On March 24 the Government announced a new measure to provide financial support to employers affected by the crises.
The scheme runs from March 26 for 12 weeks. It replaces the short lived Covid-19 refund scheme.
The aim of the scheme is to allow employers retain staff, pay them as much as they can and then when the crisis is over be fully ready to embrace the new economic climate, whatever that will look like.
The scheme is broken into two phases:
From the March 26, the scheme will refund employers up to a maximum of €410 per week for each qualifying employee.
An employee should receive no more than their normal take home pay. It applies to employers who top up employee wages and those who do not. Reimbursement of the funds to the employer will be made within 2 workings days of the payroll submission.
In April the scheme moved to a subsidy payment based on 70% of the weekly average take home pay for each employee – up to a maximum subsidy of €410 net per week. This is a more nuanced approach and takes account of employee’s average wages for January and February. It is a tiered system. There is good detail on the Revenue website on calculating the average income and the tiered levels of support.
What was not clear at the start was that this payment to the employee is taxable although not at the moment.
The payments are processed through the employer’s payroll and there is no tax applied to the government portion. If the employer pays a top up then the usual Tax, PRSI and USC apply. Employer PRSI will not apply to the subsidy payment and it will be reduced to .5% from 10.5% on the top-up payment made by the employer.
In order for an Employer to qualify for the scheme they must meet certain criteria. This is based on a self-declaration by the employer. It may be checked by revenue at a later date so it is important to be aware of the points:
- Be experiencing significant negative economic disruption due to Covid-19;
- Be able to demonstrate a minimum of a 25% decline in turnover –The declaration to be signed states that you need to prove that there is at least a 25% decline in 'actual or predicted turnover';
- Be unable to pay normal wages and normal outgoings fully;
- You must retain the employees on the payroll;
The employees must have been on the payroll as of 29 February and a payroll submission has been made in the period from 1 February 20120 to 15 March 2020.
From the employee’s point of view they can only avail of either wage supplement through their employer or the unemployment payment. You cannot avail of both.
While the subsidy payment will not be subject to PAYE, USC or PRSI for both employer and employee, it will remain taxable in the hands of the employee.
Revenue have stated that any taxes due, that are not covered by un-utilised credits in the year, will be collected by reducing the employee’s tax credits for a future year or years in order to minimise hardship. What you earn in total over the course of the year will dictate your tax bill, if any at the end of the year.
This may mean employees having to submit a tax return at the year-end which may be a worrying job for a lot of PAYE people. While it is not fully clear yet how any tax liability would be repaid it is anticipated it will be collected over a period of time by reducing future tax credits.
The general opinion would be to retain a certain amount of your income in a separate account to be in a position to repay any tax due at the year-end in a lump sum if possible.
The approach by revenue though is not likely to cause employees hardship in the short term. It is also important to ensure that you retain any details on expenses allowed etc to ensure you utilise your full tax reliefs.
This applies every year and getting into the habit of making an annual tax return is good practice.
About the Author:
Conor Harte is a Financial Planner with Wealthwise Financial Planning who are based in Block C, Hartley Business Park, Carrick-on-Shannon, www.wealthwise.ie All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland. #CI66141