Jan O'Sullivan (Limerick East, Labour)
Link to this: Individually | In context

Question 297: To ask the Minister for Social and Family Affairs if he will explain the legislative base for charging PRSI on unearned income to self-employed persons; and if he will make a statement on the matter. [9146/05]

Séamus Brennan (Dublin South, Fianna Fail)
Link to this: Individually | In context

The primary legislative provisions underlying the social welfare system generally and the social insurance system in particular are contained in the Social Welfare Consolidation Act 1993 and its subsequent amendments. Section 17, subsection (1)(a) of the Social Welfare Consolidation Act 1993 provides that every person over 16 years and under pensionable age who has reckonable income or reckonable emoluments shall be a self-employed contributor for the purposes of the Act regardless of whether they are an employed contributor or not.

Section 18, subsection (1)(a) provides for the payment of self-employment social insurance contributions by self-employed contributors in any contribution year where a self-employed contributor has reckonable income in accordance with a percentage of that income, currently 3 per cent, and subject to a minimum payment, currently €253. Reckonable income is defined in the legislation in relation to a self-employed contributor as meaning aggregate income, with exclusions for reckonable earnings and emoluments, from all sources for the contribution year as estimated in accordance with the provisions of the income tax Acts. In effect, reckonable income for self-employed purposes includes income from the following sources: benefits-in-kind; income from a trade or profession; interest, annuities and income from foreign property such as investments; rent from any premises in Ireland; income from which tax has been deducted at source such as annuities, bank interest or building society interest, maintenance payments and other miscellaneous sources of income not included in the above; income from dividends and other distributions received from Irish resident companies; certain income from employment which is subject to PAYE, reduced by the amount of any allowable superannuation contributions paid. Examples of people with this type of income are certain company directors and motor-cycle couriers. The PRSI contribution is levied on both earned and unearned income.

If unearned income were not liable as reckonable income for social insurance purposes, many persons whose only source of income is unearned would be denied social insurance coverage. For instance, income from rents and certain forms of investment may be dependent on the activity of the person concerned and may be at risk with the onset of old age or death. This would be contrary to the principal objective of the extension of social insurance coverage to the self-employed which is to extend the coverage of social risks in the population. Furthermore, if unearned income were excluded from the income base, this could be used to limit liability for social insurance contributions through "tax efficient" income payment arrangements. A change in the definition of reckonable income used for the purposes of self-employed social insurance calculations would require a change in primary social welfare legislation to narrow the definition of reckonable income in social welfare legislation from that used in the income tax Acts. It could also have implications for the efficient collection of PRSI collections through the tax system if the definitions of reckonable income for tax purposes were to differ considerably from that used for social insurance purposes. Such a measure would also have financial implications which would have to be decided upon in a budgetary context. My Department has no plans to narrow the PRSI definition of reckonable income at this time.

Jan O'Sullivan (Limerick East, Labour)
Link to this: Individually | In context

Question 298: To ask the Minister for Social and Family Affairs the reason PRSI credit is not available to self-employed persons on the same basis as it is to employed persons; and if he will make a statement on the matter. [9147/05]

Séamus Brennan (Dublin South, Fianna Fail)
Link to this: Individually | In context

PRSI contributions are paid by employees on a weekly basis. The main rates of employee contribution are 4% standard rate, largely class A, and 0.9% modified rate, public service employees employed before 1995. There is a threshold of €287 below which social insurance employee contributions are not payable and there is a ceiling on the annual employee contribution. Employed contributors are also entitled to a non-cumulative PRSI-free allowance of €127 or €26 per week for standard and modified PRSI employees respectively. PRSI contributions are paid by self-employed persons on an annual basis. The self-employed contribution rate is 3% of reckonable income. There is an annual threshold of €3,147 below which social insurance self-employed contributions are not payable and a minimum annual contribution of €253.

Self-employed contributors are not currently entitled to a PRSI-free allowance. The "PRSI-free" allowance was introduced in Budget 1995 at the then rate of £50 per week for class A employees. At that time, an annual allowance of €520 per annum was introduced for self-employed contributors. In Budget 2001, the Minister for Finance announced a number of changes to the structure of PRSI for self-employed persons. These measures had the capacity to increase or reduce a self-employed person's PRSI contribution depending on their circumstances. The former included the abolition of the self-employed income ceiling and an abolition of the PRSI free allowance which had by then risen to £1,040 per annum. The latter included a reduction in the contribution rate from 5% to its now current level of 3% and a reduction in the minimum payment. The cumulative result of these changes is that for some gross income levels, the self-employment contribution is higher than the employee equivalent,while for others it is lower reflecting the fact that the self-employed rate of 3% is lower than the class A employee contribution rate of 4%. At all gross income levels however, the combined employer and employee class A rate is higher than the self-employed rate reflecting access to a wider range of benefits for employees. There are no plans to re-introduce this particular element of self-employed social insurance system. However, the system is reviewed on an ongoing basis to ensure that its objectives are met.