17/09/2025
Briefing

Background

The question of employment status has become a focal point in Irish employment and tax law following the Supreme Court’s landmark decision in Karshan and the subsequent publication of the updated Code of Practice on Determining Employment Status (the “Code”), after a review conducted by an interdepartmental group comprising the Department of Social Protection, Revenue and the Workplace Relations Commission (“WRC”). For more detailed analysis of Karshan and the Code, see our previous briefings:

In Karshan, the Supreme Court clarified the legal framework for distinguishing between employees and independent contractors, introducing a structured five-step test for assessment. The judgment has prompted a significant shift in how employers, advisors, and adjudicating bodies assess working relationships, with the Code consolidating these principles into a practical tool for compliance and risk management. Revenue has also published its own Revenue Guidelines for determining employment status for taxation purposes  (a detailed analysis of which can be found in our briefing Revenue issues new guidance on determining employment status for tax purposes ). 

Revenue announcement on new settlement terms

Revenue has announced that employers can correct payroll tax issues for 2024 and 2025 arising from bona fide employment classification errors, without the imposition of interest and penalties, in accordance with certain settlement terms published by Revenue.

Revenue encourages employers, who having acted in good faith relying on the case law and guidance available prior to Karshan, but who may have misclassified employees as contractors, to take this opportunity to regularise their tax affairs.

Revenue previously encouraged all businesses that were engaging contractors, sub-contractors or other workers on a self-employment basis to familiarise themselves with the detail of the judgment in Karshan and review their workforce model in light of same. Revenue cautions that where an employer fails to take this opportunity to review its workforce practices and make a relevant disclosure, and the liabilities from misclassification subsequently come to light, tax, interest and penalties will be applied in full. 

Any necessary adjustment to Income Tax, USC or PRSI liabilities due in respect of 2024 and 2025 will be treated as a “technical adjustment” under the Code of Practice for Revenue Compliance interventions such that no tax-geared or fixed penalties will apply.  

Additional Revenue Guidance on the new settlement process

Revenue has now published accompanying guidance to assist employers on this settlement opportunity in a new Tax and Duty Manual entitled: Revenue Guidelines – Settlement arrangement arising from Revenue v Karshan (Midlands) Ltd. trading as Domino’s Pizza (the “Manual”). Disclosures should be submitted no later than Friday, 30 January 2026 to avail of the settlement terms outlined in the Manual.

Scope of settlement arrangements   

The settlement terms apply to certain payroll tax issues in respect of 2024 and 2025 but explicitly do not apply to:

  • any individual who, under the Code in effect prior to October 2023, should have been classified as an employee;
  • any individual who should have been classified as an employee based on any published decision or determination of the Department of Social Protection, the WRC, the Tax Appeals Commission or any court; or 
  • any intervention which was open prior to the delivery of the judgment in Karshan, i.e. 20 October 2023.

Calculating the liability

Income Tax and USC should be calculated per Revenue’s guidelines, and full PRSI liabilities (both employee and employer) must be paid, with PRSI records created for each affected employee. Employers should calculate liabilities separately for 2024 and 2025.

Revenue will accept liabilities calculated as follows:

  • Income tax calculated at the rate of 20% on the gross amount paid to the employee during the relevant year;   
  • USC calculated based on a blended rate of 3.5% of the gross amount paid during the relevant year; and  
  • PRSI (employee and employer contributions) calculated on an actual basis with records updated

Revenue has instructed that employees should not declare income covered by the disclosure or pay Class S PRSI on it, to avoid double taxation.  Where an individual has already filed a return for 2024, there will be “credit” available for tax paid through self-assessment by those employees. If there are cases where the employee filed their 2024 return and paid Income Tax in respect of the income subject to the disclosure, Revenue will deal with such instances on a case-by-case basis.

Making a disclosure

Employers who make disclosures must provide Revenue with a clear explanation of why they believe the employees fall within the scope of the settlement arrangement. It must be demonstrated that any misclassification was not due to careless or deliberate behaviour. Revenue will treat such disclosures as self-assessments and accept them accordingly. For each affected employee, employers must supply specific details including the employee’s first and last name, PPSN, start and end dates (if applicable), total payments made in 2024 and 2025, and calculations for Income Tax and USC using a blended methodology. PRSI contributions must be calculated on an actual basis for both employee and employer.

Once Revenue agrees with the disclosed liabilities, the Income Tax, USC, and PRSI for 2024 will be accounted for via a PAYE assessment in November 2024. Similarly, liabilities for 2025 will be assessed in November 2025. Following acceptance of the disclosure and assessment of liabilities, employers must manually create PRSI records for each employee for both years to safeguard their social welfare entitlements. The Manual outlines how this can be done.

Paying the liability

All liabilities should be paid in full via REVPAY but employers may request a Phased Payment Arrangement (“PPA”) to pay the liabilities (in which case interest will be applied over the settlement period). Any request to enter a PPA should be made at the time the disclosure is submitted.

If an employer does not take the opportunity to disclose any relevant liabilities to Revenue on or before 30 January 2026, and those liabilities are later discovered, Revenue will consider this a complete failure to correctly operate PAYE, PRSI, and USC which may result in the application of interest and penalties for the employer.

If you require further information on this topic or on determining employment status more generally, please contact a member of the Employment or Tax Groups or your usual Arthur Cox contact.