Tax window for firms after Karshan judgment
Revenue says that it is giving employers a chance to correct tax issues from 2024 and 2025 arising from what it describes as “bona fide classification errors”.
The tax body’s move comes after the Supreme Court judgment in Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza, which introduced a five-step framework to be applied when determining if a worker is an employee or self-employed for income-tax purposes.
Revenue is encouraging employers who may have misclassified employees as contractors, due to a reliance on the case law and guidance available before the Karshan judgment, to take the opportunity to regularise their tax affairs without interest and penalties.
Guidance
The tax body has previously encouraged all businesses engaging contractors, sub-contractors, or other workers on a self-employment basis to familiarise themselves with the detail of the judgment and review their workforce model.
It has published aimed at helping employers to calculate any adjustment needed. Employers have until 30 January 2026 to submit disclosures.
EY Ireland tax partner Sandra Brennan described the update as “significant” for any business engaging self-employed contractors in Ireland.
“Employers who act now can benefit from significantly reduced settlement terms, including a flat 20% income tax rate and 3.5% USC – a marked departure from standard treatment,” she stated.
‘Long-term consequences’
EY Ireland’s head of employment law Deirdre Malone said that, from an employment-law perspective, reclassifying a contractor as an employee for tax purposes was a significant decision that employers would need to carefully consider.
“While it does not automatically confer employment rights, it would certainly be a factor taken into account in the event of an employment-rights claim before the Workplace Relations Commission,” she stated.
Citing the short window for employers to make a disclosure, Malone concluded: “They must think about the potential long-term consequences for potential retrospective holiday, sick, and pension claims that will flow from making such a decision at this time.”