The Temporary Wage Subsidy Scheme has ceased as of August 2020, but what does this mean for employers and their employees in terms of tax liabilities? Olive O’Donoghue explores the different options available.

While the Temporary Wage Subsidy Scheme (TWSS) ceased at the end of August 2020, there are three main projects to be completed before the scheme will be fully closed off: 

1. Revenue’s reconciliation;
2. finalisation of employer compliance checks; and
3. payment of employee taxes.

The main objective of the reconciliation process is to ensure Revenue recoup any excess subsidy paid to employers. While the expectation would be that most overpayments occurred in the Transitional Phase of the TWSS (mainly because, for the first few weeks, employers received a flat €410 per eligible employee per week irrespective of the amount due), it is possible that overpayments may also have occurred for other reasons. For example, a clawback of subsidy would also be required where an employer has paid an employee more than their average revenue net weekly pay.

All employers who availed of the TWSS should have already submitted details of subsidies paid to employees over the course of the scheme. Following receipt of these files, we understand that the reconciliation process is underway. While we expect this process to be finalised by the end of 2020, a fixed date has not yet been provided by Revenue.

The employer compliance checks continue and, while many employers have already received the letters from Revenue, a number are still issuing. Throughout the operation of the TWSS, Revenue stated that it would adopt a pragmatic approach in assessing an employer’s eligibility for the scheme, and the experience with compliance checks supports this. It is worth noting that Revenue is utilising the compliance check process as an opportunity to raise queries/concerns on PAYE real time reporting issues, so employers should be mindful of this as they move through the compliance process.

The tax treatment of subsidies payable under the TWSS has been a contentious issue amongst employers and employees, mainly due to the impact this treatment has to an eligible employee’s overall net pay position for 2020. While there has been significant push back from various bodies and interested parties over the last few months, unfortunately Revenue’s position remains that the TWSS will be subject to income tax and USC.

In January, all eligible employees will receive a preliminary end of year statement from Revenue via Revenue’s MyAccount. This will show an employee’s estimated tax liability for 2020 – or, in some cases, a refund. The employee may wish to claim additional reliefs, such as medical expenses, additional pension contributions, etc.

Once the final liability is determined, the employee can choose how they would like it to be settled. The employee may choose to settle the liability in full, directly with Revenue, make a part-payment to Revenue upfront with the balance being paid by way of reduced tax credits over four years from 2022, or elect for the full liability to be settled by way of reduced credits over four years from 2022.

Recently, Revenue helpfully issued an update advising employers that they can settle the employees’ tax liabilities arising from the TWSS without a gross-up being required through payroll. The guidance notes that employers can make a payment to each employee to settle their liability directly with Revenue or, alternatively, an employer may choose to amend their last payroll submission for 2020 to capture the additional income tax and USC due by the employee. Further details on this can be found on revenue.ie.

Olive O’Donoghue is a Director of Tax in KPMG.