Many to miss out on PRSI `holiday'

Many Paye workers will contribute more pay-related social insurance (PRSI) in the 12month period starting from next April because they will lose a PRSI holiday normally enjoyed towards the end of the tax year. The reason is the change from the tax year beginning on April 6th to the start of the calendar year.

Taxpayers on annual incomes of £35,000 (€44,441) and over usually get a PRSI holiday for about the last three months of the year because they hit the PRSI income ceiling around the ninth month of a 12-month tax year.

However, to make the transition to a calendar year, the next tax year - 2001 - will run from April 6th, 2001 to December 31st 2001 - a total of 270 days or 74 per cent of the full tax year.

In July, the Minister for Finance, Mr McCreevy, said the income ceiling for PRSI payments would not be adjusted to take account of the shorter tax year.

In those circumstances, in the shorter tax year many employees would have to pay PRSI for the full nine months at current ceiling levels. And in the following calendar tax year they will start paying PRSI in January - missing out on their usual three-month holiday.

In the current tax year, the annual income ceiling for PRSI payments is £26,500. Employees whose annual income is less than £14,560 do not pay PRSI. The tax is charged at a rate of 4.5 per cent for full rate employee contributors after the deduction of an exemption or floor of £100 per week. The exemption is deducted from the lower of the annual salary or the ceiling and the PRSI rate is applied to this figure.

The income ceiling means employees on very high salaries pay proportionately less PRSI.

In the recent Budget Estimates, the Department of Finance used a figure of £28,250 as the ceiling for PRSI payments for 2001. This would mean an increase in the ceiling of 6.6 per cent next year. The Department said yesterday this figure was provided for illustrative purposes and was not the Budget 2001 figure.

Accounting sources suggest an increase is likely because Irish employee social security costs are low relative to levels in the EU and suggest the Government may be under pressure from the EU to raise or remove the ceiling on employee contributions.