Step-by-Step Guide – Karshan Disclosure

Step-by-Step Guide – Karshan Disclosure

(Technical Adjustment)

Background:

As you will know from our previous circulars, Revenue have invited employers the opportunity to make a technical adjustment disclosure following the Supreme Court ruling in the Karshan case.

Essentially, this disclosure allows employers to correct their records whereby persons who may have originally been regarded as self-employed, are now considered employees under the new framework.

The deadline for submission of the disclosure is 5pm Friday, 30^th January 2026. Failure to meet this deadline will result in Revenue applying the relevant legislation in relation to the failure to operate PAYE, PRSI, and USC, including interest and penalties.

Steps:

1.    Identify any workers who may be regarded as employees under the Karshan framework.

You will need to following information for each employee:

• Employee’s first name,
• Employee’s surname,
• Employee’s PPSN,
• Date of commencement (i.e. 1^st January 2024 or later),
• Date of cessation (if any),
• Amount paid to each individual in 2024 and 2025.

 

It is important that you record your view and rationale on employment status, based on the five-step framework. This will need to be included on the disclosure. See further below in relation to suggested wording.

 

2.    Speak to your employees

 

You should advise employees that, in respect of income included in the employer’s Karshan disclosure, they should not file their 2024 or 2025 income tax returns until the employer’s record has been updated, to avoid double taxation and the payment of an incorrect PRSI class.

 

You should also advise them that they will be regarded as employees from now on and subject to your payroll.

 

3.    Calculate the taxes due

You will need to calculate the tax due to Revenue for 2024 and 2025 separately:

2024

• Income Tax – 20% of the gross amount paid to the employee in the year.
• USC – A blended rate of 3.5% of the gross amount paid to the employee in the year.
• PRSI
  • Employee – 4.025%
  • Employer
    • High earners – 11.075% (in excess of €441 per week up to 1 October 2024; and in excess of €496 per week after 1 October 2024)
    • Low earners – 8.825% (others)

 

• Where employees have already filed 2024 Income Tax returns under “self-assessment” and paid tax, the employer should be able to claim a credit for tax paid by the employee against the settlement liability. This is dealt with by Revenue on a case-by-case basis. This is a critical point in calculating your liability.

2025

• Income Tax – 20% of the gross amount paid to the employee in the year.
• USC – A blended rate of 3.5% of the gross amount paid to the employee in the year.
• PRSI
  • Employee – 4.125%
  • Employer
    • High earners – 11.175% (in excess of €496 per week up to 1 October 2025; and in excess of €527 per week after 1 October 2025)
    • Low earners – 8.925% (others)

 

• If employees have already filed their 2025 Income Tax returns under “self-assessment”, credit may not be available to employers in respect of the tax paid for 2025. The availability of the credit will depend on the timing of “self-assessment” and preliminary tax paid.

 

4.    Prepare the disclosure

The disclosure should be headed up as a “Misclassification Disclosure – Technical Adjustment.” The disclosure should include:

 

• Details of how the misclassification arose,
• The basis for classifying each worker as an employee under the five-step framework, and
• A table of the taxes due for 2024 and 2025.

It is important to note on the disclosure that the misclassification did not arise as a result of careless or deliberate behaviour. Please click the link for a disclosure template.

 

5.    Pay liabilities or request a Phased Payment Arrangement

Employers must either pay the Income Tax, USC, Employee and Employer PRSI in full by REVPAY by 30^th January 2026. Alternatively, a Phased Payment Arrangement (PPA) can be requested. Interest will be applied over the repayment period of the PPA.

 

6.    Submit the disclosure

ROS users should submit the disclosure to Revenue via My Enquiries under the following “drop down menus” in ROS:

My Enquiry Relate to

• Audit/Compliance

More Specifically

• Unprompted Disclosure

If you do not have access to ROS, you can submit the disclosure by using My Enquiries in your MyAccount. You do not need to choose an option from a dropdown menu, however it is important to include “Misclassification Disclosure” within the textbox.

Disclosure can also be submitted via Revenue File Transfer System (RFTS) where appropriate.

 

7.    Wait for Revenue to accept the disclosure

Once the disclosure has been accepted, Revenue issue PAYE assessments for the relevant years. For 2024, the PAYE, USC and PRSI liability payments will be brought to account for the month of November 2024. For 2025, the PAYE, USC and PRSI liability payments will be brought to account for the month of November 2025.

 

 

 

 

 

 

8.    Create a PRSI record of each employee

 

Employers must subsequently manually create a PRSI record for each employee for 2024 and 2025. PRSI records can be created by way of a single payroll entry for each employee, with a nominal deemed salary of €0.01. This must be a new submission using the manual input submission on ROS. For 2024, Revenue have recommended using a pay date in October 2024. A new payroll submission should be created for 2025 using the manual input facility on ROS with a payment date in October 2025.

Employers will need each employee’s PPSN and the number of insurable weeks. It is important that the number of insurable weeks and PRSI Class is correctly reflected.

9.    Amendments

Revenue may accept amendments to the original disclosure, post-deadline, provided that:

• The original disclosure was made on a “best effort” basis,
• The amendments do not arise from careless or deliberate behaviour,
• The amendments are not material in nature,
• The declared liability is paid or a PPA has been requested,
• The employees who work for the business are properly classified and the PAYE/PRSI is being operated through the payroll system, for 2026.

 

Please refer to the Revenue Tax and Duty Manual if you have any queries on making a disclosure, or call your usual PSC contact.