Determining The Employment Status Of An Individual- What You Need To Know.
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INTRODUCTION:
When engaging an individual to provide services a business needs to understand the legal difference between a contract of employment('contract of service') and a contract for service as they are treated differently for taxation purposes.
A contract of employment applies to an employee-employer relationship whereas a contract for service relates to an independent, self-employed contractor.
GUIDELINES:
Following the ground breaking Supreme Court decision in The Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza, Revenue have recently published updated guidelines for determining employment status for taxation purposes.
The guidelines outline a 5-step decision making framework which we have illustrated below:
In applying the above, the first three requirements act as a filter. Should the answer be ‘no’ to any of the first three queries there cannot be a contract of employment. Should the first three queries be answered ‘yes’ then queries four and five are reviewed to determine the status of employment.
HOW TO PROCEED:
Companies are being urged to review current contracts to ensure they have correctly identified those acting under a contract for services vs contract of service. Failure to correctly operate PAYE may result in significant penalties and interest for the company. The written agreement does not carry any weight when the actual circumstances of the service differ. A contractor is responsible for their own taxes and is required to pay their taxes under the self assessment system and file
Should you require any assistance with the above, please do not hesitate to reach out to our Tax team on ph. 01 849 88 00 or check out details on Revenues page here.
