The tax due on benefits in kind are taken at source by your employer and are also taken into account for PRSI and USC Levy purposes by treating the benefit in kind as part of your salary payment.
The most common Benefit in Kind Tax is the company car. All employees who are provided with a company car should check to ensure that their employer is correctly calculating the Benefit in Kind Tax due on the company car. Our car Benefit in Kind Tax calculator will allow you do so.
Electric cars and vans
From 1 January 2020 to 31 December 2020 electric cars and vans are exempt from Benefit in Kind Tax. The open market of the car must be less than €50,000 or first used by the employee between 10th October 2017 and 9th October 2018. Unfortunately the Benefit in Kind Tax exemption does not apply to hybrid cars or vans.
You might wonder what is a company car? The answer may appear obvious but when dealing with tax matters things are never that simple. In addition to the normal passenger car you must also include Jeeps (both two and four seaters), crew cabs and vans. Two seater jeeps, and vans attract a Benefit in Kind Tax at a rate of 5% of the open market value of the jeep/van. We discuss these matters and the calculation of the benefit in kind in more detail below.
Crew cabs depending on the circumstances may be treated as either a car or a van. The method of calculating the taxable benefit in kind for both cars and vans prior to 2004 was more complicated.
Another common benefit in kind is the preferential loan generally provided by financial institutions to their employees. When interest rates were particularly low a lot of employees switched over to normal commercial loans as it was more beneficial because of the tax on the benefit received.
Other benefits in kind include the provision of accommodation, house furnishings etc. These are not that common.
The taxable benefit in kind is calculated as 30% of the market value of the car when new. This is referred to as the original market value (OMV) and is used even where a second hand car is provided. In addition the OMV figure does not go down as the car decreases in value. The original brand new value is always used to calculate the taxable benefit. As a rule of thumb the OMV is normally taken as the list price of the car less 10%.
The taxable amount is reduced if you have substantial business mileage. You must travel at least 5,000 business miles and qualify for the 70% rule as explained below. If you travel at least 15,000 business miles the taxable amount also reduces on a sliding scale reducing to a minimum percentage charge of 6% for employees who travel over 30,000 business miles per annum. In some cases the company car may not be available for the full tax year. If so the taxable benefit will be reduced subject to the rules explained below.
Original Market Value (OMV)
The Original Market Value (OMV) of a car is the price (including any duty of customs, duty of excise or valueadded tax chargeable on the car) which the car might reasonably have been expected to fetch, if sold in the State singly in a retail sale in the open market, immediately before the date of its first registration in the State or elsewhere. Original market value includes vehicle registration tax (VRT).
Annual Business Mileage
For the purpose of determining the correct business mileage, the total mileage for the year should be reduced by a minimum of 5,000 private miles. If private mileage is in fact higher then you must deduct the higher figure. The employer may accept lower levels of private mileage but only where documentary evidence can be provided in this regard by the employee to the employer. The weekly and monthly equivalents of 5,000 miles annual private mileage are 96 miles per week and 416 miles per month. It is also important to note that employees must keep detailed records of their business mileage which must be available for inspection by the Revenue.
70% Out of Office Rule
In the case of certain employees whose annual business mileage does not exceed 15,000 miles, the cash equivalent of 30% of OMV may be reduced by 20% giving an effective cash equivalent of 24% of OMV. This alternative basis is available where the following conditions are complied with.
- works an average of not less than 20 hours per week.
- travels at least 5,000 business miles per annum on the employer’s business.
- spends at least 70% of his or her working time away from the employer’s premises retains a log book detailing business mileage, business transacted, business time travelled and date of journey, and the log book is certified by the employer as being correct.
Company Car not available for Full Year
Adjustments will be necessary where a car is not available for the full year, e.g. where
- an employee receives a car after the start of the tax year, or
- an employee gives up a car before the end of the tax year.
Equally an adjustment will be required where a car is for some other reason not available for private use for part of the tax year, for example, where an employee is working abroad for an extended period. In this case, a car provided to an employee will not be regarded as available for private use for that part of the year in which the employee is outside the State for the purpose of performing the duties of the office or employment, provided the following conditions are met:
- The employee travels abroad without the car.
- The car is not available for use by the employee’s family or household during the employee’s period of absence outside the State.
This applies to two seater jeeps, possibly cab crews and normal vans which we will now collectively refer to as vans. The rules regarding the Original Market Value (OMV) as explained above apply. However the multiplier used to calculate the taxable benefit instead of a 30% rate is a flat 5% rate for the years 2004 onwards. There will not be any benefit in kind if the van is necessary for the performance of the job, private use of the van is prohibited and the employee is required to keep the van at their residence and finally the employee must spend at least 80% of their time away from the work premises. The extent of business mileage is not relevant to the calculation and is ignored.
Pooled Cars & Vans
Many employees claim exemption from a Benefitinkind on the basis that they are driving a pooled car/ van. To qualify for this exemption the pooled car/van must be available to more than one employee and not generally used by only one employee. In addition any private use must be incidental to the business use and it must not normally be kept overnight at the home of any of the employees.
Where living accommodation e.g. house or an apartment is provided for an employee the taxable benefit in kind is either the rent paid by the employer for the accommodation or if the property is owned by the employer the taxable benefit is calculated as being 8% of the value of the property. However if the rental value of the property is less than this figure then the lower figure will be used. An exemption is available for employees who are required to live on a company premises as part of the job subject to various rules and conditions. This exemption is not available for company directors.
Where an employer provides house furniture for an employee the taxable benefit in kind is at a rate of 5% of the cost to the employer of the furniture.
These are most common in the financial services industry and may be provided by financial institutions as part of an overall financial package for their employees.
There are two different types of loans attracting different rates of taxable benefit. The first is a loan for the purchase of your principal private residence referred to as qualifying loans and covers all loans re the purchase, improvement or repair of your private residence. All other loans are taxable at a higher rate of tax. The benefit in kind on either type of loan is calculated as a percentage of the average loan balance throughout the tax year. The percentage multiplier is set out just below.
|For Home Loans||4%|
|All Other Loans||13.5%|
While employees with qualifying home loans are taxed on a benefit in kind they are still entitled to claim the benefit of the normal mortgage interest tax relief for such loans. The deemed benefit in kind is treated as interest paid for the purposes of claiming mortgage interest relief. The tax relief due has to be claimed through your tax office.
The Revenue have now clarified the position regarding the taxing of Professional Subscriptions when paid for by an employer. From 2011 onwards annual membership fees of professional bodies will be taxable as normal income where the employer pays the subscription unless membership of the professional body is required for the job of the employee.
This means PAYE, PRSI and USC will be charged on professional subscriptions paid to professional bodies not required for the job. For example accountants or solicitors working in marketing and their employer pays their annual sub to the relevant professional body. In this case the sub paid is fully taxable.
On the other hand an accountant employed by a firm of accountants or a solicitor employed by a firm of solicitors is not taxable if their employer pays their sub to the relevant professional body.
Tax Free Benefits
These are a very rare thing but arise in different situations. There are two types of small benefits which can be given to employees free of PAYE/PRSI. The first is a long service award provided it is not paid in cash or vouchers. The value of the benefit must not exceed €50 for each year of service and can only be awarded tax free if the employee has at least 20 years service.
The second is commonly referred to as the Christmas Bonus. Following changes in Revenue practice employers may give a voucher to the value of no more than €500 to an employee free of PAYE/PRSI. The €500 limit is applied on a yearly basis per employee. Often used as part of a Christmas bonus for staff the benefit is worth €900 to an employee before tax and can save employers PRSI charges of circa €100. If the €500 value is exceed in any year then the total benefit is liable for tax. There is no exemption for the first €500.
No benefits arise for staff canteens in respect of meals provided free of charge or at a subsidised rate provided the canteen is available to all staff.
A very topical subject these days is the provision of Crèche/ Childcare facilities. For the year 2011 there is no exemption from BIK for the provision of these services to employees. These services will now be subject to income tax, universal service charge and employee’s PRSI. This benefit will also attract employer’s PRSI at a rate of 10.75%.
Up to 2010 where an employer provided these services either free of charge or at a subsidised rate no taxable benefit in kind arose provided the facility complies with the Child Care (PreSchool Services) regulations 1996 and the employer was directly involved in the provision of the facilities either on his own account or jointly with someone else and the employer was responsible for the financing and managing of the facility or for providing the capital for the construction or refurbishment of the premises. This latter requirement also applies where the facility is provided by an unconnected person. This is in complete contrast to a situation where an employer either pays for the cost of or subsidises the cost of an independent facility for an employee. In this situation the cost to the employer is treated as a fully taxable benefit in kind for the employee.
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