I propose to take Questions Nos. 45, 58 and 67 together.
As the Deputies will be aware, Revenue set out last Friday how any tax liability arising on the Temporary Wage Subsidy Scheme (TWSS) and the Pandemic Unemployment Payment (PUP) will be dealt with.
While the expected tax liability should be modest in most cases, the position as set out by Revenue is very welcome and is a further demonstration of how we will continue to work to minimise financial hardship to the greatest extent possible on taxpayers challenged by COVID-19.
While most income is liable to income tax and the Universal Social Charge (USC) and is deducted in real-time as and when the person is paid, the TWSS and PUP payments were not taxed in real-time and are instead liable to income tax and USC at the end of this year.
To minimise the amount of income tax due, if any, on PUP payments at the end of the year, Revenue placed all recipients of the PUP on the ‘week 1 basis’ of taxation for the remainder of the year so as to “preserve” unused tax credits that can then be used to offset any income tax liabilities that arise at year end.
Revenue has provided assurances that individuals will be given the opportunity to opt to fully or partially pay any income tax liabilities that still arises following the allocation of unused credits and where individuals do not opt to fully or partially pay, Revenue will collect the liability by reducing tax credits over 4 years, interest free, to minimise any hardship. The reduction of tax credits will start in January 2022.
The week 1 basis of taxation means that where an employee returns to work or takes up a new employment following a period while in receipt of the PUP or the TWSS, an employee’s tax is calculated on a ‘non-cumulative basis’. In these cases, an employer will deduct income tax and USC from a person’s pay on a week-to-week basis. Yearly tax credits and rate bands are not backdated to the 1 January and do not accumulate for each pay period. Employers are not permitted to make any refunds of income tax or USC that may be due until a ‘cumulative’ Tax Credit Certificate is issued.
I am advised that Revenue has received a number of requests from employees who were moved to the week 1 basis of taxation to be returned to the cumulative basis of taxation. A small number of these requests have been granted, for example where the employee only received a few weeks payment under the PUP or the TWSS, and where Revenue was satisfied that the employee would not suffer any hardship. The majority have remained on the week 1 basis of taxation as a return to the cumulative basis of taxation would have resulted in the employee suffering hardship either now or later through the end of year review process.