Irish employers should examine the circumstances in which they pay professional membership fees on behalf of employees in light of a recent update by Irish Revenue to guidance on the PAYE impact of paying professional membership fees on behalf of employees. While there is no change in the law in this area, the updated Irish Revenue guidance indicates the adoption of a more restricted approach to what is permitted. Employers should review their practices to ensure that the payment of the professional membership fees meets the conditions so that PAYE need not be operated.
In practice, employers often pay membership fees (e.g., Law Society fees, accountancy body fees, etc.) to professional bodies on behalf of employees. Since 1 January 2011, such professional membership fees have been deductible under the general rules as to employee deductions in the Taxes Consolidation Act 1997. This provides that an employee may claim a deduction for tax purposes for certain expenses, such as professional membership fees, which are incurred “wholly, exclusively and necessarily” by the individual in the performance of his or her duties of employment. In other words, where an employer meets such costs they do not have to treat the payments as emoluments or operate PAYE.
On 9 January 2018, the Irish Revenue Commissioners (“Revenue”) updated their guidance on the circumstances in which employers need not deduct income tax, PRSI and USC on the payment of such professional membership fees on behalf of employees. Broadly, the new guidance provides that a tax deduction is allowed for annual membership fees payable by an employee to a professional body on the following grounds:
(1) where there is a statutory requirement for membership of a professional body (e.g., for healthcare professionals under the Health and Social Care Professionals Act 2015); or
(2) where there is a requirement as part of the employment (outside a specific statutory requirement) for membership of a professional body (e.g., a tax consultant / accountant required to appear and plead before the Tax Appeals Commission).
The previous Revenue guidance on this matter was contained in eBrief No. 19/2011. While this guidance contained grounds (1) and (2) above, it also provided that income tax, PRSI and USC need not be operated where:
- the duties of the employee and the duties of the employment require the exercise or practice of the occupation or profession in respect of which the annual membership fee refers;
- the employee so exercises or practices the occupation or profession in respect of which the annual membership fee refers; and
- membership of the professional body is an indispensable condition of the tenure of the employment.
The exclusion of these circumstances from the new guidance would point to a tightening of the criteria Revenue will look to apply in deciding if a tax liability arises.
While it is expected that several bodies will make representations to Revenue in light of this updated position, at this point in time it would be prudent for employers to review situations in which they pay professional membership fees on behalf of employees to assess whether they meet the deductibility criteria under the new Revenue guidance.