Self-employed persons were brought within the scope of social insurance in 1988. They pay a lesser rate and receive a reduced range of benefits, relative to an employed contributor. The are entitled to the state pension, widowers and survivors pensions, maternity benefit, bereavement grant and adoptive leave benefit. They do not qualify for jobseekers benefits and illness related benefits.
A self-employed contributor is a person aged between 16 years old and pensionable age, who is in receipt of reckonable income or reckonable emoluments. He may be so regardless of whether he is also an employed contributor. Emoluments are defined to cover emoluments/benefits and earnings other than reckonable earnings. Reckonable earnings refer to ordinary remuneration and earnings of an employed person, in insurable employment. The vast majority of persons in employment are in insurable employment.
Formerly, certain categories of benefits derived from employment, were excluded from the definition of reckonable earnings. In particular, benefits in kind and share-based benefits and gains, had been excluded. Reckonable emoluments in respect of a self-employed contributor, mean emoluments other than reckonable earnings but include share-based remuneration.
Reckonable earnings of a self-employed contributor means his aggregate income, other than reckonable earnings and reckonable emoluments from all sources in the relevant year, as ascertained in accordance with the income tax acts.
Certain types of income which are excluded from the income tax acts remain, subject to the social insurance charge. In particular, the former artist exemption, woodland, greyhound, stallion fees, and childcare services income were not exempted. However other than as included by the definition, other income not subject to income tax falls outside the scope of social insurance.
The high earnings restriction does not apply as of 2010. Social insurance is reckoned with reference to the income calculated in accordance with the income tax acts.
Reckonable income includes all taxable income. It is wider, in that certain deductions from total income for income tax purposes are not applicable. In particular, relief for losses and retirement annuity contributions is not available. Formerly, pension contributions were exempted but this was removed as of 2011, but has been reinstated in part.
The general rate of self-employed social insurance contributions, is 4% of reckonable emoluments and income, or €253 whichever is higher. Where a self-employed contributor is exempted by the Revenue from the obligation to make a return, a flat rate contribution of €157 applies. Persons whose aggregate reckonable income, emoluments and earnings prior to capital allowances or pension scheme contributions is below €5,000 is exempted.
A number of exemptions exist for defined categories. Excepted contributors include the following.
- prescribed relatives who are not partners who participate in business as a self-employed contributor and performs the same tasks or ancillary tasks;
- a person whose aggregate reckonable income, reckonable emoluments and reckonable earnings are less than €5,000 prior to capital allowances and pension contributions;
- a person or employed contributor in receipt of a pension from previous employment of the person concerned or his spouse, where in either case the income in that year does not include reckonable emoluments, trading or professional income;
- persons in certain excepted employments with limited coverage;
- persons who are not a resident or ordinarily resident and whose income does not include trading or professional income. This covers largely passive income.
Prior to 2012, an employed contributor or person in receipt of a pension from a previous employment of his or of his spouse, in the case of either of whom, the income for the contribution year does not include trading or professional services income, is exempt. As of 2012 this exemption was proposed to be removed.
Under the pre-2013 rules if a person’s only income was from investments, he would be liable as a self-employed contributor. If, however, he takes up insurable employment, even with relatively small salary, he may be excepted.
Self-employed contributions are collected in the same manner as income tax. They are to be included in the preliminary tax payment. Any balancing amount is to be paid with the final tax liability. See generally the sections on preliminary tax.
Spouses are treated separately for the purpose of self-employed contributions. A joint election does not change the position. Where they are jointly assessed, the assessible person is obliged to account for the self-employed contributions applicable.
The following emoluments are exempt;
- payments received under a pension;
- social welfare benefits;
- HSE benefits
- sums received for participation in schemes run by training bodies;
- certain public offices associated with the Oireachtas and the courts;
- payments under permanent health insurance policies.
Certain investment income from collective investment funds and life insurance policies is subject to a stand-alone encashment tax, outside the scope of income tax. The tax is assessed on the insurance company. Persons who are neither resident nor ordinarily resident are exempt, where the reckonable income does not consist of income trading or professional services income taxable in Ireland.