Change In Basis Of Assessment For Employment Income

In line with measures introduced in Finance Act 2017, with effect from 1 January 2018, an employee will be charged to tax on employment income in the year in which the income is “paid”. Previously, an “earnings” basis applied such that employment income was taxable in the year in which it was earned, notwithstanding that it was paid and subject to PAYE withholdings in a subsequent tax year (e.g. bonus payments).

The new rule will not apply to the following:

  • Income from proprietary directorships (i.e. where a director owns or controls more than 15% of the share capital of a company). Such income will continue to be taxed on the earnings basis.
  • Employment income subject to a PAYE Exclusion Order.
  • Social Welfare payments (e.g. State pension payments).
  • Death cases (where any post-death earnings are deemed to have been made to the individual prior to death).

A grandfathering provision applies to employees who are “paid” employment income in 2018 or future years which was “earned” in 2017, such that the employee may elect to have the 2018 income treated as taxable in 2017. This will likely be of interest to employees who may be in a position to avail of a lower effective tax rate on employment income if such income is taxed at 2017 rates, notwithstanding that it is “paid” and subject to PAYE in 2018 or future years. 

The change has the effect of aligning the statutory basis of assessment with the practical operation of the PAYE system, where employment income is subject to PAYE at the time of payment. It may raise issues in the context of bonus payments to employees, particularly those which are earned by inbound assignees to Ireland prior to payment.

While the provision is unlikely to have any impact on the tax treatment of employment earnings for domestic Irish employees, organisations will globally mobile employees should review the application of the new rule with respect to the payment of bonuses and put in place measures to avoid any potential double tax issues that may arise.


If you have any questions in relation to the above, or if you would like to discuss this topic further, please do not hesitate to contact a member of the Mazars employment tax team below:

Frank Greene

Tax Partner

(01) 449 6415

Ken Killoran

Tax Director

(01) 449 4451

John Kelly

Tax Manager

(01) 449 4495


Want to know more?

Related Pages

ET-People walking

Employment Tax Alert - March 2018

In this Employment Tax Alert, we will provide you with an update on employment tax developments that impact employers, organisations in Ireland and those that do business in Ireland.



In providing tailored solutions to the individual needs of our clients, Mazars tax examine and offer a comprehensive range of tax services to national and international clients with a particular emphasis on helping them to structure their businesses and financial affairs tax efficiently.

Download pdf 626.17 kB