"4 ways the self-employed are hard done by in the tax system"

A good comprensive article by Fiona Reddan in today's Irish Times with a lot of contributions from our own Tommy McGibney

http://www.irishtimes.com/business/...d-are-hard-done-by-irish-tax-system-1.2544116

Tommy makes the point which people rarely make, that the self-employed get great pensions for their 4% a year PRSI compared to employee's 14.75% prsi.

"
However, self-employed people do not have the burden of employer’s PRSI which is a hefty 10.75 per cent. This, it could be argued, justifies offering those PAYE workers whose employers shoulder the burden of the charge greater welfare benefits.

“On the one hand, it’s a colossal benefit to self-employed people,” says McGibney, noting that employer’s PRSI is a “fairly serious tax on employment”.

The self-employed can also access potentially the most lucrative of all benefits, the State pension, which, it has been estimated, has a typical value of about €250,000 per person. Would you get such a fund if you invested 4 per cent of your annual income yourself?

So, for reasons such as this, “it’s not exactly fair to chalk it up as a serious inequality or grievance”, says McGibney of the exclusion of the self-employed from certain welfare benefits."

Brendan

Brendan Burgess said:

Tommy makes the point which people rarely make, that the self-employed get great pensions for their 4% a year PRSI compared to employee's 14.75% prsi.

"
However, self-employed people do not have the burden of employer’s PRSI which is a hefty 10.75 per cent. This, it could be argued, justifies offering those PAYE workers whose employers shoulder the burden of the charge greater welfare benefits.

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Except that no employee pays 14.75% PRSI - they pay 4%, the same as the self-employed - and very, very many self-employed people do indeed shoulder the burden of employer's PRSI contrary to what is stated in the article.

Hi Sarenco

The employees have 14.75% of their salary paid into the social insurance fund. The self-employed have 4% paid into it.

In what circumstances do self-employed shoulder the burden of Employer's PRSI? They would obviously pay it for their employees, but not for themselves.

Brendan

Brendan Burgess said:

In what circumstances do self-employed shoulder the burden of Employer's PRSI? They would obviously pay it for their employees...

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Exactly.

An employer's PRSI contributions are not deducted from employee wages – they come off the employer’s bottom line.

You can make the argument that an employer would be in a position to increase wages if they didn’t have to make such high PRSI contributions on behalf of their employees but there is no guarantee that employers would actually pass on any of these savings to their employees.

I’ve no problem with the argument that employer and employee PRSI contributions should be re-calibrated to better reflect the value of the additional benefits that accrue to employees (i.e. reduce employer PRSI contributions and increase employee PRSI contributions). However, it is simply not correct to say that any employee pays 14.75% PRSI.

Employers PRSI is not part of an employees salary so the employer is paying it and not the employee

Brendan Burgess said:

Hi Sarenco

The employees have 14.75% of their salary paid into the social insurance fund. The self-employed have 4% paid into it.

In what circumstances do self-employed shoulder the burden of Employer's PRSI? They would obviously pay it for their employees, but not for themselves.

Brendan

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If an employee earns €100,000, €14,750 goes into the Social Insurance Fund to fund his benefits - mainly pensions.

If a self-employed person earns €100,0000 €4,000 goes into the Social Insurance Fund.

Brendan

Brendan Burgess said:

If an employee earns €100,000, €14,750 goes into the Social Insurance Fund to fund his benefits - mainly pensions.

If a self-employed person earns €100,0000 €4,000 goes into the Social Insurance Fund.

Brendan

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I don't think anybody is suggesting otherwise but the employee in your example only contributed €4,000 to the Social Insurance Fund - €10,750 was contributed by his employer, which could actually be the self-employed person in your example.

Incidentally, pension payments represented 57% of Social Insurance Fund expenditure in 2011 and the vast majority of those payments would obviously have gone to former employees.

The self-employed get astonishing value. For 4% of their income, they get a contributory OAP.

14.75% of an employee's salary is contributed to a fund for the same pension + Unemployment Benefit and some other benefits.

There is no comparison. It's great value for the self-employed and they should not be complaining. Both should be required to fund their benefits to the same extent. And fine, give the self-employed Unemployment Benefit as well.

Brendan

Brendan,

I'm not suggesting that the self-employed do not, on average, get good value for PRSI contributions in respect of their own income.

Again, I’ve no problem with the re-calibration of the amount of PRSI contributions made by employers on the one hand and employees/the self-employed on the other to better reflect the value of the benefits that accrue to employees/the self-employed.

However, there is no such thing as "employee's PRSI of 14.75%". 10.75% of the contributions are made of behalf of an employee by their employer - many of whom are self-employed.

I note that the Finance and Social Protection Depts. are inviting submissions on PRSI.

The context is in relation to loss to the SIF because of the use of intermediary-type structures and self-employment arrangements.

I’m not sure that the parameters are broad enough.

Sometimes the high cost of employers PRSI contributes to the use of contracts for services, rather than hiring employees.

Sophrosyne said:

Sometimes the high cost of employers PRSI contributes to the use of contracts for services, rather than hiring employees.

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Absolutely agree.

The ratio of pension to non-pension benefits paid from the social fund to employees (or retired employees) in 2011 was (very) roughly 50:50 so logically you would think that the proportion of PRSI contributions as between employers and employees/the self-employed should be closer to 50:50.

Mind you it's difficult to see any politician campaigning for a reduction in employers' PRSI contributions and an increase in the rate of employee/self-employed contributions.