# Why do the self-employed pay higher taxes?



## Duke of Marmalade (14 Oct 2014)

Any justification why self employed would pay 11% and, say, high pensions get off with 8%?


----------



## greentree (14 Oct 2014)

Duke of Marmalade said:


> Any justification why self employed would pay 11% and, say, high pensions get off with 8%?



Because pensioners would go on strike. Self employed don't have the time for that!


----------



## Brendan Burgess (14 Oct 2014)

No, there is no justification for that.

Nor is there any justification why employees get a PAYE credit, but self-employed don't. 

Brendan


----------



## Duke of Marmalade (15 Oct 2014)

This is as it always has been - I was wondering why no uproar.  Surely there is some justification like they get lots of expenses.

I guess the PAYE credit made sense when you could earn 5% on the deferred cash flow but that is no longer the case.


----------



## Bronte (15 Oct 2014)

Brendan Burgess said:


> Nor is there any justification why employees get a PAYE credit, but self-employed don't.


 
I wouldn't agree there, self employed have more opportunity to milk the system, hence I imagine the justification for zero PAYE credit.


----------



## 44brendan (15 Oct 2014)

I have worked on both sides of this fence and while it may not go down well with the self-employed I would definitely choose self-employed over PAYE. I don't necessarily agree that they "milk the system" but being self-employed does have its tax advantages!


----------



## Bronte (15 Oct 2014)

44brendan said:


> I but being self-employed does have its tax advantages!


 
Exactly.


----------



## Brendan Burgess (15 Oct 2014)

If by tax advantages, you mean that they can "milk the system", then it's totally unfair on those self employed tax payers who do not milk the system.

Brendan


----------



## monagt (15 Oct 2014)

> If by tax advantages, you mean that they can "milk the system", then it's totally unfair on those self employed tax payers who do not milk the system.



Maybe "flexibility" would be more descriptive word than "milk" although that also works in many cases ')


----------



## T McGibney (15 Oct 2014)

Bronte said:


> I wouldn't agree there, self employed have more opportunity to milk the system, hence I imagine the justification for zero PAYE credit.





monagt said:


> Maybe "flexibility" would be more descriptive word than "milk" although that also works in many cases ')



The opportunity to milk the system may have been a valid point 30 years ago, but now? Hardly - in fact self-employed taxpayers carry a heavy compliance burden (not just in terms of financial cost) that employees don't share.

There are also many aspects in how employees can enjoy "flexibility" in relation to tax-free benefits that self-employed people don't have.


----------



## orka (15 Oct 2014)

Brendan Burgess said:


> No, there is no justification for that.


Surely the justification is that employees have a 10.75% employers PRSI contribution paid on their behalf whereas self-employed do not?

On a 150K income, combined PRSI and USC is about 32,500 for an employee and about 18,000 for a self-employed person.  On a 300K income, the numbers are 66,700 and 40,400.  The 11% USC rate doesn't make much of a dent in the gap between employee and self-employed charges...


----------



## T McGibney (15 Oct 2014)

orka said:


> Surely the justification is that employees have a 10.75% employers PRSI contribution paid on their behalf whereas self-employed do not?



That is not a justification as employer's PRSI is paid by employers not by employees. Employees in respect of whom this charge is paid receive benefits in return, which are not available to self-employed PRSI contributors.

The original official justification for the introduction of the employee tax free allowance back in the 1980s was that employees paid their taxes currently while the self-employed paid their taxes a year or more in arrears. The allowance was also quite small in those days. The advent of preliminary tax in the meantime means that this justification no longer exists.


----------



## Duke of Marmalade (15 Oct 2014)

_orka_ I think the employer PRSI point is valid but you will note my OP was comparing pension income with self employed earnings.


----------



## orka (15 Oct 2014)

T McGibney said:


> That is not a justification as employer's PRSI is paid by employers not by employees. Employees in respect of whom this charge is paid receive benefits in return, which are not available to self-employed PRSI contributors.


Ah, but in this case, that's not true.  The 11% rate applies to income above 100K.  NO benefits accrue above this income level - any extra benefits (available to employees but not self-employed) are capped and 'earned' at very low income levels.  What benefits do you think accrue to an employee from their employer paying 10.75% on the portion of their income between 100K and 150K?
I suppose the argument could be turned around as - why should an employer of oneself get away with only paying 3% (the 8% to 11% gap) when an employer of a third party has to pay 10.75%?


----------



## orka (15 Oct 2014)

Duke of Marmalade said:


> _orka_ I think the employer PRSI point is valid but you will note my OP was comparing pension income with self employed earnings.


I think it's actually a connected issue.  While PRSI is supposed to cover (strangely enough) all the PRSI benefits, it doesn't come close to doing so (the 4% wouldn't even cover the pension accrual).  Therefore the gap is made up from general taxation and USC.  Given that pensioners are not accruing many (any?) of the PRSI benefits, they don't have to pay PRSI above a certain age - and they shouldn't have to pay the PRSI that's hidden in general taxation and USC either - so that's why they get a break on the USC.  That's my take on it anyway.


----------



## T McGibney (15 Oct 2014)

orka said:


> Ah, but in this case, that's not true.  The 11% rate applies to income above 100K.  NO benefits accrue above this income level - any extra benefits (available to employees but not self-employed) are capped and 'earned' at very low income levels.  What benefits do you think accrue to an employee from their employer paying 10.75% on the portion of their income between 100K and 150K?
> I suppose the argument could be turned around as - why should an employer of oneself get away with only paying 3% (the 8% to 11% gap) when an employer of a third party has to pay 10.75%?



Sorry, I don't see your point? USC for high earners has nothing to do with PRSI. For the record, I care very little about USC rates for high earners, (although an 11% rate sounds ridiculous). 

It's merely a distraction from the disgraceful mistreatment of low & middle earner self-employed people who are denied the employee tax credit.


----------



## Duke of Marmalade (15 Oct 2014)

Hmmmm! Or maybe it's that many of our high pension earners are retired civil service chiefs.


----------



## orka (15 Oct 2014)

T McGibney said:


> Sorry, I don't see your point? USC for high earners has nothing to do with PRSI.


You said benefits were accrued because of employers PRSI and I pointed out that at the level we are discussing on this thread (100K income), that is not true.

I don't really see how you can separate the three items (general tax, USC and PRSI).  Nothing seems to be earmarked for anything specific - the government gets in a big pot from all three items and then spends it all.  In looking at whether something is 'fair', you really need to look at compensating aspects.  Case in point - high earning self-employed people don't pay enough PRSI but the imbalance is addressed to an extent by charging them more USC.



T McGibney said:


> It's merely a distraction from the disgraceful mistreatment of low & middle earner self-employed people who are denied the employee tax credit.


Similarly, not getting the employee tax credit might be unfair but again, balancing this, self-employed at lower levels don't pay enough PRSI (although I would be interested to know your definition of low and middle earner).


----------



## T McGibney (15 Oct 2014)

orka said:


> You said benefits were accrued because of employers PRSI and I pointed out that at the level we are discussing on this thread (100K income), that is not true.
> 
> I don't really see how you can separate the three items (general tax, USC and PRSI).  Nothing seems to be earmarked for anything specific - the government gets in a big pot from all three items and then spends it all.  In looking at whether something is 'fair', you really need to look at compensating aspects.  Case in point - high earning self-employed people don't pay enough PRSI but the imbalance is addressed to an extent by charging them more USC.
> 
> Similarly, not getting the employee tax credit might be unfair but again, balancing this, self-employed at lower levels don't pay enough PRSI (although I would be interested to know your definition of low and middle earner).



You keep missing the point that employees don't pay employer's PRSI - their employers do.

Why is my definition of low/middle earner any way relevant? The lack of an employee tax credit is a discrimination against all self-employed people and company directors. Why you aim to justify such discrimination, I'm at a total loss to understand.


----------



## Bronte (15 Oct 2014)

T McGibney said:


> The opportunity to milk the system may have been a valid point 30 years ago, but now? Hardly - in fact self-employed taxpayers carry a heavy compliance burden (not just in terms of financial cost) that employees don't share.
> 
> There are also many aspects in how employees can enjoy "flexibility" in relation to tax-free benefits that self-employed people don't have.


 
This was apparently discussed by Pat Kenny with Joan Burton today, and she didn't use the word I used 'milk the system' for justification, but as good as did.  Nearly.  (we will not be sued)


----------



## amgd28 (15 Oct 2014)

I am self-employed, in that I set up a business in 2006, giving up a highly paid full-time job to do so. I also invested my SSIA and remortgaged a property to fund the business and took on a huge amount of risk
If the business had gone to the wall (looked likely for the first 4 years) then I would have had no social welfare safety net.
Fast forward and my company employs over 100 staff and exports are growing extremely strongly.
Like all other members of my company, my salary gets paid through PAYE and I do not claim expenses.
However I am now being charged 11%USC because I am an easy target, despite the impact I and the thousands of other self-employed have on our economy.
Were I to sell the business, any gains would be subject to 33% CGT. 

It takes a brave person to start a business and all the tax system does is discriminate rather than encourage such bravery.


----------



## orka (15 Oct 2014)

T McGibney said:


> You keep missing the point that employees don't pay employer's PRSI - their employers do.


I'm not missing anything.  You seem to think employers are a disconnected entity oblivious and unconnected with pay levels. The more employers PRSI an employer has to pay, the less they have available to pay employees.

From the government's point of view, for a particular person at a particular income level, they get less revenue in total from that person working if they are self-employed than if they are employed.   Why do you think that is fair?


----------



## Duke of Marmalade (15 Oct 2014)

_amgd_ I don't understand your post. If you are paid a salary under PAYE then you are not self employed.  Also this 3% surcharge is not new.


----------



## T McGibney (15 Oct 2014)

orka said:


> From the government's point of view, for a particular person at a particular income level, they get less revenue in total from that person working if they are self-employed than if they are employed.



Are you _really _sure that is the case? It might be true of income tax (if you accept the fallacious argument that employer's PRSI is paid by the employee) but its certainly very debatable once VAT & other business taxes are taken into account.


----------



## 44brendan (15 Oct 2014)

> amgd I don't understand your post. If you are paid a salary under PAYE then you are not self employed. Also this 3% surcharge is not new.




Good spot. He/she is an employee of the company and new 11% will not be applicable!


----------



## orka (15 Oct 2014)

T McGibney said:


> Are you _really _sure that is the case? It might be true of income tax ... but its certainly very debatable once VAT & other business taxes are taken into account.


On a like for like basis, yes I would be pretty sure - the person will still be doing the same job, charging VAT, contributing to profit etc.  

Joe the plumber goes from self-employment to working for BigPlumbingCo - does the exact same work and charges the exact same amount so collects the exact amount of VAT, has the same contribution to profit (business taxes) as before - except now instead of paying himself a 40K gross self-employed salary, BPC only pays him 36,117 because they have to pay 3,883 employers PRSI.  Self-employed he would have taken home 28,865 but employed he only takes home 28,613.



T McGibney said:


> if you accept the fallacious argument that employer's PRSI is paid by the employee


Who said employers PRSI is paid by the employee?  It is paid in respect of an employee not by an employee.  But it is still money that the government gets as a result of the employed person's employment.


----------



## 44brendan (15 Oct 2014)

> Who said employers PRSI is paid by the employee? It is paid in respect of an employee not by an employee. But it is still money that the government gets as a result of the employed person's employment.


Comment is fair as in the absence of this liability on the employer he/she/it would have capacity to pay the employee a higher gross salary.


----------



## alryn (15 Oct 2014)

Whatever about the different rates of prsi for employees and self employed, once self employed can get sick pay, jobseekers benefit, etc, only then can we have a fair comparison numbers wise.


----------



## Brendan Burgess (15 Oct 2014)

alryn said:


> Whatever about the different rates of prsi for employees and self employed, once self employed can get sick pay, jobseekers benefit, etc, only then can we have a fair comparison numbers wise.



Good point. The self-employed have much lower entitlements than employees. 

Brendan


----------



## orka (15 Oct 2014)

Brendan Burgess said:


> Good point. The self-employed have much lower entitlements than employees.


No they don't.  The contributory pension is by far the most costly benefit provided - probably 65% of the cost of providing all PRSI-covered benefits (5.3B of 8.3B) - and that's current cost - accruing costs will be much higher for the contributory pension.  

If you look at Welfare's cost to provide each benefit and compare the 13 benefits provided for Class A and the 5 benefits provided for Class S, Class S contributors are entitled to benefits costing about 70% of the total.  And Class S pays 4% whereas Class A pays (or has paid on their behalf) 14.75%.

So which is better value:
14.75% of income to provide all covered benefits?
Or
4% of income to provide 70% of covered benefits?

Hmmm...


----------



## Sophrosyne (15 Oct 2014)

I assume that this thread should read "Why do the self-employed pay higher USC?"

Do they pay higher income tax than employees?


----------



## Protocol (16 Oct 2014)

Sophrosyne said:


> I assume that this thread should read "Why do the self-employed pay higher USC?"
> 
> Do they pay higher income tax than employees?



YES, as they don't receive the PAYE tax credit.


----------



## Sophrosyne (16 Oct 2014)

The Revenue Income Distribution Statistics for 2011 - the latest available year - would suggest that the self-employed have a higher effective rate of income tax than employees in the income bands from €0 to €35,000.

However, in the income bands from €35,000 onwards, employees have a higher effective rate.


----------



## Bronte (16 Oct 2014)

alryn said:


> Whatever about the different rates of prsi for employees and self employed, once self employed can get sick pay, jobseekers benefit, etc, only then can we have a fair comparison numbers wise.


 
I thought the self employed didn't get sick, or was that couldn't afford to get sick.


----------



## Bronte (16 Oct 2014)

amgd28 said:


> It takes a brave person to start a business .


 
Agreed and well done you, we need more people like you.


----------



## Sumatra (16 Oct 2014)

I like it Bronte and well done amgd28.

If self employed people find their own work why do the unemployed find none?


----------



## camel (16 Oct 2014)

Hey. Just wondering why there hasn't been more of a backlash about the self-employed being hit with an 11% USC over 100,000, while employees are at 8%. I don't see the logic.

Unless I'm not seeing the wood from the tress here, isn't that ultra blatant discrimination - and even anti-small business?


----------



## Branz (16 Oct 2014)

camel said:


> Hey. Just wondering why there hasn't been more of a backlash about the self-employed being hit with an 11% USC over 100,000, while employees are at 8%. I don't see the logic.
> 
> Unless I'm not seeing the wood from the tress here, isn't that ultra blatant discrimination - and even anti-small business?



Chris Johns in IT wrote about this yesterday
http://www.irishtimes.com/business/economy/plucking-the-sme-goose-1.1964503


----------



## Sumatra (17 Oct 2014)

Noonan's insinuation (RTE Radio 1 interview) that the self employed could to a certain extent manipulate the timing of payment of tax seemed to be used as a justification for them being singled out for such an imposition. I too am quite amazed at the silence of this particular segment of earners. Not a whimper out of them at the tax or at Noonan's inference.


----------



## Duke of Marmalade (17 Oct 2014)

I have said it before - this surcharge is not new. But the way it was announced it sounded new. It seems it was intended to give the impression that Labour had partly got their pet wish.


----------



## ashambles (17 Oct 2014)

> So which is better value:
> 14.75% of income to provide all covered benefits?
> Or
> 4% of income to provide 70% of covered benefits?



I may be wrong but from any figures I've seen large parts of the public service including ministers also have no employers PRSI paid. 

So in terms of PRSI - a minister is more like a self employed person than a normal PAYE worker.

Arguably the government shouldn't pay employer's PRSI as the money just goes round in circles, but I think that argument is weaker as in return for reduced  payments government employees sometimes have enhanced (e.g. early) access to the PRSI fund.

So if anyone is arguing that the self employed should pay higher PRSI as a result of the lack of employers contribution, surely the same argument should apply to say a minister or any other public servant?


----------



## Sophrosyne (17 Oct 2014)

This thread has moved from USC to PRSI.

If you look at the *income tax* *actually*_ *paid* _by both employees and the self-employed, as mentioned in my previous post, employees with income of €100,000 and over have an effective tax rate of a little over 5% more than their self-employed equivalents.

That may be the reason for the 3% differential in USC which, unlike income tax, cannot be reduced by tax reliefs.

At the other end of the scale, incomes from €0 to €35,000, the self-employed have a higher effective rate.

There may be some justification in assisting this group of self-employed.


----------



## orka (17 Oct 2014)

Sophrosyne said:


> If you look at the *income tax* *actually*_ *paid* _by both employees and the self-employed, as mentioned in my previous post, employees with income of €100,000 and over have an effective tax rate of a little over 5% more than their self-employed equivalents.


You can't easily compare groups using those stats.  The tax paid is net of all reliefs etc.  An obvious difference between the groups is that the self-employed are much more likely to need to provide for their own pension than employees who may have employer-funded schemes available - so the apparently lower tax paid by the self-employed could be due to the tax relief received.


----------



## orka (17 Oct 2014)

ashambles said:


> So if anyone is arguing that the self employed should pay higher PRSI as a result of the lack of employers contribution, surely the same argument should apply to say a minister or any other public servant?


It's an interesting point.  I hadn't really considered that public servants don't have an employers contribution made for them.  I suppose public servants might consider their pension levies to be their contribution towards PRSI benefits/contributory pension.


----------



## Sophrosyne (17 Oct 2014)

orka said:


> The tax paid is net of all reliefs etc.


 
That is the point. _Everyone_ pays income tax net of whatever reliefs are available to him or her. Some are entitled to more reliefs than others for whatever reason.


The bottom line for the government would be the average effective tax rate actually paid in various income bands; not the marginal rates.

As it turns out for incomes in excess of €100,000, (indeed upwards of €35,000) the self-employed pay less.

That is why I am suggesting this as a possible reason for the 3% additional USC charge on self-employed with incomes in excess of €100,000.


----------



## orka (17 Oct 2014)

Sophrosyne said:


> That is the point. _Everyone_ pays income tax net of whatever reliefs are available to him or her. Some are entitled to more reliefs than others for whatever reason.
> 
> The bottom line for the government would be the average effective tax rate actually paid in various income bands; not the marginal rates.
> 
> ...


That doesn't really make much sense though.  Why would you allow reliefs to continue in existence if you increase the tax rates of those who avail of the reliefs - such that they end up paying the same tax that they would have paid with no reliefs...  

And how is it fair to apply a rate to an entire group when only some people avail of the reliefs.  

I also can't think of any reliefs from personal income tax that are only available to self-employed higher earners.

I personally would do away with pretty much all income tax reliefs so everyone just pays the scheduled rates on all income.


----------



## Sophrosyne (17 Oct 2014)

I agree that it would be more helpful for analytics if the income bands grouping were more consistent, perhaps consistently ascending in groups of €10,000. But we have what we have.

In common with practically all taxation systems, the Irish system does not just collect taxes. It also acts partly as a welfare system to reduce the effect of taxation on individuals according to their personal status, health, dependants, age and certain outgoings. 

It also provides a range of capital allowances and other reliefs to alleviate the expenses of the self-employed and to a certain extent influence their behaviour, such as research and development, etc. 

There may be something in what you say, in that the tax code should only be concerned with taxation and that assistance to both employed and self-employed should be provided by other agencies; however you would be up against it!

As it stands, the only way the government can gauge who is paying what is by analysing effective tax rates in different income bands after tax reliefs have been applied.

In addition, I suspect that Revenue provides more detailed information to the government via the Finance dept than is shown in its income distribution statistics.


----------



## MrEarl (18 Oct 2014)

Brendan Burgess said:


> No, there is no justification for that.
> 
> Nor is there any justification why employees get a PAYE credit, but self-employed don't.
> 
> Brendan




I do not think it is that straight forward, Mr. Burgess.

I think we all must admit that there remains, to a certain degree, a lack of trust with regards to whether or not the self-employed are paying tax on all of their earnings.

It is entirely wrong to imply that all self-employed fail to pay tax on all of their earnings, but yet there are regular conversations with self employed tradesmen for example as to "what their cash price is".  This in isolation does not prove that the earnings coming from these deals subsequently does not get declared and the appropriate tax paid, but leaves people wondering.

By extension to the above line of thinking, the suspicion leads to other sectors of the population wanting to see the self employed taxed more heavily, in my view.

As for the PAYE annual allowance, I think this is in part a credit given to the PAYE sector, to acknowledge the fact that they have their tax deducted at source during the year and do not get the benifit of their funds in full, until an annual tax payment must be made.  Is the current figure the correct one to reflect whatever benefit this conveys, possibly not, but I do think in principal it is deserving.

Ultimately, I think the method in which the self-employed invoice, get paid and subsequently pay tax on their earnings needs to be changed to remove the doubt in peoples minds as to whether their earnings are ultimately all declared and taxed. Furthermore, that tax is paid on an ongoing basis by the self-employed and not just once a year (possibly a monthly payment with a final end of year adjustment, once the annual return is done ?).  Once this has been done, I think the justification for different treatment between PAYE & Self Employed workers will have been removed almost entirely.


----------



## Protocol (18 Oct 2014)

ashambles said:


> I may be wrong but from any figures I've seen large parts of the public service including ministers also have no employers PRSI paid.



Any PS payslip I've seen has employer's PRSI included.


----------



## Sumatra (20 Oct 2014)

How many self-employed regardless of age have income over €100,000 pa?


----------



## T McGibney (20 Oct 2014)

MrEarl said:


> As for the PAYE annual allowance, I think this is in part a credit given to the PAYE sector, to acknowledge the fact that they have their tax deducted at source during the year and do not get the benifit of their funds in full, until an annual tax payment must be made.  Is the current figure the correct one to reflect whatever benefit this conveys, possibly not, but I do think in principal it is deserving.



It might have been deserving in the pre-self assessment era but Preliminary Tax now means that income tax is payable on 31 October in respect of current year income, ie _before_ a significant chunk of the income is received.

So the notion that self-employed people somehow benefit from a tax cashflow advantage is outdated and mistaken.



MrEarl said:


> Ultimately, I think the method in which the self-employed invoice, get paid and subsequently pay tax on their earnings needs to be changed to remove the doubt in peoples minds as to whether their earnings are ultimately all declared and taxed.


Sorry, I don't understand your point here.




MrEarl said:


> Furthermore, that tax is paid on an ongoing basis by the self-employed and not just once a year (possibly a monthly payment with a final end of year adjustment, once the annual return is done ?)



If you really believe that all self-employed people earn their income on a consistent monthly basis, you have a very poor understanding of how they operate.


----------



## Sophrosyne (20 Oct 2014)

Sumatra said:


> How many self-employed regardless of age have income over €100,000 pa?


 

According to Revenue’s income distribution statistics, there were 29,581 cases in 2011.


----------



## Purple (21 Oct 2014)

Sumatra said:


> How many self-employed regardless of age have income over €100,000 pa?



Every GP and a good chunk of solicitors for starters.


----------



## Sumatra (21 Oct 2014)

A good chunk Purple? Most GP income seems to come from Annual Capitation payments and GMS patients.

Thanks for that figure of 29,581.

Mr. Earl, it irks me too when I come across people who work for themselves and deal in 'cash only' transactions. Such tax averse individuals are probably not going to declare incomes in excess of €100,000.

Many compliant self-employed persons will be caught by this net which in reality only acts as a disincentive to work. The emphasis should be on encouragement, and an appreciation of the life time tax that individual will contribute coupled with the productive value to the economy rather than a short term fix. The damage the extra tax can do can't be worth the extra tax the measure will yield.


----------



## roker (21 Oct 2014)

I was self employed and the accountant had me claiming tax for all sorts, Including travel allowance and accommodations depreciation on car etc. When I went PAYE, I could not claim for travel from Cork to Dublin each week, the tax office said I could not claim from home to work, even though it was 300 + miles round trip.


----------



## Duke of Marmalade (21 Oct 2014)

Sumatra said:


> The damage the extra tax can do can't be worth the extra tax the measure will yield.


Please  There is no extra tax measure here.  *Everybody* is (slightly) better off after this budget including self employed earning more than 100K.


----------



## Sumatra (22 Oct 2014)

I use a Chartered Accountant and Registered Auditor and his opinion strongly disagrees with yours. Naturally I prefer your supposition Duke,


----------



## Protocol (22 Oct 2014)

Sumatra said:


> How many self-employed regardless of age have income over €100,000 pa?



Tens of thousands of them.

GPs, med consultants, solicitors, barristers, accountants, architects, etc., etc.

Plus thousands of landlords.................


----------



## Duke of Marmalade (22 Oct 2014)

Sumatra said:


> I use a Chartered Accountant and Registered Auditor and his opinion strongly disagrees with yours. Naturally I prefer your supposition Duke,


This is a tax calculator.  Key in Not an Employee and, say, 200K income.  You will see that you are better off in 2015 than 2014.  The USC has gone up, but that is the effect of the 1% extra rate applying to all and clearly does not reflect any additional 3% on the 100K in excess of 100K.

I'm afraid your Chartered Accountant/Registered Auditor needs to brush up on her CPD


----------



## Sumatra (22 Oct 2014)

> I'm afraid your Chartered Accountant/Registered Auditor needs to brush up on her CPD


 
I'm very grateful to you for pointing that out Duke. Thank you.


----------



## Duke of Marmalade (23 Oct 2014)

The point I was missing is that the tax status of "self employed" is a matter of choice. Any sole agent can chose between being taxed as self employed or "incorporating" and being taxed as PAYE. Indeed many do.

So it is a free choice as to which tax regime will apply to you and so _prima facie_ distortions between the regimes are not a cause for street marches.


----------



## Brendan Burgess (23 Oct 2014)

There is a  good summary of the case against higher taxes in last week's Sunday Business Post by Brian Keegan of Chartered Accountants Ireland. 

How the state hammers the self-employed

"There is no administrative reason left for tax discrimination between those who rely on invoices and those who rely on payroll to make their way. Special credits and special rates which work against the self-employed are outmoded ideas"


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> The point I was missing is that the tax status of "self employed" is a matter of choice. Any sole agent can chose between being taxed as self employed or "incorporating" and being taxed as PAYE. Indeed many do.
> 
> So it is a free choice as to which tax regime will apply to you and so _prima facie_ distortions between the regimes are not a cause for street marches.


 
That is not always the case. Solicitors, for example, are prohibited by statute from incorporating their practices.


----------



## Duke of Marmalade (23 Oct 2014)

Brendan Burgess said:


> There is a good summary of the case against higher taxes in last week's Sunday Business Post by Brian Keegan of Chartered Accountants Ireland.
> 
> How the state hammers the self-employed
> 
> "There is no administrative reason left for tax discrimination between those who rely on invoices and those who rely on payroll to make their way. Special credits and special rates which work against the self-employed are outmoded ideas"


Not sure, _Boss_.  Solicitors notwithstanding, self employed people chose to be taxed that way.  Self employment as a tax status is a choice which does not in any way preclude people being self employed in substance but not in the eyes of the Revenue (incorporation). 

And BK misses the key point about Employers PRSI - perhaps that's the reason most self employed people do not incorporate.

Comparisons with civil servants are meaningless.   Their employer is the taxman.  They get pensions but their employer doesn't have to fund for it.  They get reduced PRSI (I think).  In theory civil servants could earn their income  "tax free" - at lesser rates of course.

The thing that amazes me is that most people, like me, were not aware of this "discrimination" until the Budget speech but absolutely nothing was changed in that respect by the Budget.


----------



## T McGibney (23 Oct 2014)

Duke of Marmalade said:


> N
> And BK misses the key point about Employers PRSI - *perhaps that's the reason most self employed people do not incorporate*.



I'm lost ???? Explain please.


----------



## Duke of Marmalade (23 Oct 2014)

T McGibney said:


> I'm lost ???? Explain please.


Okay, I might have it wrong. But I thought incorporating meant setting up your own company and getting that company to employ you. Unless there are exemptions for small companies there would be an immediate tax friction of Employers PRSI which was not applicable under your self employed status.


----------



## T McGibney (23 Oct 2014)

Duke of Marmalade said:


> Okay, I might have it wrong. But I thought incorporating meant setting up your own company and getting that company to employ you. Unless there are exemptions for small companies there would be an immediate tax friction of Employers PRSI which was not applicable under your self employed status.



With respect, I think you need to do a bit of research before sounding off. 

Salaries and other remuneration paid to Proprietary company directors (directors owing 15% or more of a company, or their spouses) are not liable to employers PRSI - and never have been.


----------



## Duke of Marmalade (23 Oct 2014)

T McGibney said:


> With respect, I think you need to do a bit of research before sounding off.
> 
> Salaries and other remuneration paid to Proprietary company directors (directors owing 15% or more of a company, or their spouses) are not liable to employers PRSI - and never have been.


Chill out man So there you go, no obvious reason why the self employed cannot incorporate (solicitors notwithstanding). Those who opt for self employed tax status obviously feel the greater flexibility in deductions or some other compensating factors (not necessarily foul play) outweighs _prima facie_ higher tax rates.

Of course, the Employers PRSI argument of _orka_ remains valid despite your own difficulty in grasping the point.

I was simply looking around for some obvious reason why the majority of self employed do not incorporate and thus apparently willingly accept the seemingly higher tax burden. Can you explain this latter point (for somebody earning say 200K for whom the costs of incorporation would be trivial).


----------



## T McGibney (23 Oct 2014)

Duke of Marmalade said:


> I was simply looking around for some obvious reason why the majority of self employed do not incorporate and thus apparently willingly accept the seemingly higher tax burden. Can you explain this latter point (for somebody earning say 200K for whom the costs of incorporation would be trivial).



Already answered.



Sarenco said:


> That is not always the case. Solicitors, for example, are prohibited by statute from incorporating their practices.


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> I was simply looking around for some obvious reason why the majority of self employed do not incorporate and thus apparently willingly accept the seemingly higher tax burden. Can you explain this latter point (for somebody earning say 200K for whom the costs of incorporation would be trivial).


 
Aside from the (non-trivial) on-going compliance costs associated with operating a business through a corporate structure, you should also bear in mind that the company itself will be liable for taxes on any profits that it generates in addition to any taxes that may become due on any income paid to employees of that company.  In other words, there is often an element of "double-taxation" associated with operating a business through a corporate structure.


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> Of course, the Employers PRSI argument of _orka_ remains valid despite your own difficulty in grasping the point.


 
Not really. 

In the US social security (broadly equivalent to PRSI) is actually paid into a separate fund so, unlike to position in Ireland, it actually matters whether a payment is characterised as social security or income tax. Currently, an employee and his/her employer each pay a 6.2% social security tax on up to €117,000 of net earnings. The self-employed pay the combined employee and employer amount (i.e. 12.4%). However, net earnings from self-employment are reduced by half of the total social tax for the purposes of calculating income tax. This is similar to the way employees are treated under US tax laws because the employer's share of the social security tax is not considered wages to the employee.  We could of course do the same thing in Ireland to arrive at the same position but it is not really necessary as all income tax, PRSI and USC get paid into the same pot.


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> The thing that amazes me is that most people, like me, were not aware of this "discrimination" until the Budget speech but absolutely nothing was changed in that respect by the Budget.


 
Duke, I can assure you that the self-employed have been acutely aware of the discrimination in treatment for some time! 

What surprised advisers in the current budget was that the original self-employed USC surcharge contained a "sunset clause" and was anticipated to fall away at the end of the current year and would have put employees and the self-employed on the same footing in this regard. Obviously this provision will now be repealed and the degree of the surcharge will be extended. This has echoes of the Minister's apparent about-turn on the private pension levy last year.


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> Aside from the (non-trivial) on-going compliance costs associated with operating a business through a corporate structure, you should also bear in mind that the company itself will be liable for taxes on any profits that it generates in addition to any taxes that may become due on any income paid to employees of that company. In other words, there is often an element of "double-taxation" associated with operating a business through a corporate structure.


Retaining profits within the company can lead to double taxation, on the other hand it could be used to manage distributions to minimise personal taxation.  In any case, a sole trader can always ensure that she gets paid all of the earnings of the company and thus avoid any possibility of double taxation.

I didn't understand your ER PRSI point.  Possibly the system in the US is symmetrical, it does not seem so in Ireland. ER PRSI seems a straight discrimination against employment versus  self employment.

I have no axe to grind here, but on the balance of what I am hearing from AAM contributors the situation does not seem to be as tilted against the self employed as my OP intimated.


----------



## Purple (23 Oct 2014)

As far as I am aware doctors are also prohibited from incorporating.


----------



## Duke of Marmalade (23 Oct 2014)

Purple said:


> As far as I am aware doctors are also prohibited from incorporating.


I'm getting above my pay grade here but there may be some confusion in terminology.  I can accept that doctors and solicitors may not be able to hide under a limited liability shelter but cannot unlimited companies be set up?


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> Retaining profits within the company can lead to double taxation, on the other hand it could be used to manage distributions to minimise personal taxation.


 
Corporation tax is chargeable on all profits (income and gains), wherever arising, and not simply on retained profits.

Obviously a shareholder will not be taxed on profits retained by a company.  In respect of such profits, the shareholder will certainly minimise personal taxation for the simple reason that the shareholder will not receive anything!


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> ...In any case, a sole trader can always ensure that she gets paid all of the earnings of the company and thus avoid any possibility of double taxation. QUOTE]
> 
> With respect Duke, this sentence makes absolutely no sense.  A sole trader refers to a self-employed individual who does not trade as a member of a partnership.  If a sole trader receives earnings through carrying out a trade then obviously these earning are not being received by the company.  You can't have it both ways!


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> I didn't understand your ER PRSI point. Possibly the system in the US is symmetrical, it does not seem so in Ireland. ER PRSI seems a straight discrimination against employment versus self employment. QUOTE]
> 
> My point is simply that even in a jurisdiction where a self-employed person pays a higher level of social security (to reflect the fact that there is no employer's social security paid in respect of that individual), this is subsequently netted out under the income tax system to ensure that the employee and self-employed are ultimately put in the same net position.  There is simply no discrimination against either the self-employed or the employee.


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> I have no axe to grind here, but on the balance of what I am hearing from AAM contributors the situation does not seem to be as tilted against the self employed as my OP intimated.


 
Could you point to any previous contribution in favour of the discriminating treatment of the self-employed under the tax code that has not been comprehensively refuted?  I'm trying not to be argumentative but you are adopting a very strong position for somebody with no axe to grind.


----------



## Sophrosyne (23 Oct 2014)

Brendan Burgess said:


> There is a good summary of the case against higher taxes in last week's Sunday Business Post by Brian Keegan of Chartered Accountants Ireland.
> 
> How the state hammers the self-employed
> 
> "There is no administrative reason left for tax discrimination between those who rely on invoices and those who rely on payroll to make their way. Special credits and special rates which work against the self-employed are outmoded ideas"


 

It would be a good summary if the only tax reliefs available were the Personal and PAYE credits. Since that is not the case, it has little value.


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> Duke of Marmalade said:
> 
> 
> > ...In any case, a sole trader can always ensure that she gets paid all of the earnings of the company and thus avoid any possibility of double taxation. QUOTE]
> ...


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> I'm getting above my pay grade here but there may be some confusion in terminology. I can accept that doctors and solicitors may not be able to hide under a limited liability shelter but cannot unlimited companies be set up?


 
No, it is an offence for any body corporate or director, officer or employee of a body corporate to act in such manner as to imply that the body corporate is qualified, or recognised by law as qualified, to act as a solicitor. A body corporate includes a company incorporated with unlimited liability. 

I am not aware of any similar legal prohibition that is applicable to medical doctors but, as pointed out above, there are other good reasons why a professional would not chose to practice through a company.


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> Duke of Marmalade said:
> 
> 
> > I didn't understand your ER PRSI point. Possibly the system in the US is symmetrical, it does not seem so in Ireland. ER PRSI seems a straight discrimination against employment versus self employment. QUOTE]
> ...


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> No, it is an offence for any body corporate or director, officer or employee of a body corporate to act in such manner as to imply that the body corporate is qualified, or recognised by law as qualified, to act as a solicitor. A body corporate include a company incorporated with unlimited liability.
> 
> I am not aware of any similar legal prohibition that is applicable to medical doctors but, as pointed out above, there are other good reasons why a professional would not chose to practice through a company.


Fair enough, we learn a little more every day


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> Could you point to any previous contribution in favour of the discriminating treatment of the self-employed under the tax code that has not been comprehensively refuted? I'm trying not to be argumentative but you are adopting a very strong position for somebody with no axe to grind.


I find your style very confusing, maybe you can rephrase.


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> Sarenco said:
> 
> 
> > Please _Sarenco, _don't be so pedantic. Listen to what I mean not what I say _Sole trader_ may be technically the wrong word, I was merely stating the obvious that a 100% proprietary director can withdraw all available earnings from her company, thus avoiding double taxation.
> ...


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> Sarenco said:
> 
> 
> > What has the US got to do with this? 12.5% Employer's PRSI for over 100K salaries (which is the object of discussion) secures no substantive value whatsoever and is a clear distortion against the PAYE person versus the self-employed.
> ...


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> I find your style very confusing, maybe you can rephrase.


 
Well, you said that you had formed the view, based on other posts, that the system was not tilted against the self-employed.  Could you identify what posts you are referencing that have not been refuted?  In other words, what is the basis for your opinion?


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> Duke of Marmalade said:
> 
> 
> > Not sure how to respond to that! Do you mean that a proprietary director can draw a salary that reflects the entire amount of any net income/gains of a company such that the company has no profits and therefore no liability to corporation tax? I don't think anybody would dispute that but I thought you were arguing that a self-employed individual could make use of a company in order to defer personal taxes without any downside. My apologies if I misunderstood you but could you explain what tax advantage are you arguing accrues to a self-employed person by operating through a closely held company?
> ...


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> Well, you said that you had formed the view, based on other posts, that the system was not tilted against the self-employed. Could you identify what posts you are referencing that have not been refuted? In other words, what is the basis for your opinion?


I think I get your point now.  I suppose what I meant is that I started off thinking it was highly discriminatory against the S/E but then contributions, esp. from _orka,_ plus my own questioning as to why people volunteer for self employed tax status got me wondering.


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> Duke of Marmalade said:
> 
> 
> > Edit to add:
> ...


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> Sarenco said:
> 
> 
> > PAYE credit and no USC surcharge, what this thread is all about.
> ...


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade said:


> Sarenco said:
> 
> 
> > This is key. I don't think ER PRSI on over 100K garners any real extra benefit for the punter. It is a tax pure and simple. Your point has some validity at the levels where unemployment benefit actually kick in.
> ...


----------



## Duke of Marmalade (23 Oct 2014)

Sarenco said:


> Duke of Marmalade said:
> 
> 
> > Ah, now I think I see your point. I think what you are really arguing (and I don't want to put words in your mouth so please correct me if I have misunderstood you) is that the _level_ of the employer's PRSI contribution is too high in view the benefits accruing to their employees. I think we can find common ground here, bearing in mind that many self-employed people have employees and are required to discharge employer's PRSI for the benefit of their employees.
> ...


----------



## Sophrosyne (23 Oct 2014)

USC is deductible at the same rates for both employed and self-employed.

Self-employed and others, including employees, who have non-PAYE income in excess of €100,000 pay an additional 3% on the excess over €100,000.

The main difference in the application of PRSI and USC between the self-employed and employees, is that the self-employed are entitled to deduct capital allowances from gross income before PRSI and USC are applied.


----------



## Sarenco (23 Oct 2014)

Duke of Marmalade;1405582[quote="Sarenco said:


> We're getting close _sarenco_.  I have to accept that the PAYE credit of 1650 seems unfair given that its initial rationale (high interest rates and prolonged tax deferral) no longer apply.
> Agreed.  Also, the minimal timing advantage has been further diminished by the substantial increase in DIRT and the fact that the self-employed have always been liable for PRSI on deposit interest.
> 
> ER PRSI on over 100K seems wrong
> ...



That would be an ecumenical matter...


----------



## Sarenco (23 Oct 2014)

Sophrosyne said:


> USC is deductible at the same rates for both employed and self-employed.
> 
> Self-employed and others, including employees, who have non-PAYE income in excess of €100,000 pay an additional 3% on the excess over €100,000.
> 
> The main difference in the application of PRSI and USC between the self-employed and employees, is that the self-employed are entitled to deduct capital allowances from gross income before PRSI and USC are applied.



Are employees not entitled to deduct normal business expenses (including capital allowances) from non-PAYE income before PRSI and USC are applied?  Genuine question.


----------



## orka (23 Oct 2014)

Sarenco said:


> Edit to add:
> It is certainly true that the State receives less overall revenue due to the fact that no employer's PRSI is paid by or in respect of a self-employed individual.  Is that your point?  This seems entirely reasonable because the State incurs a greater potential liability in respect of an employee (e.g. if he/she ceases to be employed).  To put it another way, a self-employed person receives less benefit from the State for his/her PRSI contributions.  Bear in mind that PRSI was designed as a form of social insurance - as with all insurance, increased cover requires higher premiums.


You must have missed my post in reply to BB’s





Brendan Burgess said:


> Good point. The self-employed have much lower entitlements than employees.





orka said:


> No they don't.  The contributory pension is by far the most costly benefit provided - probably 65% of the cost of providing all PRSI-covered benefits (5.3B of 8.3B) - and that's current cost - accruing costs will be much higher for the contributory pension.
> If you look at Welfare's cost to provide each benefit and compare the 13 benefits provided for Class A and the 5 benefits provided for Class S, Class S contributors are entitled to benefits costing about 70% of the total.  And Class S pays 4% whereas Class A pays (or has paid on their behalf) 14.75%.
> 
> So which is better value:
> ...


The State does incur a greater liability for employees compared to the self-employed but it is 40% to 50% greater – not the multiples that would warrant total PRSI of 14.75% vs. 4%.

The self-employed (particularly the lower paid) get an absolutely fantastic deal for their PRSI (that dwarfs whatever extra taxes they have to pay).  The contributory pension is by far the most expensive benefit provided by PRSI contributions – yet all you ever hear is moans of ‘but we don’t get JSB if our business goes belly-up…’.  JSB costs less than 7% of the cost of benefits provided under PRSI.

If you look at the economics of the contributory pension:
You can earn a full 12K contributory pension with 30 years of PRSI contributions.
So for each year of PRSI contributions, a pension of €400 pa in retirement is accrued.  The usual valuation factor for pensions is at least 20 and probably closer to 30/35.  So that €400 pa pension is valued at somewhere between €8,000 and €14,000.  Even allowing for a fully contributing 50 year career, each year of PRSI contributions accrues €5,000 + of pension value.
Just think about that for a minute (although not for too long or you will realise how unsustainable it is…) – for every year a person works and pays PRSI, whether they earn 20K or 200K, they accrue a benefit with a value of 5K to 14K…

And for this the self-employed pay 4% of income (so, e.g. €800 on a 20K income).  Between employers and employees PRSI, the state receives just under €3,000 in respect of an employee on 20K.  Still not enough (but that’s the joy of a hugely progressive tax system) but getting close in orders of magnitude.
Even a self-employed person on 100K only pays 4K in PRSI – still not anywhere near enough to fund their contributory pension.  For an employee on 100K, the state receives just under 15K – just about enough.

So, overall, IMHO, the self-employed get a fantastically brilliant deal from their PRSI and they are generally very unaware of it preferring to focus on cheaper benefits that they don’t get.


----------



## Sophrosyne (24 Oct 2014)

Sarenco said:


> Are employees not entitled to deduct normal business expenses (including capital allowances) from non-PAYE income before PRSI and USC are applied? Genuine question.


 

Employees are not entitled to deduct allowable employment expenses against either PRSI or USC.

Regarding non-PAYE income, it would, naturally, depend on the nature of the income and whether business expenses or capital expenditure was incurred.

However we are discussing the justification for a higher USC rate on non-PAYE income *in excess of €100,000.*

If the self-employed were being unfairly burdened then logic dictates that Revenue’s figures of income tax paid should back up this assertion.

One would expect self-employed with incomes in excess of €100,000 to have higher effective rates than employees.

However, the reverse is true.

This can only be because the self-employed, despite the unavailability of the PAYE credit, have received more tax relief than employees.


----------



## rahmalec (24 Oct 2014)

I decided to do some fun math and see the differences for myself 
It came out pretty interesting. Here are the graphs at this link:

s1383.photobucket.com/user/alalal1/media/donejpg_zps77202568.jpg.html
red lines - employee
blue lines - self-employed

Without employer prsi, self-employed people are definitely at a disadvantage, especially at low incomes. Interestingly, if employer's prsi is counted, the total tax is around the same for both at low incomes but self-employed pay slightly less at high incomes (even with the extra 3% usc).


----------



## Duke of Marmalade (24 Oct 2014)

Sophrosyne said:


> If the self-employed were being unfairly burdened then logic dictates that Revenue’s figures of income tax paid should back up this assertion.
> 
> One would expect self-employed with incomes in excess of €100,000 to have higher effective rates than employees.
> 
> ...


One presumes that the Revenue stats refer to the Net Reckonable Earnings of the S/E i.e. after deducting allowable business expenses. The tax relief on NRE is very limited, the main one being pension contributions. And here we see that the stats are not comparing like for like. Many employees in that bracket will have their pensions funded to a large degree by their employers. To compare like with like the effective employer pension support would need to be added to the employee's income and this would bring down the effective rate of tax.

The fact is that at the Net level S/E pay 3% USC surcharge and get no PAYE credit - End Of, and at this net level are clearly facing a higher tax burden. The issue is do they have enough flexibility between Gross and Net to compensate for this - manicures, dog kennels etc.


----------



## Sarenco (24 Oct 2014)

orka said:


> You must have missed my post in reply to BB’sThe State does incur a greater liability for employees compared to the self-employed but it is 40% to 50% greater – not the multiples that would warrant total PRSI of 14.75% vs. 4%.
> 
> The self-employed (particularly the lower paid) get an absolutely fantastic deal for their PRSI (that dwarfs whatever extra taxes they have to pay). The contributory pension is by far the most expensive benefit provided by PRSI contributions – yet all you ever hear is moans of ‘but we don’t get JSB if our business goes belly-up…’. JSB costs less than 7% of the cost of benefits provided under PRSI.
> 
> ...


 
orka

In the quoted post I was simply trying to make the point that it was appropriate _in principle_ that greater PRSI contributions would be made by or in respect of an employee to reflect the additional benefits accruing.  However, in a subsequent post I agreed with Duke that the _level_ of employers' PRSI contributions is not proportionate to the value of the benefits accruing to their employees, over and above the entitlement to a contributory pension.  In other words, I think we are in violent agreement on this point!

As such, I would agree that the ratio of contributions should be changed such that the rate of employers' PRSI contributions is lowered (to more accurately reflect the lower value of the non-pension benefits) and/or the rate of employee *and* self-employed PRSI contributions should be increased (to more accurately reflect the higher value of the pension benefit).

However, it is not valid, in my opinion, to try to achieve this rebalancing by retaining the employee tax credit and/or imposing a surcharge on non-PAYE income in excess of €100k.  Do you disagree?


----------



## Sarenco (24 Oct 2014)

Duke of Marmalade said:


> One presumes that the Revenue stats refer to the Net Reckonable Earnings of the S/E i.e. after deducting allowable business expenses. The tax relief on NRE is very limited, the main one being pension contributions. And here we see that the stats are not comparing like for like. Many employees in that bracket will have their pensions funded to a large degree by their employers. To compare like with like the effective employer pension support would need to be added to the employee's income and this would bring down the effective rate of tax.
> 
> The fact is that at the Net level S/E pay 3% USC surcharge and get no PAYE credit - End Of, and at this net level are clearly facing a higher tax burden. The issue is do they have enough flexibility between Gross and Net to compensate for this - manicures, dog kennels etc.


 
Agreed Duke but I don't think it is fair to penalise an entire category of tax payers (the self-employed) on the basis that some individuals within that group are undoubtedly deducting inappropriate expenses in determining their NRE.


----------



## Sarenco (24 Oct 2014)

Sophrosyne said:


> This can only be because the self-employed, despite the unavailability of the PAYE credit, have received more tax relief than employees.


 
Sophrosyne

Can you clarify what tax relief is available to the self-employed that is not also available to employees?  I'm starting to wonder if I'm missing a trick...


----------



## Sarenco (24 Oct 2014)

One additional aspect of the 3% USC surcharge on the self-employed that seems particularly inequitable relates to the erosion of the benefit of making personal pension contributions.  At income levels in excess of €100k, a self-employed person will in effect pay tax (USC and PRSI) at a rate of 15% on any amount contributed to a personal pension whereas an employee with an equivalent level of income would [only!] pay tax at a rate of 12% on any such contribution.  The additional 3% surcharge levied on non-PAYE income above €100k is the equivalent of an additional commission or front-end load on this investment, which could become very significant over time.  In other words, an employee in similar circumstances can contribute an additional 3% tax free to his pension pot which could become very significant when the income and gains on this investment are compounded over time.


----------

