Dáil Éireann Debate, Wednesday - 6 May 2026
221. Deputy Mairéad Farrell asked the Tánaiste and Minister for Finance to clarify where liability lies for the tax owed under Karshan settlements; if workers who were reclassified as employees as a result of the Karshan ruling are compelled to reimburse their employers as a result of the tax paid by those employers for 2024 and 2025 as part of a Karshan settlement; and if he will make a statement on the matter. [32273/26]
View answerThe disclosure initiative announced by Revenue in September 2025, provided employers with an opportunity to correct payroll tax issues for 2024 and 2025 arising from bona-fide classification errors, without imposition of interest and penalties. Employers who, acted in good faith relying on the case law and guidance available prior to the Supreme Court judgment, but who may have misclassified employees as contractors were encouraged to take the opportunity to regularise their tax affairs.
An employer is required to deduct Income Tax, USC and PRSI from their employee’s gross wages before paying them. The employer’s obligation to deduct and remit the relevant tax under the PAYE system is set out in Chapter 4 of Part 42 ‘Collection and recovery of income tax on certain emoluments (PAYE system)’of the Taxes Consolidation Act 1997 (TCA 1997).
Section 984B of Chapter 4 of Part 42 TCA 1997 sets out that employers are required to remit the relevant Income Tax, USC and PRSI directly to Revenue, regardless of whether or not the deduction is actually made from the payments made to the employees. The liability in relation to the deduction of the relevant taxes under the PAYE system from the wages of employees and the payment of those taxes to Revenue is that of the employer.
Employees who were included in this settlement arrangement have been paid “gross” in 2024 and 2025 without deduction of payroll withholding taxes. Employers were requested to advise employees not to declare income which was included in the disclosure when filing their income tax returns for 2024 and 2025.
Where an individual has already filed a return for 2024, there will be “credit” available for tax paid through the self-assessment system by those employees. This is to avoid a situation where the income is taxed twice.
Settlement for 2025 was required before the self-assessment deadline for that year. This means that there may be no “credit” for tax paid through the self-assessment system by employees available to employers who were availing of these settlement terms, as the employees will not have paid tax under self-assessment on this income.
The disclosure initiative was intended for employers to regularise their position with Revenue in relation to these employer liabilities. There is no requirement for individuals who were reclassified as employees to reimburse their employers for the tax paid as part of the disclosure initiative by those employers for 2024 and 2025.
Guidance on the disclosure initiative is set out in Tax and Duty Manual ‘Settlement arrangement arising from Revenue v Karshan (Midlands) Ltd. trading as Domino’s Pizza’ which is available at: www.revenue.ie/en/tax-professionals/tdm/compliance/audit-and-other-compliance-interventions/karshan-settlement-guidance/karshan-disclosure-opportunity-guidance.pdf.
