Universal social charge has been used as a mechanism for recovery of so-called excess bank remuneration and bonuses. The 45 percent rate applies to bank bonuses of certain employees of banks and financial institutions. A special rate of 45 percent applies to so-called excess bank remuneration.
The provision applies to employees of institutions specified in the Credit Institutions (Financial Support) Act in receipt of State financial support. The legislation defines regular remuneration as that which does not vary with the performance of the business, the contribution of the employee, performance of duties of employment or other equivalent considerations.
Excess remuneration may be contractual or non-contractual. The income must be in excess of €20,000. Over this it is liable to the 45 percent rate on the excess element. It must be paid by the employer.
“Relevant remuneration” is the remuneration that will be subject to the additional charge and is any salary or benefits that is not regarded as ‘regular’ salary or benefits such as bonus payments. A threshold of €20,000 is used to determine if an employee’s remuneration is to be regarded as relevant remuneration and thus subject to the additional charge.
Where an employee has relevant remuneration in a year of assessment that exceeds €20,000, the entire amount, and not just the excess over €20,000, is chargeable. This provision ensures that certain employees whose remuneration may be commission-based are not subject to the additional charge.
The chargeable event i.e. when relevant remuneration is regarded as being awarded in relation to a particular year of assessment, is determined by whether a contractual obligation to make the payment arises in a year of assessment or, in the absence of such a contractual obligation, the payment is made in a year of assessment. The chargeable amount is determined at the date of payment of the relevant remuneration as either the amount of money, or in the case of something other than money, its money’s worth.
The market value is substituted for the value of relevant remuneration where its market value is higher than that value at the time of award. Market value is the price that an asset might be expected to fetch on a sale in the open market. Any condition or restriction on relevant remuneration that has the effect of reducing its market value is to be ignored in establishing the chargeable amount.
The obligation on employers to deduct and charge USC at specified rates, is disapplied. Instead, an employer is obliged to charge relevant remuneration and deduct “excess bank remuneration charge” at the rate of 45% in the period 6 February 2011 (date of passing of the Finance Act 2011) to 31 December 2011 and in subsequent years of assessment.
For 2011 and subsequent years of assessment, employers are obliged to send an annual return to Revenue by 15 February in the following year containing specified information about awards of relevant remuneration. This information includes the name and PPS number of any employee to whom relevant remuneration was awarded, the amount of such remuneration and the amount of excess bank remuneration charge that has been deducted and remitted in respect of that employee.
A special extra rate of USC is payable where a person’s income is over €100,000 euro, apart from certain property reliefs. These include section 23 and incentive type capital allowances but not true capital allowances. In this case, the additional 5 percent rate applies to income which enjoys offset against these allowances.
This section provides for an increase in the Universal Social Charge (USC) in respect of income of certain individuals. It potentially only applies to those whose gross income in the year is at least €100,000, and then only to income, which is sheltered by any of the property or area-based incentive reliefs in that year. This means any of the accelerated property capital allowances under any of the incentive schemes as well as the residential lessor relief commonly known as section 23-type relief.
The 5% property relief surcharge is payable, in addition to any other USC, which the person is obliged to pay on the income in question. Where a person’s gross income is less than €100,000, no additional USC is payable, even if that person is using these property reliefs.
The “amount of specified property relief” refers to specified reliefs and means the amount of all such specified property relief used by the individual in a tax year; “area-based capital allowance” is a reference to all of the accelerated capital allowances provided for under any of the designated area or urban or rural renewal schemes. It also includes all of the older schemes, which have formally ended or have been replaced in more recent times. The allowances also include allowances given in an earlier period and carried forward into a later one; “balancing allowance”
Minimum Income Limit
Any individual who earns less than €100,000 in the tax year is not subject to the surcharge, no matter how much property reliefs are being claimed. There is no upper income limit. The threshold income limit is the ‘aggregate income’ for the tax year, as defined in Part 18D TCA 1997.
This does not necessarily equate with ‘taxable income’ as it may not include certain reliefs, pension contributions and/or certain losses carried forward. In any event, the first step in determining how much, if any, surcharge is due to be paid is to quantify the income for USC purposes. It is only where this amount is €100,000, or more, that the possibility of the surchargearises.
Determination of Amount of Surcharge
The surcharge amounts to 5% on that part of the aggregate income of the individual, against which ‘specified property reliefs’ have been used. Specified property relief is defined in section 531AAE TCA 1997. The definition interacts with certain definitions in the High Earners Restriction.
The High Earners Restriction restricts the amount of relief available for income tax purposes and recalculates the taxable income of an individual. Under that restriction, certain reliefs, set out in Schedule 25C to the Taxes Consolidation Act 1997, are identified as “specified reliefs”. Some, but not all, of these reliefs are property and area-based incentive reliefs and it is only the property related ones which are relevant in this
USC surcharge context.
The USC property relief surcharge applies to reliefs claimed before the application of the High Earners Restriction. Where a specified property relief has been claimed to shelter income and has been
subjected to the USC surcharge, but is then restricted in a tax year due to the High Earners Restriction, the balance carried forward for use in a subsequent tax year will not be classified as a specified property relief in that subsequent tax year.
This is on the basis the property relief has already been subject to the surcharge in the year it was restricted by the High Earners Restriction. Section 531AAE TCA 1997 includes a provision which deems specified property reliefs to have been used before other specified reliefs.