6.3 Taxation, VAT & Net-to-Gross Calculations

Tax Inputs, Dates and Calculation Bases

Tax and payroll exercises require the applicable rate, date, taxpayer circumstances and tax base. A familiar rate is not a substitute for a figure supplied in a question. The current reference points below were checked on 24 October 2026. They illustrate numerical methods rather than a requirement to memorise Irish tax law for every recruitment competition.

Keep four quantities separate: the supplier’s net selling price, the invoice total including VAT, the employee’s gross pay, and the employer’s total cost. “Gross” and “net” refer to different adjustments in those contexts. A department’s ability to recover VAT also differs from the amount shown on its invoice.

VAT: Rate and Recovery Are Separate Questions

Revenue’s 2026 rate table includes the standard rate of 23%, reduced rate of 13.5% and second reduced rate of 9%. Zero rating and exemption are distinct treatments. A zero-rated supply is taxable at 0%; an exempt supply is not simply another name for zero rating. Input VAT recovery depends on the purchaser’s activities and the applicable deduction rules. Revenue states that VAT on purchases used for exempt supplies or non-business activities cannot generally be reclaimed.

Do not use an old category list to decide a current invoice’s rate. For example, Revenue’s current guidance places certain books and newspapers at zero, while periodicals can carry the second reduced rate. Categories, exceptions and effective dates matter. For a numerical exercise, use its stipulated applicable rate and recovery assumptions.

Net, Gross and VAT Extraction

Let $r$ be the decimal VAT rate, so $r=0.23$ means 23%. For one tax rate applied to the net price:

$\text{Gross}=\text{Net}(1+r)$ $\text{Net}=\frac{\text{Gross}}{1+r}$ $\text{VAT}=\text{Gross}-\text{Net}=\text{Gross}\frac{r}{1+r}$

If instead $p$ is the numerical percentage, such as $p=23$, the equivalent VAT fraction is $p/(100+p)$. Do not use the same symbol for the decimal 0.23 and the percentage number 23 in one equality.

For a hypothetical invoice of €12,300 including 23% VAT, net is 12,300 / 1.23 = €10,000 and VAT is €2,300. The VAT portion is 23/123 of the gross, not 23% of it. On a €123,000 gross invoice, the correct VAT is €23,000. Taking 0.23 × €123,000 gives €28,290, overstating the VAT component by €5,290.

At a stipulated 13.5% rate, the gross multiplier is 1.135 and the VAT fraction of gross is 13.5/113.5 = 27/227. Preserve that fraction until the final rounding step. For mixed-rate invoices, calculate each separately identified net line under its applicable rate; one gross multiplier cannot automatically be applied to the whole invoice.

PAYE Income Tax: A 2026 Band Example

PAYE is the collection system for employment Income Tax. Revenue lists rates of 20% and 40%; the standard-rate band depends on personal circumstances. For 2026, the single-person band without qualifying children is €44,000 at 20%, with the balance at 40%. The Single Person Tax Credit and maximum Employee Tax Credit are €2,000 each, subject to entitlement.

In a simplified calculation with non-negative taxable pay $T$, band $B$ and usable credits $C$, the gross band tax is:

$0.20\min(T,B)+0.40\max(T-B,0)$

Deduct eligible credits from that tax, rather than from taxable pay. Ordinary non-refundable credits do not make the tax liability negative. Taxable pay may differ from cash gross pay because of reliefs and deductions; use the base actually specified. This example assumes full entitlement to the stated credits and no other adjustments.

For hypothetical annual taxable pay of €45,000 in 2026:

1. Standard-band tax: €44,000 × 20% = €8,800.
2. Higher-band tax: (€45,000 - €44,000) × 40% = €400.
3. Gross Income Tax: €8,800 + €400 = €9,200.
4. Less €4,000 of eligible credits: net Income Tax = €5,200.

This annual illustration is not a payroll-period withholding calculation. A live payroll uses the employee’s Revenue instructions and the applicable pay basis.

USC: Apply Each Marginal Band

Revenue’s standard 2026 USC schedule is:

These are marginal bands: do not apply the final band’s rate to all income. An exemption or reduced-rate entitlement can change the calculation. Revenue’s 2026 exemption limit is €13,000; when income exceeds that limit, USC applies to the full chargeable income under the applicable bands, rather than only the amount above the limit.

For €45,000 of USC income under standard rates, the first two slices give €60.06 + €333.76. The remaining €16,300 is taxed at 3%, giving €489.00. Total USC is €882.82. If the same exercise stipulates €45,000 cash gross pay and the €5,200 Income Tax calculated above, €38,917.18 remains after those two taxes. This is before employee PRSI, pension or other deductions, so it must not be labelled complete take-home pay.

PRSI: Select the Pay-Period Rate

The Department of Social Protection’s Class A table includes civil and public servants recruited from 6 April 1995, subject to the class’s coverage conditions. Employee and employer rates differ and changed during 2026. For the A1 band above €552 weekly pay:

Lower weekly bands have different rates and may involve a tapered employee credit. Do not apply the A1 table to every worker, or multiply a full year’s salary by the current rate without accounting for the pay dates and applicable bands.

For one hypothetical A1 week after 1 October 2026 with €1,000 reckonable pay, employee PRSI is €43.50 and employer PRSI is €114.00. The employee’s remaining pay before other deductions is €956.50. The employer’s salary-plus-PRSI cost is €1,114.00. If the exercise separately adds a pension cost of 8% of pay, add €80 to reach €1,194. Pension cost is a stipulated input here, not a universal statutory employer percentage.

Employee and Employer Perspectives

Employee take-home pay subtracts applicable Income Tax, employee PRSI, USC, pension and other employee deductions from cash pay. Employer cost adds employer PRSI and the specified employer pension costs or overheads to gross pay. Do not add employee tax deductions to salary again: they are withheld from the employee’s gross amount.

Always state which components a calculated total includes. A salary-plus-PRSI subtotal is useful, but it is not evidence that all employer costs have been included.

Sources checked 24 October 2026: Revenue VAT rates, VAT recovery, printed matter, 2026 tax bands and credits, USC, and Class A PRSI.