Dáil Éireann Debate, Wednesday - 5 November 2014
58. Deputy Shane Ross asked the Minister for Finance the reason the self-employed are paying 3% more universal social charge on earnings over €100,000 than a PAYE worker; if he accepts that this makes self-employment much more difficult; and if he will make a statement on the matter. [42288/14]
View answerThe current situation is that the charge to USC applies equally to all up to an income level of €100,000. A 10% rate is charged on self-assessed income above this level, which compares with a 7% rate which is charged on PAYE incomes above that level.
When USC was first introduced in 2011 the PRSI ceiling on income over €75,000 was also removed for all PAYE employees. This meant that those on PAYE incomes of over €75,000 would now be liable to an additional 4% charge on that portion of their income. At the same time PRSI for self-assessed income earners was increased by 1% from 3% to 4%.
In order to maintain the differential it was decided to introduce an additional USC rate of 10% on self-assessed income over €100,000. The alternative would have seen self-assessed income earners on high incomes benefit hugely at a time when their PAYE counterparts were losing from the tax changes introduced in 2011. On the basis of fairness, this could not have been countenanced at the time.
Similarly, it was necessary to increase this 10% rate to 11% in Budget 2015 in order to ensure that the self-assessed on high incomes do not benefit disproportionately and that the maximum benefit from the income tax package is capped for all tax payers. Thus from 2015, self-assessed income in excess of €100,000 will be subject to an 11% rate of USC in comparison to an 8% rate that will apply to PAYE income in excess of that level.
It is worth pointing out that the self-assessed benefit to the same extent from the Budget measures as their PAYE counterparts. They benefit from the cut in the top rate of income tax from 41% to 40% and from the increase in the standard rate bands. In addition, the changes to the USC will also be beneficial to them on incomes up to €70,000. This year, the self-assessed on incomes in excess of €100,000 face a marginal rate of income tax of 55% including USC and PRSI. That marginal rate will be unchanged for this cohort in 2015. However, the marginal rate that applies on incomes below €70,000 will be reduced by 1% for all taxpayers currently paying the higher rate of income tax, as a result of the Budget changes.
There are other aspects to how the self-assessed are taxed which can be beneficial to them. For instance, there are significant timing benefits, depending on the accounting period used by the taxpayer, which are available to the self-assessed but which are not available to PAYE workers. In addition, the expenses regime for self-assessed taxpayers remains somewhat more liberal than that afforded to employees and therefore the self-employed can actually pay less tax when compared to a PAYE worker on the same income.
