Benefits In Kind (BIK)
The area of additional benefits or prerequisites, perks for short has been a focal point for revenue for a number of years. It is a topic that like all taxes evolves over time. In a nutshell any benefits received by an employee from their employer is taxable as notional pay and PAYE, PRSI (employer and employee) and Universal Social Charge (USC) deducted as such, the value applied to this benefit is in general the value that is attributable to this benefit had the employee purchased the benefit on the open market. There are fixed values provided by revenue for certain items such as company cars and preferential loans.
The area of private health insurance is particularly topical given the levy introduced on premiums since May 1st for individuals over the age of 35. Any medical insurance premiums renewed after 16 October 2013 are subject to a cap on the amount of tax relief available on the premium. Prior to October 2013 the tax relief available was unrestricted, i.e. 20% of the premium. However from this date the tax relief has been restricted to 20% up to a maximum premium of €1,000 per adult named on the policy with a cap of €500 applied per child on the policy.
Where an employer pays their employee’s medical insurance which may include their dependants they are treated as receiving a benefit of the gross premium paid on the policy by the employer. The employer must then pay over the tax relief at source (TRS) to the Collector General as part of their Corporation Tax return and the employee can claim the TRS directly from the Revenue Commissioners.
Where the employee reimburses the employer a portion of the cost then they will be entitled to a deduction for this amount from their notional pay and similarly their TRS credit available would need to be adjusted to account for this payment by the employee and similarly the amount payable by the company with their corporation tax return would also need to be adjusted.
It should also be pointed out that any individual over the age of 21 named as a child on an insurance policy would be entitled to the TRS amount of an adult i.e. €1000 maximum or €200 in their premium.
Car Pooling is an area that some employers are looking at to minimise the BIK exposure for their employees where they are required to do some business mileage but not a sufficient amount to warrant a company car and pay the higher percentage of BIK (30% of original market value) due to the low level of business mileage. If it is the case that a number of employees would need to use a car from day to day and that the car could be kept at their business premises then this might be worth considering. There are a number of conditions that would need to be met before such a scheme would be entered into, in particular the car would need to be kept at the place of business rather than the employees home overnight.
The use of company vans is subject to BIK on 5% of the original market value of the van. This is far more preferential than the rates applied for company cars. No charge to BIK for the use of a company van arises where the employee spends more than 80% of their time away from the place of business and the van is necessary for the performance of their duties.
TAX EFFICIENT BENEFITS
An employee can receive €250 in a calendar year from their employer, this benefit should not be cash but rather a cash equivalent such as gift vouchers. This benefit is exempt from PAYE, PRSI and USC.
Bike to Work Scheme
An employee can also receive a bicycle under the bike to work scheme by way of salary sacrifice arrangement. The employer purchases a bicycle and associated safety equipment up to a value of €1,000 and pay the employer by way of salary deduction before tax is applied. An employee paying the higher rate of tax could receive their bicycle for say €1,000 at a net cost to them of €490. The salary sacrifice can be over an agreed period of time with their employer and the scheme can be applied to each employee once every 5 years.
This article is a broad summary of the points involved, if you intend to implement any of the above schemes please contact us for further information and to ensure that all the conditions for each scheme are met before implementation.