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Introduction

A Revenue Payroll Notification (RPN) is an instruction issued by the Irish Revenue Commissioners that contains an employee’s tax credits, cut-off points, and USC rates. The RPN is used by Payback to calculate the amount of tax and USC to be deducted from an employee’s pay. If a new RPN is issued by Revenue, it can change the taxation basis and the tax liability of an employee. For example, if an employee’s tax credits or cut-off points have changed, this will be reflected in the new RPN, and the employee’s tax liability will be adjusted accordingly. The new RPN can also change the taxation basis from Week One Basis to Cumulative Basis, or vice versa. The Week One Basis calculates an employee’s Income Tax and USC week-to-week, while the Cumulative Basis calculates an employee’s tax credits and cut-off points cumulatively.

When you import a new RPN, if the basis of taxation has changed, then the USC and/or PAYE liability may also change. 

If you believe the RPN is incorrect, then the employee should contact Revenue to get a new RPN issued. Revenue will only deal with employees regarding their tax affairs and RPNs

 

The Cumulative Basis

The Cumulative Basis of PAYE and USC taxation is a method of calculating tax liability for employees. It is used to ensure that employees pay the correct amount of tax over the course of a year. The Cumulative Basis is used to calculate the total tax due from the 1st of January to the date on which the payment is being made

Under the Cumulative Basis, an employee’s tax is calculated on their total income from the beginning of the year to the current date. This means that when employers calculate the tax liability of an employee, they actually calculate the total tax due from the 1st of January to the date on which the payment is being made.

The Cumulative Basis is used to ensure that employees pay the correct amount of tax over the course of a year. This is because it takes into account any changes in an employee’s income or tax credits throughout the year. For example, if an employee receives a pay rise, their tax liability will increase. Under the Cumulative Basis, this increase in tax liability will be spread out over the course of the year, rather than being applied all at once.

The Cumulative Basis is also used to calculate the Universal Social Charge (USC). The USC is a tax on income that was introduced in 2011. It is calculated on a cumulative basis, which means that an employee’s total income for the year is taken into account when calculating the amount of USC due.

Under the Cumulative Basis, an employee’s tax credits and cut-off points are also calculated on a cumulative basis. Tax credits are deductions from an employee’s taxable income, while cut-off points are the amount of income that is exempt from tax.

If an employee is on a Cumulative Basis for tax, they will also be on a Cumulative Basis for USC, and vice versa. Refunds of tax and USC can be made to an employee where, for example, the employee’s tax credits and cut-off points have been increased.

The Cumulative Basis of PAYE and USC taxation is a method of calculating tax liability for employees. It is used to ensure that employees pay the correct amount of tax over the course of a year. The Cumulative Basis takes into account any changes in an employee’s income or tax credits throughout the year, and is used to calculate both income tax and the Universal Social Charge. 

 

Week One Basis

The Week One Basis, also known as the Non-Cumulative Basis, is an alternative method of calculating tax liability for employees. Under this method, an employee’s Income Tax and Universal Social Charge (USC) are calculated on a pay date-to-pay date basis, and their yearly tax credits and rate bands are not backdated to the 1st of January and do not accumulate for each pay period. Essentially, Week One Basis means that an employee’s taxes for each pay period are calculated completely in isolation and do not factor in anything else that has happened during the year up to that point.

When an employee is on a Week One Basis, their employer will deduct Income Tax and USC from their pay on a pay date-to-pay date basis. The employer will not take into account any previous pay or tax credits when calculating the employee’s tax liability. This means that if an employee has a change in their income or tax credits, their tax liability will be adjusted on a pay date-to-pay date basis, rather than being spread out over the course of the year.

An employee’s tax credits and cut-off points are calculated separately for each pay period under the Week One Basis. Tax credits are deductions from an employee’s taxable income, while cut-off points are the amount of income that is exempt from tax. This means that an employee’s tax credits and cut-off points will not accumulate over the course of the year.

If an employee is on a Week One Basis for tax, they will also be on a Week One Basis for USC, and vice versa. Refunds of tax and USC can be made to an employee where, for example, the employee’s tax credits and cut-off points have been increased.

Here is an example of how the Week One Basis works in practice:

John is a PAYE employee who is single. His tax credits and rate band for 2023 are as follows:

  • Single Person’s Tax Credit: €1,775
  • PAYE Tax Credit: €1,775
  • Total Tax Credits: €3,550 per year (€68.27 per week)
  • Rate Band: €40,000 per year (€769.23 per week)

John was given a Tax Credit Certificate showing these tax credits and rate band and showing that Week One Basis applies. A Revenue Payroll Notification (RPN) was made available to his employer with the total amounts. John earns €600 per week.

This is how John’s weekly tax is calculated:

  • Taxed at 20%: €600 x 20% = €120.00
  • Apply the standard rate of 20% up to the limit of the rate band (€769.23) on the RPN
  • Taxed at 40%: €0
  • As John’s income (€600) is less than his rate band (€769.23), he does not pay tax at the higher rate of 40% this week
  • Gross tax: €120.00
  • Add the amount of tax at the standard rate to the amount of tax at the higher rate (if any)
  • Less tax credits: €68.27
  • Take away the tax credits as shown on the Tax Credit Certificate
  • Tax payable: €51.73

The Week One Basis is a method of calculating tax liability for employees who are paid weekly. Under this method, an employee’s Income Tax and USC are calculated on a week-to-week basis, and their yearly tax credits and rate bands are not backdated to the 1st of January and do not accumulate for each pay period. An employee’s tax credits and cut-off points are calculated separately for each pay period, and refunds of tax and USC can be made to an employee where applicable.

Example of how RPN tax basis can change liability

When a new Revenue Payroll Notification (RPN) is issued, it can change the tax liability of an employee. If Mary’s tax basis changes from Week One Basis to Cumulative Basis, her employer will use the new RPN to calculate her tax liability. The new RPN will show that Mary’s tax credits and cut-off points are to be calculated cumulatively. This means that Mary’s tax credits and cut-off points will accumulate over the course of the year, and her tax liability will be adjusted accordingly.

Here is an example of how Mary’s tax is re-calculated when the new RPN is issued:

Mary is a PAYE employee who is paid weekly. Her tax credits and rate band for 2023 are as follows:

  • Single Person’s Tax Credit: €1,775
  • PAYE Tax Credit: €1,775
  • Total Tax Credits: €3,550 per year (€68.27 per week)
  • Rate Band: €40,000 per year (€769.23 per week)

Mary was given a Tax Credit Certificate showing these tax credits and rate band and showing that Week One Basis applies. A Revenue Payroll Notification (RPN) was made available to her employer with the total amounts. Mary earns €600 per week.

This is how Mary’s weekly tax is calculated under Week One Basis:

  • Taxed at 20%: €600 x 20% = €120.00
  • Apply the standard rate of 20% up to the limit of the rate band (€769.23) on the RPN
  • Taxed at 40%: €0
  • As Mary’s income (€600) is less than her rate band (€769.23), she does not pay tax at the higher rate of 40% this week
  • Gross tax: €120.00
  • Add the amount of tax at the standard rate to the amount of tax at the higher rate (if any)
  • Less tax credits: €68.27
  • Take away the tax credits as shown on the Tax Credit Certificate
  • Tax payable: €51.73

Now, suppose Mary’s tax basis changes from Week One Basis to Cumulative Basis. Her employer will use the new RPN to calculate her tax liability. The new RPN will show that Mary’s tax credits and cut-off points are to be calculated cumulatively. This means that Mary’s tax credits and cut-off points will accumulate over the course of the year, and her tax liability will be adjusted accordingly.

If Mary has been working for 10 weeks, her total income for the year so far is €6,000. Her tax liability for the year so far is calculated as follows:

  • Taxed at 20%: €6,000 x 20% = €1,200.00
  • Apply the standard rate of 20% up to the limit of the rate band (€30,769.23) on the RPN
  • Taxed at 40%: €0
  • As Mary’s income (€6,000) is less than her rate band (€30,769.23), she does not pay tax at the higher rate of 40% this year
  • Gross tax: €1,200.00
  • Add the amount of tax at the standard rate to the amount of tax at the higher rate (if any)
  • Less tax credits: €682.70
  • Take away the tax credits as shown on the Tax Credit Certificate
  • Tax payable: €517.30

When a new RPN is issued, it can change the tax liability of an employee. If Mary’s tax basis changes from Week One Basis to Cumulative Basis, her tax credits and cut-off points will accumulate over the course of the year, and her tax liability will be adjusted accordingly.

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