829. Deputy Ged Nash asked the Tánaiste and Minister for Finance if he is aware of concerns among skilled workers in the arts and culture sector who are genuinely self-employed contractors on their own account, in respect of the application of the Karshan judgment; if the Revenue Commissioners will continue to engage with the sector on the practical application of the terms of the judgment; if they will continue to keep their guidance under review to minimise the risk of unintended consequences within the sector; and if he will make a statement on the matter. [63385/26]

As the Deputy may be aware, on 20th of October 2023, the Supreme Court (in a unanimous decision) delivered an important judgment on the key factors to be considered when classifying an individual’s employment status for income tax purposes. The detailed judgment was delivered by Mr. Justice Brian Murray in The Revenue Commissioners v. Karshan (Midlands) Ltd. t/a Domino’s Pizza. The case was concerned with whether the delivery drivers were independent contractors under a “contract for service” and taxable under Schedule D of the Taxes Consolidation Act 1997, or employees under a “contract of service”, and taxable under Schedule E of that Act (PAYE).

The Karshan judgment provides an extensive review of relevant caselaw and succinctly summarises it through the provision of a five-step decision-making framework. Irrespective of the skill levels involved in the work, the decision-making framework consists of five questions that must be used to resolve the question of whether a contract is one of service (employee) or for service (self-employed). While the judgment related to a company engaging individuals as delivery drivers, as a decision of the Irish Supreme Court, the judgment has compulsory application across all sectors, including the arts and culture sector.

The judgment outlines different types of arrangements where the engagement may result in a worker being considered as an employee for tax purposes. The judgment is clear that every engagement, even if it is a once-off, must be considered separately considering the full facts and circumstances of each engagement. It may be the position that when the five-step framework is applied to payments made, there is no change to taxation treatment.

It is also acknowledged that there will always be legitimate operators in the wider economy where workers are correctly classified as self-employed. However, an individual’s employment status is not a matter of choice, rather, it depends on the facts and circumstances of the engagement.

For tax purposes, the treatment of individuals who are engaged as employees differs to those who are engaged as a contractor/self-employed (‘contract for service’), although there is generally no difference in the tax rate which applies. In practical terms, the main difference for tax purposes between employees and those who are self-employed is the different rules for allowable expenses. Where, upon the application of the five-step framework, an individual is determined to be an employee, taxable under Schedule E, income tax, USC and PRSI are operated through PAYE. An employer is required to deduct and remit to Revenue income tax, USC and PRSI from their employee’s gross wages on or before paying them. The employer’s obligation to deduct and remit the relevant tax under the PAYE system is set out in Chapter 4 of Part 42 ‘Collection and recovery of income tax on certain emoluments (PAYE system)’ of the Taxes Consolidation Act 1997 (TCA 1997). An employee, after the end of a tax year may file a PAYE income tax return (Form 12) through their MyAccount, and at this time claim a deduction for expenses they may have incurred wholly, exclusively and necessarily in carrying out the duties of the employment.

Where, upon the application of the five-step framework, an individual is determined to be engaged under a contract for service, i.e., as a self-employed individual taxable under Schedule D, he or she is obliged, in accordance with the self?assessment provisions in Part 41A of the TCA 1997, to register for self-assessment, pay preliminary tax and file their own income tax returns (Form 11) using the Revenue Online Service (ROS). He or she can claim a deduction for expenses incurred wholly and exclusively for the purpose of his or her trade or profession at this time.

The reality of the Karshan judgment is that the landscape has changed for businesses operating in a wide range of sectors, including the arts and culture sector. Businesses in some sectors who would have ordinarily engaged what they regarded as contractors for certain work, didn’t see themselves as impacted by Karshan. However, in some cases, individuals who may previously have been regarded as self-employed, are now considered to be employees for tax purposes. It is important to clarify that Revenue has not imposed this approach; it is the Supreme Court who has set down the framework that needs to be applied.

I appreciate the concerns raised by workers and employers across many sectors, including the arts and culture sectors following the Karshan judgement, however, it must be noted that the judgment is the leading legally binding Irish case on the key factors to be considered when classifying an individual’s employment status for Irish income tax purposes. Revenue, in carrying out its statutory function, is obliged to apply the judgement and has no discretion on this matter.

To assist taxpayers in understanding their tax obligations, Revenue published a detailed Tax and Duty Manual (TDM) ‘Revenue Guidelines for Determining Employment Status for Taxation Purposes’, to outline its position in relation to the application of the judgment and to assist businesses who engage individuals to carry out work. The TDM (www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-05/05-01-30.pdf) was published on May 21st 2024 and is available on the Revenue website.

I am advised by Revenue that the TDM provides guidance and commentary on the application of the Karshan judgment, but cannot cover every sector, eventuality and circumstance. The detailed TDM runs to 58 pages and contains 19 examples, based on real cases, some of which are with reference to the arts and culture sector, to demonstrate how the framework applies across all sectors. However, as is the case with guidance in general, regardless of the subject matter, it cannot cover every eventuality, circumstance or employment scenario.

In making its judgement, the Supreme Court stated that “every case depends on the particular facts”. As such, no guidance can be definitive on all scenarios. What is clear, however, is that in determining whether an individual is self-employed or an employee for tax purposes, the business (the entity engaging the person) is required, in accordance with the Supreme Court judgement, to apply the five-step framework by reference to the facts and circumstances of the individual case.

I am further advised by Revenue that its suite of TDMs are regularly reviewed and updated where appropriate and that if there are issues or queries from a specific sector in relation to the Karshan judgment, Revenue will engage as appropriate.