An important Revenue disclosure opportunity has arisen from the Supreme Court’s decision in The Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza (“Karshan”) case and recent guidance published by the Irish Revenue Commissioners. This may be relevant for employers who engage contractors or self-employed workers in their business.
WHAT WAS THE KARSHAN CASE?
In October 2023, the Irish Supreme Court delivered a landmark judgment in the Karshan case, clarifying the legal framework for determining whether a worker is an employee or genuinely a self-employed contractor for Irish tax purposes.
Prior to this judgment, the law in this area was less certain and had led some employers to classify workers as contractors when they might, under the new framework, be employees.
The Supreme Court also set out a five-step sequential test to assess employment status, which has now been incorporated into Revenue’s guidance on determining employment status for tax purposes.
WHAT HAS REVENUE ANNOUNCED?
Recognising that employers may have faced challenges in applying the new employment status framework and updating payroll systems, Revenue has published a time-limited disclosure opportunity for employers who may have misclassified workers as self-employed for 2024 and/or 2025.
Under this arrangement:
- Employers can self-review and correct any bona-fide misclassification errors.
- Revenue will treat such adjustments as a “technical adjustment”, meaning:
- No penalties will apply, and
- No interest will be charged,
provided the disclosure is made by the deadline and all liabilities are properly accounted for.
WHO IS AFFECTED?
This disclosure opportunity generally applies if:
- You engaged workers as independent contractors during 2024 and/or 2025, and
- Under the Karshan framework, those individuals may be considered employees for tax purposes but were treated as self-employed with PAYE/PRSI not operated.
Please note: this facility does not apply where the misclassification was careless or deliberate, or there was an existing Revenue compliance intervention prior to 20 October 2023.
DEADLINE FOR DISCLOSURE
The deadline to submit a disclosure to Revenue to benefit from this favourable settlement opportunity is Friday, 30 January 2026.
Disclosures should be submitted via ROS (Revenue Online Service) and must include details of the relevant individual(s), employment status review, and calculation of any tax, USC and PRSI adjustments.
WHAT THIS MEANS FOR YOU:
If you discover that any individuals previously treated as contractors should, under the Karshan test, be treated as employees for tax purposes, you should:
- Review those engagements using the Revenue employment status guidance;
- Determine any PAYE, USC and PRSI liabilities for 2024 and 2025;
- Make a disclosure to Revenue by 30 January 2026 to avail of the penalty-free settlement;
- If required, work with payroll providers or advisors to update PAYE/PRSI records;
- Notify your affected individuals not to declare this income in their self-assessments for 2024/2025 to avoid double taxation.
Delaying action could result in Revenue applying standard assessments, including penalties, interest and gross-ups, if misclassification is identified later.
HOW CAN WE HELP?
At Xeinadin, we have a standard checklist and employment status determination process that we can provide on a case-by-case basis to support your internal review and disclosure preparation. Please contact your usual Xeinadin advisor for further assistance.
We can assist with:
- Employment status reviews using the Revenue five-step framework;
- Calculation of PAYE/PRSI/USC adjustments;
- Preparation and submission of disclosures through ROS;
- Strategy for managing impacted workers and payroll systems.
Please don’t hesitate to reach out if you need help evaluating your position under this important Revenue initiative.
