A Supreme Court judgment involving Domino’s Pizza may not sound like it could shake up Ireland’s employment tax landscape, but it has.
The decision in Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza has redrawn the line between who is an employee and who is self-employed. It is a shift that could have major implications for thousands of businesses and professionals, particularly in the gig and service economy.
‘It is a pragmatic settlement window for bona fide classification errors’
Recognising the upheaval that could follow, Revenue has introduced a time-limited window for employers to correct past worker misclassifications without facing the usual penalties and interest. This ‘Karshan opportunity’ gives businesses until 30 January 2026 to regularise their tax affairs – but accountants must act quickly to help clients seize it.
From pizzas to precedent
The Karshan case, decided by the Supreme Court in October 2023, involved delivery drivers engaged by a Domino’s franchise that had classified them as self-employed contractors. The drivers were responsible for their own tax and social insurance, but Revenue challenged the arrangement, arguing that the drivers were, in reality, employees.
In its judgment, the court set out a new five-stage framework for determining employment status. The clarity of that ruling – and the fact that many organisations had relied on earlier, less prescriptive case law – prompted Revenue to offer what is effectively a compliance amnesty.
‘It’s a very significant case because it provides the definitive test for distinguishing between employees and contractors in Ireland,’ says Claire Davey, tax partner at Crowe Ireland. ‘Revenue recognises that employers faced difficulties implementing payroll system changes following the Karshan judgment in October 2023, so they’re offering a pragmatic settlement window for bona fide classification errors in 2024 and 2025 rather than pursuing penalties.’
‘Many existing contractor arrangements are now likely to be viewed as employment’
Take five
At the heart of the judgment is a sequential test that must be applied to every working relationship. This considers the following:
- Mutuality of obligation. Is there a contract where the individual agrees to perform work in exchange for payment?
- Personal service. Must the individual perform the work personally, or can they substitute another person?
- Control. To what extent does the engager control what, how, when and where the work is done?
- Terms of the contract. What do the express and implied terms reveal about the relationship?
- Overall assessment. Does the person operate as part of the business or in business on their own account?
‘‘The practical outcome is that many existing contractor arrangements, especially in logistics, delivery, IT and construction – sectors where substitution restrictions and day-to-day control are typically high – are now likely to be viewed as employment. Businesses need to apply this framework systematically to their entire workforce,’ Davey explains.
The Karshan opportunity
Employers who identify misclassified workers can disclose the error and settle the related payroll liabilities on simplified terms. As Mark Hynes, head of employment tax at BDO Dublin, explains, the qualifying disclosure must include details of each individual affected, including name, personal public service number, employment dates, gross pay and calculation breaks.
Disclosure submissions should be made via ROS together with payment of any underdeclared taxes. Revenue will agree to a phased payment arrangement, if requested, on a case-by-case basis.
‘Separately, PRSI records will need to be manually updated in ROS for each employee to secure their social welfare entitlements,’ Hynes says. ‘The impacted individuals should be advised not to declare this income in their 2024 or 2025 tax returns to prevent double taxation.’
Where the misclassification was not deliberate or careless, Revenue will waive penalties, forgo interest in most cases, and apply simplified calculations for income tax (20%) and universal social charge (3.5%) on gross payments, with PRSI based on standard rates.
‘For misclassifications before October 2023, there’s no amnesty window’
‘The settlement gives employers a genuine opportunity to correct misclassifications for 2024 and 2025 without tax-geared penalties,’ says Davey. ‘However, if a business hasn’t acted by the January deadline and Revenue later identifies misclassifications, it will face the full force of normal audit procedures – interest, penalties and publication in the tax defaulters list.’
The disclosure window does not cover situations already under Revenue investigation before October 2023. ‘For misclassifications before October 2023, there’s no special settlement window,’ Davey says. ‘Revenue will assess based on the facts: was the behaviour deliberate, careless, or good faith reliance on guidance that was available at the time? That assessment determines whether penalties apply and at what level. Businesses should review their position honestly, because the facts shape how Revenue treats it.’
The accountant’s role
For accountants, the new framework turns worker classification into both a risk area and a business opportunity. Firms should help clients do the following:
- Review all contractor arrangements against the five-step test, documenting why each engagement qualifies as employment or self-employment.
- Identify at-risk cases, particularly where individuals work primarily for one client, use the client’s tools or systems, or appear economically dependent on that client.
- Quantify potential liabilities under the Karshan settlement formula to decide whether disclosure is worthwhile.
- Prepare and submit disclosures before the January 2026 deadline, ensuring PRSI records are created for reclassified workers.
Questions to ask clients
If most answers to the following questions point to dependency on the business, there may be an employment relationship, and taking the Karshan opportunity could be essential.
- Do any of your current ‘contractors’ work primarily for your business and under your control?
- Are they required to perform work personally or can they freely substitute others?
- Who provides the equipment, tools or systems used for the work?
- Do they bear any real financial risk or have multiple clients?
- Has your business reviewed these arrangements since the Karshan ruling?
A new normal
For many Irish businesses, the Karshan case has ended the era of casual contractor arrangements, bringing Ireland closer to the structured tests used in the UK and elsewhere. Accountants who help clients navigate this transition will not only protect them from costly audits but also strengthen compliance systems for the long term.
‘Very clear employment law risks may arise from reclassification’
In its commentary on the changes, EY points out: ‘It is critical for businesses to consider the impact this settlement arrangement may have on its workforce model. Performing an impact assessment will also allow businesses to proactively identify and avail of significantly mitigated tax liabilities.
‘However, this is not just a tax risk that needs to be addressed. There are very clear employment law risks that may arise from reclassifying the contractors as employees for PAYE purposes.’
‘This isn’t just about pizza deliveries,’ Davey says. ‘It’s about modernising how Irish businesses classify workers. The next few months are the window to get organised.’
More information
Full guidance is available at revenue.ie. For more guidance and working examples, see BDO and Crowe
