AITI Chartered Tax Adviser

How is employment income taxed?

If you are an employee, or an office-holder (for example, a company director), your income is taxed under Schedule E. Your employer must deduct PAYE and PRSI, as appropriate, from the “emoluments” paid to you.
This means all monetary benefits from your employment:
(a) Salary, wages, bonuses, commission, compensation awarded by the Employment Appeals Tribunal to a reinstated employee for lost earnings while absent.
(b) Cash-convertible benefits, i.e., perquisites.

You are not allowed to deduct any expenditure in calculating your income from your employment, unless the expenditure has been incurred wholly, exclusively and necessarily in the performance of the duties of your employment. The words “necessarily” and “in the performance” make this a very difficult test to satisfy. In a recent case, a taxpayer who was required to travel throughout the UK inspecting pipes was denied a deduction for overnight hotel expenses on the basis that the expenditure was not incurred “in the performance” of his duties. He was not inspecting pipes while sleeping in his hotel bedroom. In another case, several journalists claimed they were entitled to deduct the cost of reading rival newspapers. Relief was refused on the grounds that the journalists did not read the newspapers while performing their duties (i.e., writing); they read them while preparing to do their duties.