Employer Benefit-in-kind [FAQs]

This section covers the most common issues / questions employers have regarding the operation of Benefit-in-kind, and its associated tax implications.

Employer FAQs

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Define 'best estimate'

An employer will be regarded as having made a best estimate where a genuine attempt has been made to calculate the taxable benefit (also known as the notional pay) based on all details available to the employer at the time the benefit is provided. If the employer has any doubt about the valuation of any benefit-in-kind the relevant regional tax district should be consulted.

What happens if the calculated PAYE / PRSI liability for the pay period exceeds the amount of pay?

If the calculated PAYE/PRSI liability exceeds the employee's pay, the employer is obliged to account for and remit the total PAYE/PRSI due on the combined actual and notional pay (in full) with the relevant monthly P30 return. The amount not deducted from the employees pay or any 'shortfall' not deducted in the particular pay period may be recouped from the employee by collecting it over remaining pay periods in the tax year. The PAYE paid on account by the employer at the time the benefit was provided must be recouped from the employee in full by March 31st of the following tax year, otherwise, the employee will be treated as having received a further benefit on the relevant 31st March equivalent to the amount of un-recouped income tax and the employer must operate PAYE/PRSI on this amount.

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Does the employer have to collect the full amount of PAYE due on the benefit in the relevant pay period, where there is 'sufficient' actual pay in that period to cover the full PAYE due?

In the case of PAYE due on the benefit, the employer may spread the deduction over several pay periods within the tax year where the deduction in one pay period would cause hardship. However, regardless of the manner in which the PAYE/PRSI is recouped from the employee, the employer must remit the full PAYE/PRSI due on the benefit with the appropriate P30 having regard to the date the benefit was provided.

What happens if the employee leaves and there is "PAYE paid on account" or a 'shortfall of PAYE' not recouped from the employee?

If the employee leaves the company before the amount paid on account by the employer or any 'shortfall' has been recouped, the employer must, upon receipt of a form P11D, return details of the un-recouped income tax. The taxpayer will be pursued directly by Revenue for the income tax arising on the further benefit arising.

An employee has a company car and the notional pay is spread over the entire year. What happens in a Week 53 Tax Year?

If an employer has charged the calculated taxable benefit (the notional pay for the year) over the 52 weeks, no notional pay should be included in the 53rd pay day as the full notional pay will have been charged in the 52 weeks.

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Can an employer still pay the PAYE & PRSI Liability on the employee's behalf?

Under the new arrangements, employers may continue to discharge the PAYE/PRSI liability arising on benefits provided. However, the PAYE/PRSI must be calculated on a grossed up basis - taking the taxable benefit provided as the net (after tax and employee PRSI) amount received by the employee and regressing that amount at the employee's marginal rate of tax and PRSI. Whether the grossed up "notional pay" should be reflected in the employees payroll / P60 depends on the extent and frequency of the benefit provided.

Minor and Irregular Benefits

Where the benefit is minor and irregular, the employer may discharge the PAYE/PRSI liability in a similar fashion to the practice which prevailed prior to the introduction of the PAYE/PRSI on benefits. The employer may contact the relevant tax office to agree the liability arising and submit a supplementary form P35. However, the PAYE liabilities must be calculated on a grossed up basis (net benefit re-grossed at the employees' marginal rate of tax). PRSI will also be chargeable on that re-grossed amount.

Regular or Substantial Benefits

For regular or substantial benefits, where the employer wishes to discharge the PAYE/PRSI liability, the net benefit must be re-grossed at the employee's marginal rate of tax and PRSI and PAYE/PRSI accounted for on this re-grossed amount. The re-grossed amount reckons as emoluments of the employee and must be put through the payroll as normal and be included together with details of tax and PRSI thereon on all relevant documentation - TDC, P60, P45, P35.

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What is the status of existing agreements between employers and tax offices?

Existing agreements with tax offices may no longer be valid after 31 Dec 2003 where they do not comply with the rules set out in the Guide. Employers should contact the appropriate regional tax office with a view to making new agreements where appropriate.

What returns are required in respect of notional pay figures?

Whereas employers are not required to show notional pay figures separately on individual employee documentation (P45's, P60's), employers are required to keep records of all benefits provided to employees and calculations of the amounts taken into account. These will be required in the event of an audit.

The P35 summary sheet for 2004 will include an additional field to record the total notional pay for the year for the employees listed on the P35. This is the only reporting requirement in respect of notional pay to which PAYE/PRSI has been applied.

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Is an employer required to make any adjustments for notional pay after the end of the tax year where 'best estimate' was used, and documented to show that all reasonable efforts were made to determine the correct notional pay amount for a tax year?

Where a bona fide 'best estimate' was used and documented to show that all reasonable efforts were made to determine the correct amount of notional pay for a tax year, the employer will not be required to make any adjustments after the end of the tax year. This is on the understanding that the 'best estimate' was calculated by reference to all relevant information available to the employer and was revisited, where appropriate, before the end of the tax year e.g. it is expected that an employer who calculated a best estimate of the notional pay for an employee in respect of a company car in January would revisit the 'best estimate' before the end of the tax year (having regard to the actual business miles done compared to the estimated mileage taken in January). It is not sufficient that a 'best estimate' be calculated in January and not revisited at all.

In general, it is expected that the difference between the 'best estimate' and the correct notional pay would not be substantial.

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An employer is on the Direct Debit system paying P30 tax. Is it necessary to increase the Direct Debit in the situation where a notional payment is included in one particular week?

Yes, it will be necessary to increase the Direct Debit in these circumstances. The employer should contact the Collector General, Direct Debit Section, Apollo House, Tara Street, Dublin 2 in writing or by fax (Fax No: 01 6717020) to advise them of the adjustment.

An employer who returns the P35 on an annual basis gives a benefit in the middle of the tax year. When does the PAYE/PRSI due on notional pay become due?

Employers who make annual P35 returns are required to remit the PAYE/PRSI due on any notional pay for the year in the same manner that the PAYE/PRSI on ordinary salary is due for the year. Therefore, the P35 would be submitted along with the total PAYE/PRSI due (on actual and notional pay) after the end of the tax year (but before the due payment date).

The presence of notional pay does not alter the usual P30 / P35 filing dates.

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Will forms P11D still be issued?

Yes. The employer requirement to complete a form P11D on request has not been rescinded. Where an employer receives a form P11D, there will be a requirement on the employer to return all benefits to which PAYE/PRSI does not apply, e.g. free or discounted shares, employers paying PRSA contributions on behalf of employees.

What are the consequences of either incorrect operation or non-operation of PAYE / PRSI on benefits (penalties etc)?

The existing penalties for non-operation of PAYE / PRSI on cash remuneration will apply equally to the non-operation of PAYE / PRSI on benefits. In the case of incorrect operation where the employer has made a 'best estimate' (see question 3 above) penalties will not generally be applicable.

Are there any plans to redesign the Tax Deduction Card to provide an additional column for notional pay?

Not at this time. The existing Tax Deduction Card has a free column for use by the employer. The column in question is Column F which is headed 'For Employer use- Net Pay, Employers PRSI etc.' This column can be used for Notional Pay if required.

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Is an employer required to show notional pay separately on the employee's payslip?

There is no requirement under tax legislation for an employer to show the notional pay separately but there may be Employment Law implications. Any queries in this regard should be referred to the Department of Enterprise, Trade and Innovation. To avoid potential queries from employees, showing the notional pay separately could prove useful.

How do the new arrangements affect the Christmas Bonus and how it is treated?

A cash bonus at Christmas should be put through the payroll and PAYE/PRSI applied as normal. Where the bonus is in non-cash form with a value not exceeding €250 (€100 prior to 1 January 2005) PAYE and PRSI need not be applied to that benefit (covered by the one off small benefit exclusion). No more than one such benefit given to an employee in a tax year will qualify for such treatment. Where a benefit exceeds €250 (€100 prior to 1 January 2005) in value the full value of the benefit is to be subjected to PAYE and PRSI.

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How are premiums paid by an employer for Permanent Health Insurance Cover, for employees, treated?

Company policies

Many employers pay "sick pay" where employees are out of work for extended periods due to illness. The employer might take out a policy of insurance to cover the costs should such an eventuality arise. Where the policy is a general one to cover all employees PAYE/PRSI need not be applied to the premiums paid under such a policy of insurance taken out by the employer.

Contributions paid by the employer on behalf of an employee

PAYE/PRSI need not be applied to an employer paid contribution to a Revenue approved policy or scheme to the extent that the combined contribution (employee's and employer's) does not exceed the relevant 10% limit. Any excess over the 10% should be put through the payroll and PAYE/PRSI applied.

Where the premiums are in respect of an unapproved policy or scheme, the premiums paid by the employer must be treated as notional pay and PAYE/PRSI must be applied.

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An employer contributes money towards to a sick scheme (fund). The employees also contribute from their net pay to the sick scheme. How is the employer's contribution treated under the new arrangements? If an employee is out of work through sickness and is paid from this fund, is this subject to PAYE/PRSI?

PAYE/PRSI need not be applied to the employer's contribution to such a scheme. However any payments from such a fund which exceeds the employee's contribution would generally be taxable. Full particulars of the scheme should be forwarded to the appropriate regional tax office for a ruling.

What should an employer do when he/she discovers that an incorrect amount of notional pay has been put through the payroll system in an earlier pay period?

If an employer needs to amend a previous notional pay figure which he/she discovers is incorrect, the payroll operator should go back to the pay period in question and recalculate PAYE and PRSI. Amendments should then be made to the employee's cumulative pay details and the additional PAYE/PRSI liability due should be deducted from the employee in the current pay period. Likewise, any refund of PAYE/PRSI arising from an amendment to a previous notional pay figure should be made to the employee in the current pay period.

If the incorrect notional pay amount affects the employee's PAYE liability only, this can be rectified in the current pay period without revisiting the earlier pay period. However, as there are implications for PRSI allowances and PRSI class, it is necessary to go back to the pay period where the notional pay error arose to recalculate the PRSI liability.

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Revenue Commissioners
March 2004

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