The Revenue Commissioners have issued a new guidance note offering employers a final opportunity to address misclassification issues following the Supreme Court decision in The Revenue Commissioners v Karshan (Midlands) Ltd. Trading as Domino's Pizza. Employers can make disclosures and enter into a settlement agreement with Revenue to rectify such issues. If Revenue accepts the misclassification disclosure, no additional interest, fixed penalties, or tax-geared penalties will be imposed beyond the underlying tax liability. However, any misclassification errors for the 2024 and 2025 tax years must be genuine, bona fide mistakes. Employers wishing to make disclosures can do so via the My Enquiries function on the Revenue Online Service, with the deadline for settlement applications set for 30 January 2026.
In recent years there has been an increased focus on the classification of employees by the Irish Revenue Commissioners (Revenue) and the Workplace Relations Commission of so called "bogus" self-employment. A guidance note was issued by Revenue on 11 September 2025 (2025 Guidance), providing a framework for employers to make disclosures and enter into settlements with Revenue to rectify historical misclassification issues. The settlement application deadline is 30 January 2026.
The 2025 Guidance builds on the Revenue Guidelines for Determining Employment Status for Taxation Purposes, published in May 2024 which reviewed a landmark Supreme Court decision in the case of The Revenue Commissioners v Karshan (Midlands) Ltd. Trading as Domino's Pizza (Karshan). The May 2024 guidance set out a step plan for employers to use in reviewing their employment arrangements. The new 2025 Guidance addresses how employers can address payroll tax issues resulting from the misclassification of employees as self-employed by entering into a settlement arrangement with Revenue for 2024 and 2025.
The 2025 Guidance acknowledges that the decision of the Supreme Court had a significant impact on the way in which companies engage independent contractors. The settlement arrangement proposed by Revenue in the 2025 Guidance is an opportunity for companies to disclose instances of misclassification, for either one individual or a class of individuals, without the fear of interest, fixed penalties or tax-geared penalties being added to the underlying tax liability.
The disclosure process
Employers considering making a disclosure should note the following:
- In order to benefit from the settlement opportunity with Revenue, any mistakes as to misclassification in the 2024 and 2025 tax year must have been genuine, bona fide errors. The 2025 Guidance states that misclassification due to careless or deliberate actions will lead to full liability for Income Tax, USC and PRSI, in addition to interest and penalties. Employers will also be required to provide Revenue with a clear rationale supporting their view that the employees fall within the scope of this settlement arrangement. Penalties and interest will not be applicable to these settlement arrangements, unless liabilities are resolved through Phased Payment Arrangements ("PPA"), in which case interest will be applied throughout the repayment period.
- If an employer fails to submit a disclosure prior to 30 January 2026, and it later transpires that the employer has been misclassifying their employees, Revenue will consider the default as resulting from a failure to operate fiduciary taxes and interest and penalties will apply.
- Employers are obliged to settle the liability to Income Tax, USC and PRSI (Employer and Employee) in full through REVPAY or by requesting a PPA when submitting the disclosure.
- Liabilities for 2024 and 2025 must be calculated separately.
- Liabilities will be subject to:
- Income Tax calculated at 20% on the gross amount paid to the employee during the relevant year,
- USC calculated at a blended rate of 3.5% on the gross amount paid during the relevant year, and
- PRSI (Employer and Employee) on an actual basis.
- Employers participating in the settlement arrangement should inform misclassified individuals that they should not declare any income which forms part of the employer's disclosure to Revenue on their income tax returns for 2024 or 2025. Disclosures can be made through the My Enquires function on the Revenue Online Service. Once a disclosure is accepted by Revenue, the agreed settlement will be accounted for through a PAYE assessment issued for the relevant year being November 2024 or November 2025.
The 2025 Guidance offers a final opportunity for employers who, as a result of the Karshan decision, have misclassified employees as independent contractors. Employers should, if they have not done so already, review their arrangements with independent contractors and assess with regard to the Karshan decision, whether misclassification has occurred and whether they are within scope of the settlement arrangement. The terms of the settlement arrangement represent a significant incentive for employers who could otherwise face liabilities of up to 52% (compared to the reduced rates under the settlement arrangement) potentially calculated on a "net to gross" basis of the amounts paid to the individuals, and also interest and penalties of up to 100% of the calculated tax liability. It is apparent from the 2025 Guidance that there will be no excuses for misclassification post the 30 January 2026 deadline, and that Revenue intends to review company arrangements with independent contractors and penalise employers for failure to rectify any misclassification issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
