January 2024.

Key Measures from Finance (No.2) Bill 2023

A significant change for employers, and employees, is the introduction by the Finance Bill of PAYE withholding on gains on the exercise of share options by an employee. This change was not announced in the Budget and with PAYE applying to the gains on share option exercises on or after 1 January 2024 employers have very limited time to get processes in place to ensure withholding is applied. While this may be a welcome change for employees as it will remove the administrative burden from them there are a number of considerations for employers including:

• The need to establish a process to withhold the required taxes on the exercise of the option.
•  How to ensure the share option gains are reported within the required timelines. Share option gains where shares are acquired on the exercise of an option will be considered notional payments. On this basis, under the PAYE regulations, an employer must report share option gains:
  •  on or before the exercise of the option; or
  • if no actual cash emoluments paid on that day on the earlier of the next     pay date after the exercise of the option and the 31st of December of the     year in which the option is exercised. As there is employee choice as to the  timing of the exercise of an option the reporting before 31 December may  be  challenging for employers.

•  Communicating the change to employees to ensure they are aware of the new withholding requirement and the removal of their personal obligations in respect of the exercise of the share options.
•  For globally mobile employees only part of the gain on exercise of the option may be subject to tax in Ireland. Employers will need to establish a process to determine the amount subject to tax and whether the option gain is subject to PRSI or exempt.

Some all-employee plans such as Employee Share Ownership Plans and UK SAYE schemes are taxable as share options and some employers will have a significant employee population impacted by the changes. Private companies where there is no market for the shares will need to consider how to collect the required taxes from an employee on the exercise of a share option.

Employers are already under pressure preparing for Enhanced Employer Reporting (ERR) and a greater lead in time to the introduction of PAYE withholding on share options would have been preferable as various stakeholders including employees, brokers, payroll teams/vendors, stock administration teams and many more internal teams will need to be informed and will need to build out new processes in the next ten weeks.

It is disappointing that the ERR remains proposed as being required on or before a reportable expense is reimbursed/paid to an employee. The ever increasing demands on employers by Revenue create a significant administrative burden often without sufficient lead time.

The Finance Bill introduced changes announced in the Budget in relation to employee taxation including:

• An increase in the standard rate bands by €2,000 bringing the point at which a single person pays the top rate of tax up to €42,000 per annum.
•  The Universal Social Charge (USC) is amended so that the entry level for the second-rate band will increase from €22,920 to €25,760. The USC second rate of 4.5% is reduced to 4% which will apply on income between €25,761 and €70,044.
•  An increase of €100 per annum in the personal tax credit, the employee tax credit, the earned income tax credit and the home carers tax credit.
• The extension of the temporary universal relief of €10,000 applied to the Original Market Value of a company car (including vans) for vehicles in Category A-D to 31 December 2024.
• The enhancement of the tapering mechanism applied to benefit in kind relief for electric vehicles by extending the current Original Market Value deduction of €35,000 until end 2025, which in addition to the €10,000 above, means a deduction of up to €45,000 on the OMV.