The Temporary Wage Subsidy Scheme (TWSS) came to an end on 31 August at an Exchequer cost of over €2.8 billion. Over 663,100 employees received a subsidy since the start of the scheme through the participation of over 66,400 employers. The scheme was introduced as an emergency measure by the Government on 24 March to provide financial support to businesses affected by the COVID-19 crisis for the purposes of keeping workers in employment throughout the lockdown and in the difficult period to follow.

The end of the TWSS thankfully means the beginning of another wage support scheme as many businesses still face an uphill struggle for survival and undoubtedly would be facing into a winter of large scale redundancies if the EWSS was not the TWSS’ successor. Employers and employees will also be thankful that the EWSS does not have several conditions associated with the TWSS. The operation of these conditions over the last 22 weeks has put a strain on employer and employee relations. Employers were bound to operate the scheme in accordance with these conditions or face losing the subsidy payment while employees were frustrated by reduced take-home pay, knowing that their employer was in receipt of a subsidy which the employee will be taxed on at the end of the year. The TWSS has been the saviour of hundreds of thousands of jobs while also being the source of workplace discord.

Average Revenue Net Weekly Pay

The TWSS subsidy was a function of an employee’s wage net of tax in January 2020 and February 2020, a new concept to Irish payroll taxation known as the Average Revenue Net Weekly Pay (ARNWP). The ARNWP determined eligible employees and formed the basis of the subsidy and the additional payments an employer could make to the employee for the full term of the scheme. If the employee was not on the payroll in January and February, then they did not qualify. If an employee’s gross wage exceeded €960 per week, then they did not qualify. The ARNWP concept also meant that the employer and the employee were hostage to whatever net pay the employee received in January and February which in many cases, was not necessarily reflective of the employee’s normal or usual pay. For example, it could have reflected a bonus which pushed the employee to wage levels ineligible for the scheme; the employee may have worked more or less hours in that period, the employee may have been on unpaid leave, the employee may have made a pension top-up payment resulting in less take-home pay than normal in that period.

As the TWSS progressed, the Government did change the rules to allow various employees not on the payroll in January and February, such as those on maternity leave, access to the scheme but the employee’s net wage in January and February continued to determine the subsidy and also constrained how much the employer could pay their employees. In addition, the subsidy payment and additional employer payment had to be calculated based on the employee’s net wage in January and February. If the employer exceeded this, then the subsidy was reduced or withdrawn. This meant that the employer could not put the employee in the same take-home pay position they were in January and February due to the terms of the TWSS.

Taxation of the subsidy

The subsidy payments under the TWSS are liable to income tax and USC; however, the subsidy was not taxed in real time through the normal payroll system during the period of the scheme. Instead, employees are liable for Income Tax and USC through a review of their tax position at the end of 2020. When an end of year review takes place, it may be the case that an employee’s unused tax credits will cover any further liability that may arise. However, that’s not likely to be the case for many, as income tax refunds to the value of €145 million issued to employees until all employees receiving the subsidy were moved to a Week 1 payroll basis of taxation in an effort to stem tax refunds issuing via the PAYE system and manage the tax bill facing employees at the end of the year.

Revenue has been consistent in its TWSS guidance that it will not look for a lumpsum payment of tax due from employees stating that it is normal Revenue practice to collect any tax owing in manageable amounts by reducing an individual’s tax credits for future years in order to minimise any hardship. However, this detail is set out in lengthy guidelines not easily understood by many employees inexperienced in dealing with tax issues normally looked after through the payroll system. The absence of a dedicated guide setting out in simple terms how the end of year review will work has caused anxiety for employees and has consequently put another layer of strain on employer/employee relations. Chartered Accountants Ireland and the CCAB-I has called on the Government to fill the information gap, and we are told that such information will issue in due course. But this is not particularly helpful to employers and employees now grappling with the possibility of a tax liability on top of increased work pressures due to new COVID-19 health and safety work practices, concerns and uncertainty.

What we do know

We do know that employees are liable to USC and income tax on the subsidy payments under the TWSS. Although employee PRSI is not payable on the subsidy payment and employer’s PRSI is reduced from 11.05 percent to 0.5 percent, employees will be allocated social insurance contributions appropriate to their normal employment status so they will not miss out on PRSI social contributions.

We know that Revenue will carry out an end of year review by asking employees to complete a tax return and the employee’s tax position will then be calculated taking into account any additional tax reliefs available such, as medical expense relief. Employers were not permitted to deduct an employee’s pension contribution from the wage subsidy over the term of the scheme. However, the subsidy is eligible income for pension tax relief purposes so an employee could elect to make a “non-ordinary” or “special” contribution to her/his pension scheme and claim tax relief in the return filed under the end of year review. Of course, the employee will have to pay money into his/her pension, subject to the normal age and pay related restrictions for tax relief purposes, but making such a contribution could mean that tax due on the TWSS is reduced or offset in full.

We also know that any tax liability arising from the end of year review will be collected from 2022 onwards and in most cases, this will take the form of an adjustment to the employee’s tax credits and rate bands. We know that in the past, Revenue has allowed tax collected by adjustment to credits and rate bands to be spread over one or more tax years up to a maximum of four years.

Lessons from the TWSS

The TWSS’ successor, the Employment Wage Subsidy, taxes all subsidy payments in real-time through the PAYE system. Employee eligibility is based on gross weekly pay, and it is open to new employees joining the employer’s workforce. Of course, there are several ways in which the EWSS could be improved such as synchronising the pay frequency of the subsidy to the employer’s payroll frequency and increasing the subsidy rates to align with the TWSS. However, employers and employees will not be sorry that subsidy payments under the EWSS are taxed as normal wages through the payroll system, and employer top-up payments will not be constrained by complex net pay calculations based on payroll in January and February.

The TWSS was designed quickly to put financial supports in place for employees who might otherwise have lost their jobs and it has successfully achieved its goal for hundreds of thousands of workers. However, many employees are disappointed as they feel the subsidy benefited the employer while they, the employee, ended up with less take-home pay and a pending tax bill. A disappointed workforce may well be the price for employers who availed of this valuable subsidy and the role it played keeping their businesses afloat. No employer can make that assessment until both they and their employees get to the other side of the TWSS end of year review. In the meantime, some clear and simple information from the Government on this matter would help ease some of the tensions felt these days in many Irish workplaces.

Norah Collender Professional Tax Leader at Chartered Accountants Ireland

Email: Norah.Collender@charteredaccountants.ie