Employee Benefits I
Perks
Employees are taxable on perquisites (perks) and benefits in kind received. They are treated in the same manner as other employment income and PAYE must be deducted.
A perquisite is something provided by an employer that can be converted into monies relatively easily. This may include vouchers and such like. Its value must be included in PAYE deductions and is subject to income tax PRI and USC. Tax is based on the market value of the perquisite.
A benefit in kind includes a much broader range of benefits. Tax is charge on the basis of the cost to the employer.
Salary sacrifice arises where monetary income is reduced and substituted by a benefit in kind. This may be deemed a perquisite or a benefit in kind. Certain types of arrangements are approved on conditions by statute or Revenue practice such as travel passes, purchase of a bicycle and approve profit-sharing schemes. These may be allowed on the basis of reimbursement or salary sacrifice
Benefit in Kind Taxation
In the case of employees, the legislation (Section 117 and Section 120 TCA) applies to all benefits in kind for directors and for employees whose emoluments are over €1,905 per annum. Benefits taxable in this way, are not taxed as benefits under the close company legislation.
PAYE rules applied to benefits in kind. The tax subject to PAYE, must be assessed on the basis of the best estimate that can reasonably be made, of the amount likely to be charged. The employer remains responsible for paying the tax, even if there is insufficient income from which to retain tax.
FA 2013 confirms that public sector employees of the civil service, Gardai, Defence Force and public bodies are subject to benefit in kind legislation. It applies to their employees and officers.
Part of a benefit may be a legitimate expense in accordance with the above criteria, while another part may not be so. If the benefit is excessive relative to what is necessary, an apportioned part only may be allowed as a deduction.
The legislation (Section 118) refers to living and other accommodation, entertainment and domestic services together with other benefits.
Section 119 provides that where an employer incurs expenses on the production or purchase of an asset, the mere use of it by an employee is not directly assessable. Where the employer transfers the asset, the prevailing market value is assessed, rather than the cost of the employer.
Reimbursed Expenses
Legitimate business expenses discharged or reimbursed by the employer are not taxable as a benefit in kind. They are not a benefit to the employee. Some benefits may be excessive and the Revenue rules circumscribe the extent to which expenses may be allowed as legitimate. It is not sufficient that the expenses are simply labelled as business expenses.
Expenses should be vouched. They must be wholly exclusively and necessarily incurred in the performance of the employment. There are types of expense where the Revenue allows rounds sums amounts as deductions, subject to certain maximum amounts.
Revenue allow motoring expenses to be paid or reimbursed at certain published civil service mileage rates.
Cars
Employees are subject to benefit in kind tax treatment on cars provided for connected persons such as a spouse by the employer. They are deemed to receive a percentage of the value of the car annually
The charge to employee tax is based on the original market value (OMV) of the vehicle (when new) irrespective of whether the car is new or second-hand. This is the price that would have been payable on first registration. It will include VAT and excise duties. Normally the Revenue take the list price and allow a 10% discount. There is no allowance for inflation. Therefore an older car, such as a classic car may the taxed in the basis of its original lower nominal price.
The rules divide vehicle emissions into seven categories (A to G) which are now effectively consolidated into three categories. The emissions category depends on CO2 emissions categorisation. The original market value (when new) in Ireland. The percentage of OMV assessed, ranges from 30 percent (A, B and C), 35% (D and E) to 40 percent (F and G), depending on the vehicle emission where annual business mileage is less than 24,000 km.
Where annual business mileage is over €24,000, there are a number of bands by which the 30% is reduced to 6% depending on the quantum of business kilometres travelled. For emissions category a B and C this is as follows
- 24000 to 32000 km 24%
- 32,000 to 40,000 km 18%
- 40,000 to 48,000 km 12%
- 48,000 km plus 6%
Where the car is not available for the full year, the thresholds for travel in the course of business and the percentage rates applicable, are reduced proportionately relative to the number of days available.
Finance Act 2019 provides for an amendment to the regime of tax relief for expenditure incurred on business cars. The CO2 emissions thresholds which determine the amount of expenditure on business cars that can qualify for tax relief were adjusted downwards. This provision applies to expenditures incurred from 1 January 2021 except in cases where a contract for the hire of a car is entered into, and the first payment under that contract is made prior to that date.
Finance Act 2023 extends the temporary reduction of €10,000 in the Original Market Value (OMV), for the purpose of determining the BIK payable, of cars in categories A-D to 31 December 2024. It also extends the tapering relief for Battery Electric Vehicles (BEVs) to 2027. The previous OMV reduction of €35,000 will apply for 2024. Therefore, the total reduction for BEVs for 2024 is e €45,000.
For 2025, 2026 and 2027 the OMV reductions will be €35,000, €20,000 and €10,000 respectively. Additionally, the lower mileage limit in the highest mileage band which applies to employer- provided cars will remain at 48,001 until 31 December 2024.
Vans
In the case of vans, the benefit in kind is taxed at 5% only of the open market value. A van is a vehicle designed wholly or mainly for the carriage of goods or other items, the seats are removed to the rear of the driver and there are no side windows or seats included in rear..
The van must be necessary for the performance of the duties of employment. It may be used to drive to and from the employer’s premises and for no other private use. Private travel is prohibited and the employee must spend at least 80% of the time away from the employer’s premises.
A van is a mechanically propelled vehicle designed or constructed, solely or mainly for the carriage of goods or other burdens, with a roof area or areas to the rear of the driver’s seat, no side windows or seating in that roofed area and has a gross weight more than 3500 kilograms.
BIK is applicable to vans at the rate of 5 percent of the original market value. It is not applicable where
- the van is provided for the purpose of the employees’ work;
- the employee is required to bring the van home after work;
- apart from traveling to and from work, other private use is prohibited;
- and the employee spends at least 80 percent of his time away from the workplace premises.
Finance Act 2023 extends the temporary reduction of €10,000 in the OMV of vans, for the purpose of determining the BIK payable to 31 December 2024. It also extends the tapering relief for BEVs to 2027. The current OMV reduction of €35,000 will apply for 2024. Therefore, the total reduction for BEVs for 2024 is 45,000. For 2025, 2026 and 2027 the OMV reductions are €35,000, €20,000 and €10,000 respectively.
Employee Contributions
If the car is used for a part of a year or partly, the amount of the charge is reduced proportionately.
Contributions by employees are deducted from the amount charged to tax. Formerly, there were other fixed statutory deductions where the employee carried the cost of insurance, motor tax or fuel.
Some employees will spend a high proportion of their time driving in urban conditions, but not exceed the above distances. They may qualify for an alternative relief that the charge is reduced by 20% if the following conditions are met;
- business driving per annum more than 8,000 km with average 20 hours per week;
- detailed logbook maintained
- 70% of time working away from the employer’s premises
Other Transport
“Pool” cars are unusual in Ireland. They are more of a UK phenomenon. Where a car is available and is used by more than one employee, is not ordinarily/exclusively used by one employee, where private use is incidental and the car is not normally kept overnight near an employee’s homes, then there is no benefit in kind charge at all.
Under the so-called bike to work scheme, up to €1000 contribution towards purchase of a bike and certain ancillary equipment is not treated as benefits in kind. The directors or employees concerned must use the bike for journeys to and from work. The scheme must be available to all directors and employees. It may be used once every five years by an employee.
Bicycles
Finance Act 2022 provides an employee with an exemption from benefit-in-kind (Income Tax, PRSI and USC) on the first €1,250/€1,500 of expenditure incurred by an employer in connection with the provision of a bicycle/pedelec and/ or safety equipment to an employee or director, where all of the conditions contained within the provision are satisfied.
This extends the benefit-in-kind exemption to cargo bicycles and e-cargo bicycles (i.e. pedelec configuration) by increasing the threshold to €3,000. The changes apply from 1 January 2023.
Accommodation
The benefit of accommodation made available to an employee is usually taxed as a benefit in kind. No tax is charged where the accommodation is necessary as part of the employment. This may arise with the employee is required to be available outside of normal hours and is in fact required to work often with quicker immediate access.
The value of the benefit is normally charged based on a percentage of current market value where the employer owns the property. The annual value of the benefit is assessed as 8% of the market value of the property (and 5% of the market value of any furniture)) when first made available to the employee. Where the rent is paid by the employer, the rent represents the benefit.
In the case of an asset (other than land or buildings) the annual value of its use is assessed. In this case, no annual rental or expense related to the use is to assessed. This annual use value is not to be used where a higher annual rent is being paid by the employer. The annual value is deemed to be 5 percent of the market value when first provided.
In the case of land and buildings, the annual value is the rent which might reasonably be expected to be obtained on letting, if the tenant undertook the tenant’s obligations and the landlord undertook repairs and insurance necessary for its maintenance in the condition required to obtain the rent.
There are special rules in respect of the provision of accommodation to employees. The BIK is based on the open market rental value of the house. Expenses borne by the employer which are not reimbursed by the employee are also assessable. Rent paid reduces the BIK. Revenue will generally accept a figure of 8 percent of the current market value, as the annual value.
Preferential Loans
A preferential loan is a loan made by an employer to an employee, interest free or at a rate of interest less than a specified rate. The specified rate is 5% for loans in relation to the acquisition or repair of a private residence. Otherwise the rate is 12.5%. The benefit is the difference between the actual rate and the specified rate. A further charge to tax applies if the loan is written off or released.
Preferential loans are taxable on the difference between a published (market) rate and the rate charged, if any. In the case of home loans, the published rate applicable is substantially lower.
The employee may be entitled to an interest deduction, where mortgage interest relief conditions are complied with. Mortgage interest relief is no longer generally available.
Finance Act 2017 ensures that there is a taxable benefit on the employee when the employee pays interest on an employer provided loan at less than a specified rate. The benefit arises on an employee if the loan is made by an employer to the employee, his spouse or civil partner in the year in which the spouse or civil partner pays interest on the loan at less than that rate. The taxable benefit in kind is the difference between the amount of interest paid by the employee and the amount that would have been payable if interest had been charged up to specified rate.