Taxation of benefit in kind

Insufficient wages to deduct tax

The tax due on a benefit can be more than an employee's actual pay for that payroll period. The employer might not be able to deduct the full amount of tax due on the notional pay in one pay period.

In this case, the employer must pay the full tax deductible for the period to the Collector-General. This amount will be reflected in their payroll monthly statement.

Where an employee has no actual pay but receives a benefit, the employer must pay the tax due to Revenue on the earlier of:

• the next pay period in which the employee has actual pay from which to deduct the tax on the notional pay
• or
• where there is no actual pay in the following pay period(s) on 31 December in the tax year.

The employer should arrange for their employee to repay the tax paid on behalf of the employee to the employer.

Employee does not repay the tax paid on their behalf

If the employee does not repay the tax to their employer by 31 December, the tax paid by the employer is a taxable benefit. The employee must pay Income Tax, Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) on this benefit.

The employer must treat this benefit as if they provided it on 28 February of the following year. It should be included in the payroll submission for that period as a taxable benefit.

If the employee ceases employment before 28 February, the employer must declare the unpaid tax in '1 - Unrecouped PAYE/USC' column of the Form P11D.

Employee does repay the tax paid on their behalf

If the employee repays the tax in full to the employer before 31 December in the relevant tax year, no further taxable benefit arises.

Next: Payment of employee tax by the employer