by Michelle Dunne, Director, Employer Solutions at Grant Thornton
Revenue have issued guidance on a PAYE settlement arrangement where an employer, acting in good faith, may have misclassified individuals as self-employed rather than employees. The deadline for making the submission is 30 January 2026.
Revenue are of the view that there should be no reason for employers to have ongoing classification issues for 2024 and beyond however, acknowledge difficulties in making the necessary payroll adjustments and thus now wish to provide employers with an opportunity to correct their 2024 and 2025 PAYE position.
This follows the Supreme Court’s October 2023 judgment in Revenue Commissioners v Karshan (Midlands) Ltd, which clarified the legal framework for determining whether a worker is an employee or self-employed for tax purposes.
What are the settlement terms?
Whilst noting that misclassified self-employed workers are often paid gross and advised to manage their own tax affairs, Revenue have set out the basis upon which they will accept a settlement.
The settlement parameters will only apply to bona fide misclassification errors for 2024 and 2025. It will not apply to any existing on-going Revenue interventions nor where Revenue are of the view that the classification is one arising from careless or deliberate behavior.
Revenue will permit settlement of income tax, USC and PRSI on the following terms:
- Income Tax at a rate of 20% of gross payments;
- USC at a 3.5% blended rate of gross payments;
- PRSI at prevailing employee and employer contribution levels.
Revenue state payments do not need to be re-grossed for tax purposes rather PAYE should be applied on actual gross payments. A credit will be given for any taxes paid by the individual via their self-assessed income tax return.
All disclosures must be submitted via ROS by Friday, 30 January 2026 and include the employer’s view as to why the individuals come within the scope of the settlement arrangement.
Where the settlement is accepted by Revenue it will not be subject to penalties. No interest will apply unless liabilities are settled by a Phased Payment Arrangement (PPA). Payments must be made in full via REVPAY or through a PPA requested at the time of disclosure.
Implications for employers
The Karshan case has far-reaching implications across all sectors. Businesses engaging contractors or freelance workers should now review their workforce models and ensure compliance with the updated framework.
Revenue’s settlement arrangement provides an opportunity for employers to correct their 2024 and 2025 PAYE position without the application of penalties and potentially lower rates of tax, as outlined above. Revenue state where misclassification is later discovered, they will form the view that the default arose from a ‘complete failure’ to operate PAYE, implying that any future settlement of tax will be on a re-grossed basis in addition to interest and penalties.
About the author
Michelle Dunne joined Grant Thornton’s tax department in 2016, and has since specialised in providing advice to clients on Irish employment tax related matters.
She assists employers with PAYE Revenue Audits and compliance interventions along with reporting on PAYE tax related considerations for due diligence projects.
Michelle has worked extensively with employers on providing advice on the Irish tax treatment of employee benefit programmes including implementation of tax efficient reward structures such as share schemes.
She provides global mobility tax advice in the area of secondments, assignments and cross border working arrangements. Michelle has also worked with employers in the provision of tax advices concerning workforce restructuring programmes.
