Martin Heydon (Kildare South, Fine Gael)
Link to this: Individually | In context | Oireachtas source

85. To ask the Minister for Finance his plans to review the taxation position of self-employed persons compared to others in employment; the improvements he hopes to be able to make; and if he will make a statement on the matter. [9807/15]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

A fair, efficient and competitive income tax system is essential for economic growth and job creation.  However, 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 an income tax credit worth €1,650 per annum to which the self-employed 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.  It was also argued 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 now become a tax credit.  However, there are other aspects to how the self-employed 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-employed but which are not available to PAYE workers. In addition, the expenses regime for self-employed 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.

The introduction of the USC in 2011 included a 3% surcharge payable on that portion of self-assessed income over €100,000. The alternative would have seen self-assessed high income earners benefit when compared to their PAYE counterparts from the complete (income tax, USC and PRSI) tax package introduced in 2011. On the basis of fairness, this could not have been countenanced at the time.

The 3% surcharge was retained in Budget 2015 in order to ensure that the self-assessed on high incomes did not benefit disproportionately from the Income Tax package and that the maximum benefit is capped for all taxpayers at €14 per week.

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-employed taxpayers.

Notwithstanding the above, I am cognisant of the disparities within the current system between self-assessed and PAYE workers, particularly at lower levels of equivalent income. I would hope to be in a position to bring about some changes to the system, subject to having the required fiscal space. It is not possible to be more specific at this stage but like all tax reliefs and expenditures, the position will be considered as part of my Budget deliberations later this year.