Expenses Payments Paid to Employees

  1. Flat rate (employment) expenses
  2. Expenses payments made to the employee - round sum
  3. Expenses payments made to directors
  4. Reimbursement of expenses other than expenses of travel and subsistence
  5. Subsistence payments
  6. Motoring / bicycle expenses
  7. Statement of Practice

1. Flat rate (employment) expenses

Flat Rate Expenses are expenses that are incurred in the performance of the duties of the employment and are directly related to the 'nature of the employee's employment'. A standard flat rate expenses allowance is set for various classes of employee. For example, airline cabin crews are granted flat rate expenses of €64 per annum (2009). The amount of the deduction is agreed between Revenue and representatives of groups or classes of employees (usually the employees are represented by trade union officials). The agreed deduction is then granted to all employees of the class or group in question by Revenue and included on their tax credit certificates.

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2. Expenses payments made to the employee - round sum

Round-sum expenses payments (predetermined lump sum expenses payments) whether paid weekly, monthly, yearly or otherwise,which are paid to the employee to cover expenses, must be treated as pay and taxed accordingly.

An example of a round sum payment is where an employer agrees to pay, say €300 per month in addition to basic salary in order to cover expenses. This €300 must be treated as pay. If the employee actually incurs allowable expenses they may claim a deduction from Revenue by submitting details of the expenses incurred wholly, exclusively and necessarily in the performance of the duties of the employment.

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3. Expenses payments made to directors

Unvouched or round sum expenses payments made to directors are taxable and should be treated as pay and taxed accordingly.

4. Reimbursement of expenses other than expenses of travel and subsistence

Payments made to the employee, being reimbursement of expenses other than expenses of travel and subsistence, which are no more than reimbursement of vouched expenses, actually incurred by the employee in performing the duties of the employment, should not be treated as pay. Expenses which are not treated as pay must not only be actually incurred in the performance of the duties of the employment but must also be wholly, exclusively and necessarily so incurred. Entertainment expenses do not qualify for relief; consequently any reimbursement of entertainment expenses must be treated as pay.

Expenses, which are incurred by employees in travelling to and from the place of employment, are not allowable for tax purposes and any re-imbursement of these expenses must be treated as pay and taxed accordingly.

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5. Subsistence payments

Re-imbursement by flat-rate allowances or vouched expenses

Where an employee performs the duties of the employment while temporarily away from their normal place of work or is working abroad on a foreign assignment, allowable subsistence expenses can be re-imbursed on the basis of:

  • Acceptable flat-rate allowances or
  • Actual expenses which have been vouched with receipts

Acceptable flat-rate allowances

There are two types of flat-rate allowance schemes that are acceptable for tax purposes. In both cases a satisfactory recording and internal control system must be operated by the employer.

The two schemes are:

  1. Re-imbursement of subsistence expenses up to the level of the prevailing schedule of Civil Service rates where the employee bears the cost of relevant subsistence expenses (including accommodation and meals, as appropriate).
    Revenue approval to use the scheme is not required.
    The schedule of rates based on the current relevant Civil Service subsistence rates for absence within the State and details of Civil Service subsistence rates for certain foreign countries are available from Appendix 1 of the Employees' Subsistence Expenses (IT54).
  2. Re-imbursement of subsistence expenses based on any other schedule of rates and related conditions (e.g."country money" in the Construction Industry), which do no more than re-imburse the employee for actual expenditure incurred. Revenue approval is required for such a schedule.

Actual subsistence expenses which have been vouched with receipts

Payments made to the employee which are no more than reimbursement of vouched subsistence expenses, necessarily incurred by the employee in performing the duties of the employment, should not be treated as pay for income tax purposes.

All records relating to any re-imbursement of subsistence expenses should be retained by the employer for examination in the event of an audit. The records must be kept for six years unless Revenue state otherwise.

For further information, see leaflet Employees' Subsistence Expenses - IT54.

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6. Motoring / bicycle expenses

In the case of motoring/bicycle expenses, where the employee uses their private car, motorcycle or bicycle for business purposes, re-imbursement of allowable motoring/bicycling expenses can be made to the employee free of tax by way of flat-rate kilometric allowances.

Expenses, which are incurred by employees in travelling to and from the place of employment, are not allowable for tax purposes and any re-imbursement of these expenses must be treated as pay and taxed accordingly.

There are two types of kilometric allowance schemes that are acceptable for tax purposes, if an employee bears the cost of all the motoring/bicycling expenses:

  • The prevailing schedule of Civil Service rates or
  • Any other schedule with rates not greater than the Civil Service rates.

The schedule of Civil Service rates Employees' Motoring/Bicycle Expenses - IT51.

Either of these two re-imbursement rates may be applied without specific Revenue approval where a satisfactory recording and internal control system is in operation.

In any case of doubt the matter should be referred to Revenue.

Individuals carrying out work on a voluntary and unpaid basis

The reimbursement of expenses of travelling and subsistence to individuals who work on a voluntary and unpaid basis for organisations whose functions and aims are both altruistic and non-commercial (for example, voluntary unpaid workers working for charities, sports bodies, etc.) may be paid tax-free provided the expenses of travelling and subsistence:

  • merely put the unpaid individual in a position to carry out his/her work; and
  • no more than reimburse the individual the expenses actually incurred by him/her and do not exceed what are known as the Civil Service rates for reimbursement of expenses of travelling and subsistence.

Note: Individuals involved in charities, sports bodies, etc. who, in addition to a reimbursement of actual expenses of travel and subsistence, receive, either directly or indirectly, remuneration of any description (for example, weekly or monthly salary, an honorarium, and/or a 'bonus', etc) do NOT fall within the description of 'carrying out work on a voluntary and unpaid basis'.

For further information, see leaflet Employees' Motoring/Bicycle Expenses - IT51.

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7. Statement of Practice

Revenue has also published a pdfStatement of Practice SP - IT/2/07 (PDF, 157KB) in relation to the tax treatment of the re-imbursement of expenses of travel and subsistence to office holders and employees.

(Adobe Acrobat Reader PDFExternal link)

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