Expenses paid, which are not the reimbursement of deductible expenses are taxable under Schedule E. Payments that are a reimbursement of actual deductible expenses are not taxable.
Where payments are received on account of expenses, they may be deductible, provided that they were incurred in carrying out of the employment. Vouchers and proof should be obtained and retained for the purpose of justifying the deduction.
Deductions from gross income, which are allowed in computing taxable employment income are narrow and limited. The expenses must be wholly, exclusively and necessarily incurred in the performance of the employment. This contrasts with the case of a sole trader or independent contractor, where the test of deductability of expenses in computing trading income is much more liberal.
Expenses of travelling to and from work are not allowed but travelling expenses during work hours for work purposes are generally allowed. Expenses must be necessarily incurred in the performance of employment duties. Expenses incurred in staying in a hotel near the place of employment would not be allowed, as the person could stay at home. In contrast, hotel expenses incurred during trips far away or abroad, would generally be allowed.
The requirement for “necessity” makes the test quite narrow. Expenses incurred on courses required to make progress in employment, have not been allowed on the basis that they are not necessary for the current duties of the employment. Course necessarily required for the employment would be allowed.
Where expenses can be apportioned between those which are wholly and necessary for employment and otherwise, the apportioned expense may be allowed.
Benefits in Kind Tax
Originally, taxable benefits in kind were limited to those which could be turned into money (and taxed accordingly). Because certain benefits in kind could not necessarily be turned into money, further legislation was introduced taxing such benefits on the basis of their cost to the employer. The market value at the time of transfer of the benefit is assessed.
Where the benefit is provided by the employer, the cost to the employer is the value which is assessed. This may mean that a staff discount, which does not represent an explicit cost to the employer, may not be taxable.
There are special rules for the valuation of certain types of benefit. The are artificial rules relating to the valuation of cars. Where property is enjoyed in kind, the annual value is generally assessed. Preferential loans are assessed by reference to the difference between a specified “normal” rate and the rate charged.
The categories of expenses allowable under Schedule E criteria are narrow. The expenses must be necessarily, wholly, exclusively and necessarily incurred in the performance of duties of the office or employment.
The expenses may be paid directly by the employer or reimbursed. Where they are reimbursed they may qualify as not being subject to tax and PAYE. Where they are not reimbursed and are wholly exclusively and necessarily incurred in the performance of the duties the employee is usually entitled to a deduction. This may be applied for to revenue.
Where the reimbursement is on the basis of expenses incurred they must be reasonably incurred. The records must be maintained and available upon audit.
Certain expenses are generally allowed. These include expenditure on tools, clothes and special protective equipment required for the performance of duties.In practice, Revenue may agree to allow round sum deductions of approximate expenses by way of deductions operated against PAYE. As an alternative, the employee may be able to compute and prove the expenses actually incurred, in which case the round figure sums are not applied.
Revenue publish lists of flat rate expenses for particular occupations. These are automatically allowed without the proof that the expenses have been incurred. An application may be made to adjust the tax credit certificate to allow them. Unreceipted round sum expenses are taxable unless they fall within one of the categories or basis for exemption allowed apply (e.g. round sum expenses civil service mileage rate et cetera).
In the case of traveling expenses, the employee or office holder must be necessarily obliged to incur the expenses of traveling in the performance of the duties of office or employment Expenses incurred before employment begins, such as the cost of transport to bring the employee to the place of employment are not deductible.
A distinction is drawn between travelling to the normal place of work and travelling between places of work. Where the employee is working outside of normal hours generally taken as 10 PM, a deduction may be permitted. The cost of transport in the course of employment, going from one place to another for the purpose of employment is deductible.
In the case of traveling expenses, the employee may be reimbursed on the basis of civil service distance-based rates or on the basis of vouched travel expenditure. Revenue allow motoring expenses to be paid or reimbursed at certain published civil service mileage rates.The allowances per kilometre published are relative to the length of journey and the engine capacity of the car. Subsistence rates for overnight stays are published.
The expenses of a business trip whereby the employee is required to travel in the performance of duties for a temporary period will usually be deductible. The cost of travel from home to place of work will not generally be allowed but may be permitted on the basis that it is the lesser of the distance between home and the place visited and the normal place of employment and the place visited.
The Revenue have indicated that deduction of travel expenses is allowed where persons attend their base of employment outside normal working hours to deal with an emergency. Conditions apply. This could include going home for force majeure reasons. The travel expenses to and from the place of work may be permissible up to a maximum number of emergencies per annum.
The Revenue have published guidelines on motoring expenses. The reimbursement of motoring expenses in accordance with the guidelines, does not require prior approval.
There is a parking levy of €200 in the five City Council areas (not commenced). There are exemptions for job shares and part-time workers.
Training courses undertaken in the course of employment are not generally deductible unless they are necessary for the purpose of the current employment. Courses which advance the person in employment are not necessary for this purpose.
Many courses are deemed to be preparatory for the duties of employment and not in the performance of the duties and hence not permissible as a deduction.
Certain subsistence payments, paid to employees assigned from abroad to work temporarily in Ireland, are permissible under Revenue published practice.
Revenue has published a statement of practice regarding expenses incurred by an employee in moving homes, in order take up employment with an existing employer or with a new employer. Subject to the criteria in the statement of practice, certain expenses may be allowed without prior Revenue approval.
Rent for temporary accommodation up to 3 months for employee sent abroad is not treated as benefits in kind. Agents and lawyers fees as well as stamp duty may be reimbursed for an employee required to move abroad. Expenses incurred including removal of furniture storage charges insurance and certain travelling expenses connected with the removal may be allowed subject to conditions. They must be reasonable an amount and moving house must be necessary.
Certain benefits are exempted from tax, for policy reasons. The following are exempt from taxation as benefits in kind;
• pension benefits subject to conditions;
• bicycles up to €1000; this must be used mainly for journeys to and from work on in the course of employment;
• subsidised childcare facilities, this is more limited than first appears; it only applies to provision of childcare made available by the employer itself, or with another, where the employer is wholly or partly responsible for financing or providing the facilities
• expenses incurred in providing certain monthly or annual bus and train tickets
• canteens for general staff use;
• living accommodation where the employee is required to live in the premises a necessary condition of employment or where such residence was conventional before 1948
• the provision of accommodation used solely in the performance of employment
Since 2004 the PAYE system of deductions and payment must be applied by employers to benefits in kind. PRSI and levies was also extended to benefits in kind
Tax treatment’s so-called termination payments
The Finance Act 2015 provides an exemption for vouched expenses payments by a company to non-resident, non-executive directors incurred while attending board meetings within the State. There is an exemption from income tax PRSI and USC on vouched expenses of travel and subsistence payments made by a company to a resident non-executive director.
Finance Act 2016 Act extends this exemption to resident directors. The exemption applies to the expenses of travel and subsistence incurred solely for the purpose of attending a relevant meeting.
A relevant meeting is a meeting held in Ireland and attended in a capacity as director for the purpose of the conduct of affairs of the company. It applies after 1st January 2017. The director must be Irish tax resident and earn more than €5,000 from that office in the tax year. The cost of travel from home to the meeting does not usually qualify, unless they are wholly exclusively and necessarily incurred for the purpose of performance of those duties.. Such expenses must be subject to PAYE deduction.
Reporting Certain Benefits
Finance Act 2022 provide for the automatic reporting to the Revenue Commissioners by employers in respect of three specific measures, collectively referred to as “reportable benefits”. Such reportable benefits are made without the deduction of tax. The reportable benefits are:
- the remote working daily allowance of €3.20,
- the payment of travel and subsistence expenses, and
- the small benefit exemption.
The reporting of such measures align to the preexisting mechanisms used for payroll purposes. In order to allow for stakeholder engagement on the measure, it was subject to a commencement order.