Government Planning PAYE Crackdown on Contract Workers

13/01/2010 The above headline appeared in last Sunday’s Sunday Business Post. Full details are expected to be revealed when the Finance Bill to implement the full measures of Budget 2010 is finalised.

The provisions would require contractors using a limited company vehicle to withdraw company profits via the PAYE route rather than receiving dividends. Whilst salary is tax deductible, a saving of 12.5% over dividends, in some cases employer’s PRSI is payable on salary payments (depending upon the ultimate control of the company by the contractor).

However, dividend regulations only require withholding tax of 20% to be deducted by the company on the release of profits to the contractor (as a shareholder). Ultimately, the shareholder would be required to submit the dividend details in their annual personal tax return. Failing filing this return (by carelessness or otherwise) would artificially make dividends more advantageous by up to 23% of the gross salary figure (Marginal Income Tax rate of 41% plus Income Levy (assumed) 4% plus employer PRSI saved 10.75% (if applicable) less corporation tax relief 12.5% not allowed less 20% effective taxes paid.

The full article can be viewed here.