Terence Flanagan (Dublin North East, Independent)
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230. To ask the Minister for Finance the reason self-employed persons are paying substantially more income tax than employees (details supplied); his plans to make changes to the income tax system to make it fairer for the self-employed; and if he will make a statement on the matter. [5924/15]

Michael Noonan (Limerick City, Fine Gael)
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A fair, efficient and competitive income tax system is essential for economic growth and job creation. While the figures quoted by the Deputy are accurate, it is important to understand that PAYE workers and the self-employed are taxed in different ways to reflect their differing circumstances.

As the Deputy is aware, employees in the PAYE system benefit from a PAYE income tax credit worth €1,650 per annum, to which the self-assessed are not entitled. The PAYE allowance, as it was then, was introduced in 1980 to improve the tax progression of PAYE taxpayers and to take account of the fact that the self-employed generally then had the advantage of paying tax on a preceding year basis. The argument was also made at the time that the general scheme of allowances for expenses discriminated against employees and in favour of other taxpayers.

There have been some changes since 1980. For example, the self-employed now pay tax on a current year basis. In addition, the PAYE allowance has become a tax credit. However, there are other aspects to how the self-assessed are taxed which can be beneficial to them. For instance, there are significant timing benefits, depending on the accounting period used by the taxpayer, which are available to the self-assessed but which are not available to PAYE workers. In addition, the expenses regime for self-assessed taxpayers remains somewhat more liberal than that afforded to employees and therefore the self-employed can actually pay less tax when compared to a PAYE worker on the same income.

It is true that employees are exempt from the charge to PRSI if their income does not exceed €18,304. However, once PAYE income exceeds this threshold they are liable to pay PRSI on the full amount at 4%, thus equalising the treatment of personal PRSI contributions, on all of the income, for PAYE and self-assessed workers on incomes above that level.

In the case of employees, their employers are required to pay a PRSI charge in respect of each employee. Thus the contribution made to the Social Insurance Fund in respect of employees is usually higher than that made by a self-assessed individual. For instance, at an income level of €100,000, an employer would typically be required to pay PRSI of €10,750 in respect of the employee, in addition to the €4,000 payable by the employee. Total PRSI of €4,000 is payable in respect of a self-employed individual with the same income. Entitlement to social welfare benefits is primarily a matter for the Minister for Social Protection. However, it is worth pointing out that for individuals with incomes in excess of €18,304 the total PRSI payable in respect of an employee is 14.75% of salary, while the total payable by a self-employed individual is 4%.

It is important to note that the changes to the Income Tax system introduced in Budget 2015 will benefit all those who pay income tax and or USC equally, regardless of whether they are PAYE or self-assessed taxpayers.