For the purpose of this reply it is assumed that the Deputy is referring to a Proprietary Director who is a director of a company who is either the beneficial owner of, or able, either directly or through the medium of other companies or by any other indirect means, to control more than 15 per cent of the ordinary share capital of the company. The 3% surcharge of Universal Social Charge on self-employment (Schedule D) income in excess of €100,000 was introduced in Finance Act 2011 as a transitional measure. This measure was introduced when it became apparent that self-employed income earners earning over €100,000 would be sheltered from the harsher effects of Budget 2011.
Proprietary Directors generally pay Class S (self-employed) PRSI but, for tax purposes, their income in their role as Proprietary Director is assessed in the same manner as employment income and their tax is collected under the PAYE system. This means that the USC surcharge of 3% on self-employment income is not applied to their income as Proprietary Directors. However, where Proprietary Directors have self-employment income (such as rental, investment, trading or professional income) over €100,000, this income is subject to the 3% surcharge.
Many Proprietary Directors have significant other income from a self-employment source. Of the estimated 15,000 Proprietary Directors earning over €100,000 per annum, an estimated 5,500 have self-employment income of over €100,000. These Proprietary Directors are charged the 3% USC surcharge on non-directorship income. It is estimated that €34 million will be yielded in 2011 from Proprietary Directors alone as a result of the USC surcharge of 3%.
Furthermore, Proprietary Directors have a higher tax liability than other PAYE income earners, on the same level of income, as they do not benefit from the PAYE tax credit. They may also pay more PRSI than other PAYE income earners because, unlike Class A contributors, Class S contributors do not have the €127 per week PRSI allowance. Revenue classifies Proprietary Directors as PAYE taxpayers on their income from their role as Proprietary Directors and, based on the information I have outlined, I see no grounds for altering this state to, in effect, reclassify them as self-employed.