Revenue eBrief No. 079/21
Credit in respect of tax deducted from emoluments of certain directors and employees
Tax and Duty Manual Part 42-04-59 – Credit respect of tax deducted from emoluments of certain directors and employees – has been amended as follows:
- Update to section 5 – Allocation of payments between Tax, USC, PRSI and LPT
- Information on debt warehousing – Section 6.
4. What happens when only a proportion of tax deducted is actually remitted?
Any tax remitted to the Collector-General that has been deducted by the company from emoluments paid by the company shall be treated as having been deducted, in the first instance, from emoluments of directors and employees who do not have a “material interest” in the company.
Any tax remitted to the Collector-General which is deducted from emoluments paid to persons to whom section 997A applies will be treated as deducted from emoluments paid to each such person in the same proportion as the emoluments paid to that person bears to the aggregate amount of all emoluments paid by the company.
Section 997A(4) clarifies that in determining the amount of tax remitted to the Collector General which relates to persons to whom this section applies, the tax remitted by the company for the year of assessment as a whole must be considered.
The credit due to any director or employee to whom this section applies cannot exceed the tax actually deducted from his or her emoluments under the PAYE system.
X, Y and Z are proprietary directors of Beta Co. (i.e. they each have a material interest in the company). Their total pay and tax deducted under the PAYE system for 2020 were as follows:
Note 1: References to tax in this example include USC and LPT.
Beta Co. also has a number of employees who do not have a material interest in the company, and the total tax deducted from their emoluments for 2020 was €40,000. The overall position was as follows:
As there is a shortfall in the tax actually remitted compared to the amount of tax deducted, in accordance with the provisions of section 997A(4), credit for tax will be granted in the first instance to persons who do not have a material interest in the company and then to the persons who do have a material interest as follows:
- Employees with no material interest €40,000
- Directors with material interest €20,000
Note 2: Employees with no material interest will always be entitled to a full credit for tax deducted from their emoluments. Therefore, if for example, the amount remitted to Revenue is only €30,000, the employees with no material interest will get full credit for tax paid notwithstanding that the tax deducted from such employees is €40,000.
The €20,000 appropriate to the directors with a material interest is apportioned in accordance with the provisions of section 997A(5) as follows (i.e. in the same proportion as the emoluments paid to that person bears to the aggregate amount of emoluments paid by the company to all such persons):
However, Director Z in this instance is not entitled to €2,000 credit for tax deducted as that director did not suffer any tax deduction (section 997A(6) refers).
The €2,000 credit is therefore re-distributed among the other proprietary directors in accordance with the formula above resulting in an additional credit for tax to Director X and Director Y of €1,111 and €889 respectively. This is calculated as follows:
Director X €2,000 X €50,000/€90,000 = €1,111
Director Y €2,000 X €40,000/€90,000 = € 889
The net result is as follows –