Introduction to Benefit in Kind
WHAT IS BENEFIT IN KIND
A Benefit in Kind (BIK) arises where an employee receives a benefit from the employer in a form other than a monetary payment.
Benefits are sometimes referred to as perquisites and vary in type and value. The value derived from the non-cash benefit is referred to as 'notional pay'.
The majority of BIK is liable to PAYE, USC and PRSI. It is the responsibility of the employer to operate the taxation rules on any BIK arrangement with an employee or office holder. This is incorporated into the employer's payroll function, deducting the additional tax and PRSI liable on the notional value of the benefit received by the employee, along with the periodical salary payment.
The valuation of a benefit can vary from benefit to benefit but generally, it equates to the cost to the employer, to provide such a benefit. The value will always be the higher of:
- the cost of the goods to the employer
- the value realisable by the employee for the benefit (e.g. market value of the goods)
PAYE and PRSI are to be applied by the employer to the best estimate that can reasonably be made of the amount of the notional pay or taxable benefit that is chargeable to income tax in respect of a benefit provided to an employee.
In many instances, the employer will be aware of the expense incurred in providing benefits and the value of the benefits. In these circumstances, determining the amount chargeable to PAYE, USC and PRSI will generally be relatively straightforward. (see Valuation Rules above).
It will not be necessary for the employer to estimate amounts involved. For example, where the employer pays medical insurance or club subscriptions on behalf of an employee the precise amount to which PAYE, USC and PRSI is to be applied will be known.
In the case of benefits where the expense incurred or value is not immediately evident (and which are not defined by the Revenue's Guide to Benefit in Kind) the best estimate should be determined by the employer in a common sense fashion having regard to the general rule set out above, the facts of the case and the nature of the benefit provided.
Except where there are specific statutory valuation rules (Provision of Company Car, Vans, Preferential Loans) the amount of the taxable benefit (i.e. the notional pay) which will be liable to PAYE and PRSI will be the higher of:
- the expense incurred by the employer in connection with the provision of the benefit to the employee, or
- the value realisable by the employee for the benefit in money or money’s worth
PROVISION OF SERVICES TO AN EMPLOYEE
Where an employer provides services free of charge to an employee, or where they cover the costs/fees of a service on an employee's behalf, this will give rise to a Benefit In Kind for the employee. The value of the Benefit in Kind will be the actual cost incurred by the employer to provide the service including any fees paid by them less any amounts contributed (made good) by the employee.
APPLICATION OF PAYE, USC AND PRSI TO NOTIONAL PAY
The employer’s best estimate of the taxable value of a benefit is to be treated as notional pay in the pay period in which the benefit is provided and must be added to the money wages or salary for that pay period.
It is the aggregate of the money wages or salary payment and the notional pay which must be used for the purposes of calculating PAYE, USC and PRSI for that pay period.
An employee receives money wages of €500 plus a voucher representing notional pay of €750, the pay for that period for PAYE and PRSI purposes is €1,250.
The employee's PAYE and PRSI liability, in respect of the €1,250, must be deducted from the money wages or salary for that pay period.
In addition, employers’ PRSI is also due on the €1,250.
The employer must return and submit the PAYE, USC and PRSI liability to Revenue on the P30 subsequent to the pay period, regardless of whether or not the employee has sufficient pay to cover the liability.
SHORTFALL IN RECOVERY
Where the amount of the money wages or salary payable to an employee is insufficient to collect the full amounts of PAYE and PRSI due on the notional pay, the employer is required to remit any shortfall, by reference to the full PAYE and PRSI due, in addition to the amounts collected from the money wages or salary in the subsequent P30.
Any shortfall, in PAYE (but not PRSI) collected from money wages or salary, which is paid by the employer for a tax year (the 'first' tax year) but not made good by the employee to the employer by the end of the tax year (concessionally extended to 31 March of the following year) will be regarded as a taxable benefit of the employee in the following tax year (i.e. the tax year following the first tax year) and subject to PAYE and PRSI.
Where as respects benefits provided to employees;
- the amount which an employer is liable to remit to the Collector-General is in excess of the amount of tax which he or she has deducted or accounted for (in the case of insufficiency of money wages or salary, see PAYE and PRSI in respect of benefits must be the best estimate (please see Application of PAYE and PRSI to Benefits - Insufficient Money Wages or Salary in Pay Period), and
- it is established that the amount deducted or accounted for was in accordance with the best estimate that could reasonably have been made by the employer when the benefits were being provided,
the Revenue Commissioners may direct that the amount of the excess should be recovered from the employees. Where they so direct, the employer will not be liable for the balance due.
SPREADING THE LIABILITY THROUGHOUT THE TAX YEAR
In general, as explained above, any PAYE, USC and PRSI due in respect of a taxable benefit must be paid to the Collector-General for the month in which the pay period in which the benefit is treated as being provided ends. Effectively, this means the month in which the next money wages or salary are paid.
However, in the case of benefits consisting of the private use of a company car or van, a preferential loan, or the use of accommodation or assets which belong to the employer, the annual taxable value of the benefit for a tax year – the notional pay - can be apportioned over the relevant pay periods for which it is available in that year (spread across the remaining pay periods left within the tax year) and subjected to PAYE, USC and PRSI on that basis.
Please refer to the Revenue publication of Employers Guide to Benefit in Kind for further information.