Employment Tax alerts

Meals provided to all employees on the employer’s premises

Up to now, where an employer wished to provide free or subsidised meals to staff, this could only be considered tax-free when the meal was provided in an onsite canteen environment. In practice, this led to inequity for smaller organisations who did not have sufficient space for kitchen facilities. Under new guidance, the requirement for meals to be served in a designated canteen area has been removed. Alternatively, meals brought onto and consumed on an employer's premises will also attract tax-free treatment, provided the following conditions are satisfied: 

• Meals are made available to all staff; and
• Meals are consumed on the employer's premises.

"Meals", per Revenue definition, includes but is not limited to hot meals, sandwiches, snacks, fruit, biscuits, tea, coffee, water, juice, and soft drinks. Alcohol is specifically excluded.

Working lunches

The new guidance addresses the area of meals being provided to a specific sub-group of staff, to facilitate business needs, often referred to as “working lunches” or “working dinners”. Under new guidance, to avail of tax-free treatment, all of the following conditions must be met:

• A specific operational requirement exists (e.g. remove the obligation for staff to leave for lunch or staff working past normal hours);
• Meals must be consumed on the employer's premises; and
• Total cost per employee does not exceed the domestic subsistence civil service day rate of between five to ten hours (currently €19.25 per employee per working day).

Meal vouchers

The guidance also removes a historic 19-cent deduction when calculating the taxable value of meal vouchers – a legacy from the 1960s. This deduction is no longer applicable and the full monetary value of meal vouchers are considered taxable. This change is not expected to have much relevance in practice.

Comments

Due to the configuration of modern workplaces, Revenue acknowledge the limitations of existing legislation and guidance in this area. This has been a contentious issue in many Revenue interventions over recent years, resulting in significant increased costs to employers. It has also been suggested to have a knock-on impact on some catering companies in the hospitality sector as employers attempt to manage the additional costs. Whilst clarity on the tax treatment of staff meals is welcomed, employers do need to monitor the qualifying conditions and ensure supporting evidence is retained. As such, this new guidance brings with it an opportunity for employers to ensure their policies are aligned with the exemptions and their procedures for documenting and retaining records are sufficient to meet Revenue record-keeping requirements.

If you would like to discuss your situation or if you have any queries regarding the recent Revenue guidance or any of the issues above, please reach out to us.

Settlement scheme
The decision of the Supreme Court in October 2023 in the case of Revenue Commissioners v Karshan (Midlands) Ltd (aka the Domino’s Pizza case) regarding the status of contractor delivery drivers outlined an approach for determining employment status. Further information on the 5-step decision-making framework is available in an earlier alert here.

Revenue have now published guidance which allows for settlements in respect of contractor arrangements for 2024 and 2025, with the disclosure to settle any Income Tax, USC, and PRSI liabilities without penalties or interest. Disclosures must be submitted to Revenue by 30 January 2026. The settlement will be considered a “technical adjustment” under the Code of Practice for Revenue Compliance Interventions.

Calculating liabilities
The Revenue guidance outlines the approach to be taken in calculating the settlement amount:

• Income tax should be calculated at a rate of 20% on the gross amount paid,
• USC should be calculated at a blended rate of 3.5% on the gross amount paid, and
• PRSI should be calculated on an actual basis – with the amounts to be based on earnings levels, with the creation of a PRSI record for each individual.

Revenue will grant a credit for taxes paid through the self-assessment system on a case-by-case basis. This should only be relevant for the 2024 year for which returns have already been filed. It should not be relevant for the 2025 year.

Points to note
The guidance only mentions the 2024 and 2025 tax years. The position for previous years is unclear and is to be discussed with Revenue.

The settlement terms are confined to individuals who would be regarded as employees under the approach set out by the Supreme Court in the Domino’s Pizza case, but who would have been self-employed under previous guidance.

Where a Revenue intervention was open prior to 20 October 2023, the settlement terms are not available.

In addition to a settlement submission to Revenue, payroll administration to create PRSI records for the relevant individuals will be necessary.

Comments
While the Revenue initiative provides a valuable opportunity to settle tax liabilities without interest or penalties, determining whether the settlement terms are available will be a very challenging issue for companies. Each arrangement should be carefully considered in light of the applicable conditions.

If you would like to discuss your situation or if you have any queries regarding the recent Revenue guidance or any of the issues above, please reach out to us.

Upcoming Employment tax deadlines: Post year-end self-corrections and PAYE Settlement Agreement applications

Payroll corrections

Employers should regularly review their year-to-date payroll submissions to identify if there are any adjustments to employees’ pay or benefits that may require updating.

Potential items that can give rise to adjustments include:

• BIK valuations
• Short-term business visitors from abroad
• Contractor personnel
• Expat shadow payroll

The above list is not exhaustive, but gives a flavour of areas that warrant a review.

In the event that an incorrect or incomplete payroll submission for 2024 was not corrected before 31 December 2024, employers may still avail of the opportunity to submit a self-correction to adjust 2024 payroll submissions after year-end.

Under Revenue’s Code of Practice for Compliance Interventions, self-correction without penalty for PAYE purposes is permitted before the due date for filing the corporation tax return for the chargeable period within which the relevant period ends, i.e. self-correction must occur within 9 months of the end of the accounting period within which the payroll period ends.

Therefore, the deadline for employers with a 31 December financial year-end to make any corrections required to employer payroll submissions filed in respect of 2024 will be 23 September 2025, where they pay and file online through Revenue’s Online System (ROS).

Different deadlines apply to companies that have financial year-ends other than 31 December.

Late interest would apply but penalties would not where corrections are made within the appropriate deadlines. Advance written notification to Revenue is required and the additional tax, USC and PRSI liabilities must be paid along with late interest. Provided the conditions are met, self-correction is a good opportunity for employers to review and correct any payroll errors or omissions identified for the prior year without incurring additional penalties.

PAYE Settlement Agreement applications for 2025 tax year

The deadline to apply to Revenue for agreement to file a PAYE Settlement Agreement (PSA) for 2025 is 31 December 2025. Given the upcoming increases to employee and employer PRSI rates due to take effect from 1 October 2025, however, employers should ensure their applications are submitted to Revenue before 30 September 2025 in order to avail of lower pre-1 October 2025 PRSI rates.

Further information on PRSI rates applicable to items reportable on a PSA is available in our recent employment tax alert on the introduction of a new Revenue Tax and Duty Manual on PAYE Settlement Agreements (PSAs).

If you would like assistance with your organisation’s obligations or further information on any of these matters, please get in touch.

Introduction of New Tax and Duty Manual on PAYE Settlement Agreements (PSAs)

Revenue published a new Tax & Duty Manual (TDM) Part 42-04-73, which provides comprehensive guidance on certain aspects of PAYE Settlement Agreements (PSAs).

As a reminder, a PSA allows an employer to make one annual settlement of PAYE, USC and PRSI on minor and irregular non-cash benefits provided to employees where the real-time operation of payroll is impractical. The PSA enables employers to bear the cost of the PAYE, USC and PRSI due on eligible benefits, without passing this on to the employee.

This new manual is intended to provide clarity on the methodology for calculating taxes due on PSAs.

The key points of interest to employers

1. Gross up methodology

• A requirement of a PSA is that tax is calculated on a “grossed up” basis. The manual now confirms that benefits should be grossed up at income tax rates only (e.g. typically 40% rather than 52.1%).

2. Employer PRSI due

• Employers typically have settled Employer PRSI as the normal payroll rates, e.g. currently 11.15% for employees at Class A1. This means that combined (employee and employer) PRSI was being paid at 15.25%. The manual confirms specific provisions in the Social Welfare Consolidation Act 2025 that indicates a specified combined rate (covering both employee and employer PRSI) of 14.95% for PSAs from 1 October 2024. This is due to increase to 15.15% from 1 October 2025.

3. Interaction with Small Benefit Exemption

• The manual includes some commentary on the Small Benefit Exemption (SBE) and restates the position that employers cannot opt to tax this incentive under the PSA to allow the employee avail of the SBE at a later date with a later benefit. The sequencing and tracking of benefits is critically important in assessing the availability of the SBE.

Next Steps

The TDM is a welcomed update for employers seeking clarity and guidance on managing minor and irregular benefits through the PSA. For some employers, the clarifications on the gross up methodology and PRSI rates will result in lower taxes due on PSAs than more traditional methodologies that may have been applied in the past.

However, it is important to note that PSAs remains complex with challenging deadlines to meet. While the manual clarifies some aspects, a lot of uncertainty remains such as the definition of what can be considered “minor and irregular”. Careful consideration is needed to determine what is eligible for inclusion in a PSA and the format that the PSA is submitted to Revenue to address the most common queries upfront. If you have any questions on a key topic area, please reach out today to discuss.