Definition of Pay
- Gross pay / net pay for PAYE purposes
- Employees' superannuation contributions
- Deductions from gross pay in calculating net pay
- Net pay for PRSI purposes
- What pay includes
- Pay for income tax purposes
- Non-cash payments
- Any liability of an employee which is paid by the employer
- "Tax free" payments
- Payments towards the cost of travelling
- Round sum expenses payments
- Certain premiums under pension and insurance schemes
- Service charges in hotels etc. paid out by/on behalf of the employer
- Wages payments in advance or on account
- Pay credited to an employee's or director's account
- Payments made to an employee absent due to illness
- Certain lump sum payments made on retirement or on leaving office (including pay in lieu of notice)
- Lump sum payments made to an employee as compensation for change in working procedures
- Illness benefit and occupational injury benefit
- Payments to election workers
- Foreign sourced employment income
- Items not to be treated as pay
- Salary sacrificed for a travel pass scheme
- Rent-free accommodation
- Lump sum weekly payment or resettlement allowance
- Reimbursement of expenses incurred by the employee
- Refunds of superannuation contributions
- Provision of bicycles for directors and employees – exemption from income tax in respect of benefit-in-kind
- PRSI where a PAYE exclusion order is issued by Revenue
- Employment carried on outside the State
1. Gross pay / net pay for PAYE purposes
The PAYE system of tax deduction applies to all income from offices or employments (including directorships and occupational pensions) other than a few isolated cases where the employers concerned are given special instructions (paragraphs 7. PRSI where a PAYE exclusion order is issued by Revenue and 8. Employment carried on outside the state).
A PRSI contribution is payable through the PAYE system for all persons dealt with under the PAYE system. (See leaflet SWI4 issued by the Department of Social Protection).
The terms "gross pay" and "net pay" as used in this Guide have the following meanings:
Gross Pay is the employee's pay of any kind as described in paragraph 5 before any deductions are made by the employer.
Net pay for tax purposes is the amount of an employee's gross pay less any ordinary contributions made by the employee to a:
- Revenue Approved Superannuation Scheme
- Revenue Approved Permanent Health Benefit Scheme
- Personal Retirement Savings Account (PRSA) that are deducted by the employer
- Retirement Annuity Contract (RAC) that are deducted by the employer and
- Salary sacrificed for a Travel Pass Scheme.
Note: These amounts are deducted from gross pay by the employer before tax is calculated.
PRSI contributions are calculated on net pay (reduced by the appropriate PRSI free allowance).
2. Employees’ superannuation contributions
An employee's ordinary contributions to a superannuation fund or scheme are allowable for income tax purposes if the fund or scheme has been approved by Revenue. Details of new schemes should be submitted for approval to:
Large Cases Division,
73-79 Mount St. Lower, Dublin 2.
Telephone: + 353 1 6470710
Fax: + 353 1 6470899
The employer is advised when approval has been given. Gross pay should not be reduced by the amount of the employee's superannuation contributions unless the Inspector of Taxes advises the employer that it is in order to do so or until approval is received.
An employee's special contributions, such as lump sum payments (or instalments of lump sums) to an approved superannuation fund or scheme may also qualify for relief. However, an employer should not treat such special contributions as reducing pay for PAYE purposes. Any relief, which is due to the employee, will be given as part of their tax credits.
Additional Voluntary Contributions
Some employees who are members of occupational pension schemes may opt to make regular additional voluntary contributions (AVCs) from their salaries. Relief may be granted by way of the net pay arrangement. This means that PAYE, PRSI and Health Levy deductions will be calculated on wages or salary net of additional voluntary contributions. Employers must ensure that the combined contributions, e.g. normal contributions plus Additional Voluntary Contributions do not exceed the following age based percentage ceilings and earnings ceiling.
Ceilings on contributions
|Age||% of Net
|Under 30||Up to 15%|
|Between 30 & 39||Up to 20%|
|Between 40 & 49||Up to 25%|
|Between 50 & 54||Up to 30%|
|Between 55 & 59||Up to 35%|
|60 & Over||Up to 40%|
In addition to the age based percentage ceilings above, the annual earnings ceiling, which applies for the purpose of tax relief on contributions to pension products, is as follows:
|From 1 January 2011||€115,000|
|2009 & 2010||€150,000|
Additional Voluntary Contributions & termination payments
The taxable proportion of a termination payment is not relevant earnings for the purposes of calculating the ceiling on pension contributions.
For information on the refund of employees' superannuation contributions - see paragraph 6.5.
Personal Retirement Savings Account
A Personal Retirement Savings Account (PRSA) is a long-term savings account, designed to assist people to save for their retirement and is available from PRSA providers whose products have been approved jointly by the Pensions Board and Revenue.
If an employer does not provide an occupational pension scheme for an employee they are obliged to provide access to at least one Standard PRSA.
Where qualifying PRSA contributions are deducted by the employer, the net pay arrangement will apply. This means that PAYE, PRSI and Health Levy deductions will be calculated on wages or salary net of PRSA contributions.
Where qualifying PRSA contributions are not deducted by the employer, the employee can claim relief directly from Revenue. Tax relief will be allowed through the PAYE system, as an additional tax credit.
The employer can contribute to the employee's PRSA and receive tax relief for the contribution.
PAYE/PRSI and Health Levy deductions should not be applied to pension contributions paid by an employer on an employee's behalf to a Revenue approved superannuation scheme or to a PRSA.
Retirement Annuity Contract
An individual may pay a premium under a Retirement Annuity Contract (RAC) to provide a pension for their old age or for the benefit of their spouse or dependents.
Where contributions to an RAC are deducted directly from an employee's pay, the employer can give tax relief at source under a "net pay" arrangement. This means that PAYE, PRSI and Health Levy deductions will be calculated on wages or salary net of RAC contributions. This only applies where there is no occupational pension scheme in place. If there is an occupational scheme in place the employer must operate PAYE/PRSI before the RAC deduction is made.
If an individual is making contributions to an RAC and a PRSA, the above ceilings on contributions apply to the combined amount paid on both.
Permanent health benefits
An individual who pays a premium on a policy to secure the continuance of income and payment of benefits during disablement through accident, injury or sickness may claim tax relief in respect of the premiums paid. The policy must be approved by Revenue as a Permanent Health Benefit Scheme.
Where qualifying Permanent Health Benefit contributions are deducted by the employer, the net pay arrangements apply in respect of PAYE. This means that PAYE, PRSI and Health Levy deductions will be calculated on wages or salary net of Permanent Health Benefit contributions.
Employees' contributions to Revenue-approved Permanent Health Insurance and Income Continuance Plans (not private health insurance companies) are exempt from PRSI as long as the employer deducts the amount under a net pay arrangement.
3. Deductions from gross pay in calculating net pay
Apart from the following:
- ordinary superannuation contributions
- Additional Voluntary Contributions
- Revenue approved permanent health deductions
- Personal Retirement Savings Accounts
- Retirement Annuity Contracts
- salary sacrificed for a travel pass scheme
no other deductions made from pay should be taken into account in calculating employee net pay.
An employee may claim a tax credit from Revenue for expenses that are wholly, exclusively and necessarily incurred in the performance of the duties of the employment. If due, it will form part of their tax credits and standard rate cut-off point and will not reduce the employee's net pay as already calculated. (See Expenses Payments Paid to Employees parts 1-7 ).
4. Net pay for PRSI purposes
A PRSI contribution is payable through the PAYE system for all persons dealt with under the PAYE system. The amount of the "net pay" on which the PRSI contribution is calculated is normally the same as that for PAYE purposes including lump sum payments where only the taxable amount is liable for PRSI at class K1.
PAYE, PRSI and the Health Contribution must be operated by employers in respect of the taxable value of most benefits-in-kind and other non-cash benefits provided by them for their employees. See paragraph 5.2.
Details of the PRSI system are given in the PRSI guide issued by the Department of Social Protection. Details of the percentage rates of PRSI contributions can be found in leaflet SW14 issued annually by the Department of Social Protection.
5. What pay includes
Pay includes the following:
- Restrictive covenants
- Pay during illness
- Holiday pay
- "Danger money"
- "Dirty money"
- Arrears of pay
- "Tea money"
- "Height money"
- "Walking money"
- "Site allowances"
- "Travelling time money"
- Christmas boxes
- "Tool money"
- Any non-cash benefits
- Non-cash emoluments
- And other like allowances or payments
5.2 Non-cash payments
Most benefits-in-kind (e.g. the private use of a company car, free or subsidised accommodation, preferential loans, etc) received from an employer are taxable, if the employee's total pay (including the value of the benefit) is €1,905 or more in any tax year. Where a director receives such benefits, the benefits are taxable regardless of the level of payment. Benefits, which an employer provides for any member of an employee's family or household, are also taxable.
Shares (including stock) received by employees, being shares or stock in the employer company or in a company controlling the employer company, are taxable but not within the scope of the PAYE system of deduction at source i.e. the employee must account for the tax due directly to Revenue. All other shares given by employers to employees are within the scope of the PAYE system.
In addition, employees and directors are chargeable to tax in respect of "perquisites" from their employment, that is, payment in non-money form that is convertible into money or money's worth, e.g. vouchers in various forms, the payment of bills, club subscriptions and medical insurance premiums on an employee's behalf.
The value of any non-cash benefit or perquisite (called "Notional Pay") must be added to pay and PAYE/PRSI/Levies must be applied in the normal way.
Valuation of benefits
The general rule for establishing the value of a taxable benefit (i.e. notional pay which will be liable to PAYE/PRSI and Health Levy deductions) is to take 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
less any amount made good to the employer by the employee.
Where an employer provides an employee with a small benefit (that is, a benefit with a value not exceeding €250) PAYE, PRSI and Levies need not be applied to that benefit. No more than one such benefit given to an employee in a tax year will qualify for such treatment. Where a benefit exceeds €250 in value the full value of the benefit is to be subjected to PAYE, PRSI and Levies. This concession does not apply to cash payments regardless of the amount.
Non-cash emoluments and completion of forms P35
The pay figure on the form P35 (end of year return) for each employee should include any taxable benefit received by that employee during the year. In addition, the total amount of taxable benefits in the year for all employees should be included in the appropriate section of the summary page of the P35. A separate Benefit-in-Kind Guide, Employer's Guide to operating PAYE and PRSI for certain benefits, is also available.
5.3 Any liability of an employee which is paid by the employer
If, for example, the employee's share of the PRSI contribution is paid by the employer instead of being deducted from the employee's pay, this amount is regarded as additional pay for the employee.
5.4 "Tax free" payments
An employer should always deduct tax from pay unless they are otherwise advised by Revenue. If an employer makes payments on a "free of tax" basis, the pay for PAYE purposes is the amount which, after deduction of the correct tax and PRSI, would give the amount actually paid to the employee, i.e. the amount actually paid to the employee should be regrossed to arrive at the figure of pay to be taken into account for PAYE purposes.
5.5 Payments towards the cost of travelling
Payments made by the employer to the employee in respect of the cost of travelling between the employee's home and normal place of employment must be treated as pay (except in the case of a travel pass scheme - see paragraph 6.1).
5.6 Round sum expenses payments
Round-sum expenses payments made to employees, including directors, must be treated as pay and taxed accordingly. See Expenses Payments Paid to Employees part 2.
5.7 Certain premiums under pension and insurance schemes
In certain circumstances premiums paid by an employer under pension or insurance schemes or under arrangements with individual employees may be treated for tax purposes as income of the employee. An employer who has not already been advised as to their treatment for tax purposes should consult Revenue - see Introduction part 6 for contact details.
5.8 Service charges in hotels etc. paid out by/on behalf of the employer
Gratuities from customers (e.g. service charges in hotels, tips in restaurants etc.) paid to the employer and subsequently paid out to an employee should be included in pay for the income tax week or month in which they are paid out.
5.9 Wages payments in advance or on account
Payments in advance or on account (including drawings in advance or on account of a director's remuneration and payments to or on behalf of a director in advance of the voting of remuneration) are pay for PAYE purposes. These payments are taxed as income of the income tax week or month in which they are paid and are subject to the operation of PAYE for that week or month.
When the remuneration is subsequently paid (or in the case of a director, voted) any excess over the payment already paid in advance should be treated as pay in the income tax week or month in which it is paid or voted. This remuneration is subject to the operation of PAYE for that week or month even though it may be in a later income tax year than the one in which the payment on account was made.
5.10 Pay credited to an employee's or director's account
Pay credited to the bank account of an employee or company director is pay for PAYE purposes, as is remuneration voted to a director which is credited to an account with the company on which they are free to draw or which is applied in reduction of a debt due by them to the company.
If the debt due to the company arose from the debiting of the director's account with the payments in advance or on account mentioned in paragraph 5.9 - Wages payments in advance or on account any excess of the amount credited over the advance payment is, for PAYE purposes, pay of the income tax week or month in which it is credited.
5.11 Payments made to an employee absent due to illness
Salary, wages etc. paid to an employee when absent from work owing to illness are pay for PAYE purposes.
Where an employee is absent from work due to illness and receives, or is entitled to receive, Illness Benefit (formerly known as Disability Benefit) or Occupational Injury Benefit, these amounts are also taxable in the hands of the employee. The duties of the employer in relation to the operation of PAYE in such cases are detailed in Calculation of Tax Under PAYE System part 11
5.12 Certain lump sum payments made on retirement or on leaving office (including pay in lieu of notice)
A lump sum payment made on retirement or removal from employment should be treated as pay for tax purposes to the extent that the payment (or the total of such payments if more than one is made) exceeds the greater of:
- Basic Exemption,
- Increased Exemption (if due)
- SCSB (Standard Capital Superannuation Benefit).
The basic exemption is €10,160 plus €765 for each complete year of service. Service before and after a career break may be added together for the purposes of determining a complete year of service. The periods where the person was on the career break would not be included. For persons who job-share, there is no apportionment to take account of the part-time nature of the employment - that is they are credited with years service as if they worked full-time. Where the terms of the severance specifies that the payment is in respect of employment in group companies and the employee worked for such companies within the State, then those years of service can be taken into account in calculating the number of years service for the purpose of the basic exemption.
Payment in lieu of notice
Where a payment in lieu of notice is made as well as an ex-gratia lump sum payment, the excess of the sum of the two payments over the basic exemption should be treated as pay for tax purposes. However, where the contract of employment provides for a payment of this kind on termination of the contract, whatever the circumstances, such payment is chargeable to income tax in the normal way without the benefit of the exemption and reliefs mentioned above.
An employee may be entitled to an increased exemption of up to €10,000, if they
- have never received a lump sum before, or
- have not received such a payment in the past 10 years.
If the employee is a member of a pension scheme any amount they are entitled to receive immediately from a pension scheme must be deducted from the €10,000. If the person will be entitled to a lump sum in the future, the current actuarial value of the tax-free lump sum must be deducted from the increased exemption.
The employee may in some cases, waive their right to commute part of their pension rights to a lump sum. If this is done, the increased exemption is due, if all other conditions are met. Any such waiver is irrevocable.
If the employee is due the increased exemption, either the employee or the employer should apply to Revenue well in advance of the payment date for approval to give the increased exemption.
Application should be made by the employee or employer by completing the form in Revenue's information leaflet Lump Sum Payments (Redundancy/Retirement) - IT21 and send it to Revenue. This IT21 leaflet provides further information on lump sums.
If Revenue has not granted approval at the time of payment, tax must be deducted by the employer on all of the lump sum less the basic exemption or SCSB (see following paragraph). The employee may subsequently apply to their Revenue Regional Office for the benefit of the increased exemption.
SCSB (Standard Capital Superannuation Benefit)
SCSB is a calculation of the employee's average yearly pay for the three years (36 months) up to the date of termination of the employment. See information leaflet Lump Sum Payments (Redundancy/Retirement) - IT21 for computation.
An employee may be due further tax relief on their lump sum payment - namely Top Slicing Relief. The individual can submit a claim directly to Revenue for this relief after the end of the tax year in which the lump sum is paid.
The following lump sum payments are not taxable:
- Payments on death in service
- Lump sums paid under approved Superannuation Schemes
- Statutory Redundancy Payments
- Payments where an employment has been terminated on account of injury or disability (age is not regarded as a disability for this purpose)
- Certain termination payments in respect of an employment in which there was Foreign Service, provided certain conditions are met
- Certain payments made under Employment Law, see Revenue's Exemption from Income Tax - IT71 (Exemption in respect of certain payments made by employers to employees arising from claims made under Employment Law).
In relation to payments mentioned in a and d above, there is a new reporting requirement for employers to Revenue:
Details of lump sum payments made by employers to office holders and employees on account of death, injury or disability, and treated by employers as exempt, must be reported to Revenue not later than 46 days after the end of the year of assessment in which the payment was made.
The following information should be forwarded to the Revenue office responsible for the income tax affairs of the employee/office holder:
- the name and address of the person to whom the payment was made
- the Personal Public Service (PPS) Number of the person who received the payment
- the amount of the payment made
- the basis on which the payment is not chargeable to tax, indicating the extent of the injury or disability, as the case may be.
Employers should consult Revenue before payments are made under d, e, or f, without deduction of tax.
5.13 Lump sum payments made to an employee as compensation for change in working procedures
This applies to any payment chargeable to tax under Schedule E that is made to an employee to compensate them for:
- a reduction or possible reduction of future pay arising from a reorganisation of the employer's business, e.g., a loss of promotional prospects, with attendant loss of possible higher earnings
- a change in working procedures or working methods. Examples might be the introduction of new technology or agreed changes in working methods
- a change in duties, e.g., a machinist agreeing to load raw materials or to pack the finished product
- a change in the rate of pay, e.g., the introduction of a (higher) basic salary in substitution for a basic salary and commission
- a transfer of the employee's place of employment from one location to another.
The employer must treat all of any such lump sum payment as pay for income tax purposes. The employee may apply to Revenue for tax relief, if due, after the end of the tax year.
5.14 Illness benefit and occupational injury benefit
Illness Benefit (formerly known as Disability Benefit) and Occupational Injury Benefit, payable by the Department of Social Protection, are taxable payments (see Calculation of Tax Under PAYE System part 11 regarding their tax treatment)
5.15 Payments to election workers
Payments made to individuals employed by Returning Officers in respect of work carried out in relation to elections and referenda are chargeable to tax under Schedule E. Consequently, tax and PRSI must be deducted at source under the PAYE system from these payments.
5.16 Foreign sourced employment income
With effect from 1 January 2006, foreign sourced employment income (including taxable benefits) attributable to the performance in the State of the duties of a foreign employment are chargeable to income tax under the PAYE system.
Please see Treatment of Foreign Sourced Employment Income for full information.
6. Items not to be treated as pay
The following items should not be regarded as pay for income tax purposes.
6.1 Salary sacrificed for a travel pass scheme
PAYE/PRSI deductions should not be applied to the value of certain monthly or annual bus, train, LUAS and ferry passes provided by an employer to employees for use on a licensed passenger transport service within the State.
Expense of providing the travel pass must be incurred by the employer
The employer must incur the expense of providing the travel pass to the employee. It will not be sufficient for an employer to purchase a pass and recover the cost from the employee - in such circumstances the expense will have been incurred by the employee.
An employer will be considered to have incurred the cost of the travel pass where a salary sacrifice arrangement is in place. The term salary sacrifice is generally understood to mean an arrangement under which an employee agrees with the employer to take a cut in pay and in return the employer provides a benefit of a corresponding amount to the employee (in this case a bus/rail/LUAS/ferry pass).
Salary sacrifice in the specific context of travel passes
In the specific context of the provision of travel passes Revenue are prepared to regard salary sacrifice arrangements which meet the conditions set out below as being effective for tax purposes.
- There must be a bona fide and enforceable alteration to the terms and conditions of employment (exercising a choice of benefit instead of salary)
- The alteration must not be retrospective and must be evidenced in writing
- There must be no entitlement to exchange the benefit for cash
- The choice exercised (i.e. benefit instead of cash) cannot be made more frequently than once a year and then only with the consent of the employer.
6.2 Rent-free accommodation
A taxable benefit will not arise where an employee (but not a director) is required by the terms of their employment to live in accommodation provided by the employer in part of the employer's business premises so that the employee can properly perform their duties ("better performance test"), and either -
- the accommodation is provided in accordance with a practice which, since before 30 July 1948, has commonly prevailed in trades of the class in question as respects employees of the class in question, or
- it is necessary, in the particular class of trade, for employees of the class in question to live on the premises.
It is accepted that the "better performance test" is met in practice where -
- the employee is required to be on call outside normal hours, and
- the employee is in fact frequently called out, and
- the accommodation is provided so that the employee may have quick access to the place of employment.
Examples of such employees include
- managers or night care staff in residential or respite centres (where such centres are not nursing facilities)
- governors and chaplains in prisons
- caretakers living on the premises (where they are in a genuine full-time caretaking job).
6.3 Lump sum weekly payment or resettlement allowance
Where a redundant employee is entitled to such a payment or allowance under the Redundancy Payments Act 1967, this payment/allowance shall not be treated as pay for income tax purposes.
6.4 Reimbursement of expenses incurred by the employee
Reimbursement of expenses incurred by the employee in the performance of the duties of their employment, in certain circumstances, can be made free of tax. See Expenses Paid to Employees parts 4-7.
6.5 Refunds of superannuation contributions
An employee's superannuation contributions, which, in accordance with the rules of the fund or scheme, are refunded to the employee on leaving the employment, are not to be treated as pay. The administrator of the fund or scheme will be required to account for tax on the refund (at present 20% of the gross refund). Separate collection arrangements, outside the PAYE system, apply in this case - please consult:
Large Cases Division,
73-79 Mount St. Lower,
Telephone: + 353 1 6470710
Fax: + 353 1 6470899
6.6 Provision of Bicycles for Directors and Employees - Exemption from Income Tax in respect of Benefit-In-Kind
A new tax incentive was introduced with effect from 1 January 2009 aimed at encouraging more employees to cycle to and from work. This tax incentive exempts from income tax the benefit-in-kind arising from the provision of a bicycle/bicycle safety equipment by an employer to an employee or director, where the bicycle/associated safety equipment is used by the employee or director mainly for qualifying journeys.
The exemption applies to expenditure incurred by an employer on or after 1 January 2009.
Limit of €1,000
A limit of €1,000 applies on the amount of expenditure an employer can incur in respect of any one employee or director. Where an employer spends in excess of €1,000 only the first €1,000 is exempt from the benefit-in-kind charge to income tax.
Delivery charges in respect of the bicycles/safety equipment are also covered by the exemption provided the maximum value of the benefit, including delivery charges, does not exceed €1,000. Where the cost exceeds this amount, a benefit-in-kind income tax charge applies to the balance.
The exemption from income tax in respect of the benefit-in-kind can only be availed of once in any five-year period by an employee or director.
Where an employer incurs an expense of less than €1,000 in year one in the provision of a bicycle and/or associated safety equipment, and incurs further costs within a 5-year period, the employee will not be able to claim the exemption in respect of the difference between €1,000 and the amount spent by the employer within the 5-year period.
The bicycle/safety equipment must be used by the employee or director mainly for qualifying journeys. This means the whole or part (e.g. between home and train station) of a journey between the employee’s or director’s home and normal place of work, or between his or her normal place of work and another place of work. While an employer will not be required to monitor the use of the bicycle/safety equipment, the employer will be required to obtain a signed statement from the employee or director that the bicycle is for his or her own use and will be used mainly for qualifying journeys.
Qualifying bicycles/safety equipment
The exemption covers pedal bicycles and tricycles, and pedelecs (an electrically assisted bicycle which requires some effort on the part of the cyclist in order to effect propulsion). It does not cover motorbikes, scooters or mopeds.
The following safety equipment is also covered by the exemption:
- Cycle helmets which conform to European standard EN 1078
- Bells and bulb horns
- Lights, including dynamo packs
- Mirrors and mudguards to ensure rider's visibility is not impaired
- Cycle clips and dress guards
- Panniers, luggage carriers and straps to allow luggage to be safely carried
- Locks and chains to ensure cycle can be safely secured
- Pumps, puncture repair kits, cycle tool kits and tyre sealant to allow for minor repairs
- Reflective clothing along with white front reflectors and spoke reflectors
Provision of bicycles/safety equipment to all employees and directors
The exemption only applies where bicycles/safety equipment are made available by the employer generally to all of its directors and employees.
Purchase of bicycles/safety equipment
The employer must purchase the bicycle/safety equipment. The exemption does not apply where an employee or director purchases a bicycle/safety equipment and gets reimbursed by his or her employer.
Salary sacrifice arrangements
Similar to the travel pass scheme, an employer and employee may enter into a salary sacrifice arrangement whereby the employee agrees to forego part of his or her salary to cover the costs associated with the purchase of the bicycle/safety equipment. In such circumstances, the employee will not be liable to tax or PRSI or levies on the salary forgone. Where salary sacrifice arrangements are used, they must be completed over a maximum of 12 months from the date of provision of the bicycle/safety equipment.
In the specific context of the provision of a bicycle/bicycle safety equipment, Revenue will be prepared to regard salary sacrifice arrangements which meet the following conditions as being effective for tax purposes:
- There must be a bona fide and enforceable alteration to the terms and conditions of employment (exercising a choice of benefit instead of salary).
- The alteration must not be retrospective and must be evidenced in writing.
- There must be no entitlement to exchange the benefit for cash.
- The choice exercised (i.e. benefit instead of cash) cannot be made more frequently than once in a 5-year period.
- The choice exercised (i.e. benefit instead of cash) must be irrevocable for the relevant year for which it is made.
VAT on bicycles/safety equipment purchased for employees and directors
An employer is liable to pay VAT on bicycles/safety equipment purchased for employees and directors. The employer cannot claim an input credit in respect of the VAT payable as the bicycles are not used for the purposes of taxable supplies.
The purchase of bicycles and associated safety equipment by employers for directors and employees is subject to the normal Revenue audit procedure with the normal obligations on employers to maintain records (e.g. delivery dockets, invoices, payments details, salary sacrifice agreements between employer and employee, signed statements from employees that the bicycle/bicycle safety equipment is for own use and will be used for travelling to and from work).
An employer does not have to notify Revenue that they are providing bicycles/safety equipment for directors and employees.
7. PRSI where a PAYE exclusion order is issued by Revenue
A PAYE exclusion order is a certificate issued to an employer authorising the employer to pay emoluments
without the deduction of PAYE. For example, a PAYE exclusion order may be issued where an employee of an Irish company goes abroad for an extended period and ceases to be liable to income tax in the State due to their non-resident status.
The employer must submit full details in writing to Revenue.
An Exclusion Order is not the same as Tax Exemption and Marginal Relief (see Calculation of Tax Under PAYE System part 10).
If you have a current exclusion order for an employee then that employee should not be included on the PAYE system and details of their income should not be included on the P35 return. Forms P45 and P60 need not be issued where exclusion orders are in place.
Where Revenue issue a PAYE exclusion order to the employer confirming that the PAYE system does not apply to certain emoluments, the employer may still have a legal obligation to pay PRSI in respect of the employment/occupational pension. Any PRSI contributions due are to be remitted directly to the Department of Social Protection. For clarification whether PRSI contributions are due and instructions on remittance of these payments, employers should contact:
Special Collection Section,
Department of Social Protection,
Government Buildings, Cork Road,
Telephone: 1890 690 690
Where a PAYE exclusion order has issued to an employer relieving the employer of the obligation to make tax deductions from certain emoluments, the employer need not deduct the Health Contribution.
8. Employment carried on outside the State
Where an employee is going to work for the employer outside the State the employer should notify Revenue who will advise the employer as to whether PAYE should be operated.
Advice as to whether PRSI contributions are due can be obtained from:
The Department of Social Protection,
212-213 Pearse Street,
Telephone: + 353 1 7043000