Overview of System
Background
Subject to certain exceptions which are set out in this guide, benefits-in-kind (e.g. private use of a company car, free or subsidised accommodation and preferential loans) received from an employer, by an employee whose total remuneration (including benefits-in-kind) is €1,905 or more in a tax year, are taxable.
Where the employee receiving such benefits is a director of the company concerned, the benefits are taxable regardless of the level of remuneration. The liability to tax also applies in respect of benefits provided by an employer for a member or members of an employee's family or household.
In addition, employees and directors are chargeable to tax in respect of 'perquisites' from their employment, that is, remuneration in non-money form which is convertible into money or money's worth, e.g. vouchers in various forms, the payment of club subscriptions and medical insurance premiums on an employee's behalf.
For ease of reference, benefits-in-kind and perquisites are, subsequently in this guide, collectively referred to as 'benefits'.
PAYE and PRSI were not applied to benefits provided before 1 January 2004. Instead the income tax due was collected by way of 'coding-in' under the PAYE system, i.e. the employee's reliefs for use against 'money' wages and salaries were restricted so as to increase the tax payable to the extent required to collect the tax on the benefits. This procedure no longer applies to most benefits after 31 December 2003.
Summary of Procedures which apply from 1 January, 2004
The procedures which apply from 1 January 2004 to collect tax on benefits are as follows (by virtue of section 6 of the Finance Act, 2003 and Sections 16 to 21 of the Social Welfare (Miscellaneous Provisions) Act, 2003):
- Income tax due on benefits must be collected by the employer through the operation of PAYE on the taxable value of the benefit.
- PRSI is due on benefits and must be collected by the employer through the operation of PRSI on the taxable value of the benefit.
The notional pay liable to PAYE and PRSI in respect of benefits must be the best estimate (please see Application of PAYE and PRSI to Benefits - Best Estimate) that can reasonably be made by the employer, at the time the benefit is being provided, of the amount chargeable to tax in respect of the benefit.
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.
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.
PAYE and PRSI must be applied to all benefits apart from the exceptions specified in Small Benefits below and the relevant parts of the Other Benefits section of this guide.
Small benefits
Where an employer provides an employee with a small benefit (that is, a benefit with a value not exceeding €250 (€100 up to 31st December 2004), PAYE and PRSI need not be applied to that benefit. This treatment does not apply to cash payments, which are taxable in full. 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 and PRSI.
Staff availing of this concession may not avail of staff discount concession in the same year of assessment. Other Benefits- Staff Discounts