Taxation of Benefits from Employment
From 1 January 2004 fundamental changes to the tax treatment of benefits provided by employers to employees will come into effect. In particular the cost of providing employee non-cash benefits (benefits-in-kind) e.g. company cars, free or subsidised accommodation, preferential loans and vouchers etc. will increase and employers will become fully responsible for the collection of associated taxes.
From the College's perspective these benefits can be divided into (i) College Schemes, which are, administered centrally e.g. Accommodation, Cars and Vans, House Loans and the Fee Remission Schemes and (ii) other non-Scheme benefits paid at the discretion of individual departments e.g. vouchers and club subscriptions etc. The benefits being conferred in relation to schemes are the subject of separate investigation and communication. In relation to other benefits recommended College procedures are outlined below.
Under the new legislation employers will be fully responsible for the collection of PAYE and PRSI (including the Health Levy) on the taxable value of non-cash benefits provided to employees. Such benefits will in future be processed through the payroll. This is a marked departure from the existing practice where the responsibility falls to the Employee to declare any such benefits and pay over any related tax to the Revenue Commissioners.
- Non-cash benefits 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 (subject to certain exceptions outlined in Appendix 1).
- Where an employer provides a taxable benefit PAYE/PRSI must be accounted for in the period in which the benefit is provided.
- If there is an insufficiency of money wages/salary in the given pay period then the employer must pay any PAYE/PRSI due by the employee. If the employee does not 'make good' the liability by the end of the tax year (concessionary to the 31st March in the following year) then the PAYE/PRSI paid by the employer is treated as a further benefit in the following tax year.
- The above provisions also apply in respect of benefits provided by an employer to members of an employee's family.
Risks and Exposures
A significant audit risk could arise for College from 1 January 2004 with the imposition of PAYE/PRSI on employee's non-cash benefits. The operation of these taxes falls within the Revenue Audit Code of Practice that was introduced in 2002. Any breaches by employers of the new regulations regarding employee non-cash benefits could give rise to exposures under the Code. The exposures include penalties (depending on the seriousness of the offence), interest and the possibility of publication as a tax defaulter. It is imperative, therefore, that College puts procedures in place to deal comprehensively with this issue from 1 January 2004.
Recommended College Procedures in relation to non-scheme benefits
The priority for College must be to ensure that, as far as possible, any benefits conferred on employees are not taxable and do not, therefore, have to be processed through the payroll. The following procedures should be adhered to:
- Only Heads of Department and Principal Investigators have discretion to pay non-cash benefits to employees.
- No benefit should exceed €500 in value.
- No more than one benefit can be paid in any given tax year. This rule applies even if the cumulative benefit is less than €500 as there are revenue rules which bring all second benefits into the tax net e.g. a gift voucher worth €30 is given to en employee and subsequently a second voucher is given for €30 – the second amount of €30 is fully taxable even though the total benefit is less than €500.
- Heads of Department and Principal Investigators cannot confer benefits on employees in other Departments or Research Accounts. This is important in order to ensure that the Head of Department/Principal Investigator is aware of all benefits conferred on employees in their areas.
- All benefits should be coded to element 1 codes 11047, 41047, 51047, 71047, 81047 or 91047 as appropriate.
- In relation to cars and vans, owned by College and used by College employees, no benefit will arise providing they are used for business purposes. Departments should ensure that an annual mileage record is kept for each vehicle for audit purposes. This record should show the mileage at the beginning and end of the tax year and include an explanation justifying the level of business mileage.
- It should be noted that any payments to employees in respect of work done must be processed through the payroll system.
If you have any queries in relation to this issue please contact the Financial Services Division. Information is also available on the Revenue website at www.revenue.ie on the Publications page under New Publications, Employer’s Guide to operating PAYE and PRSI for certain benefits.
The following is a brief outline of benefits on which PAYE/PRSI need not be accounted for but for more comprehensive information please refer to the Revenue website http://www.revenue.ie/ on the Publications page (New Publications, Employer’s Guide to operating PAYE and PRSI for certain benefits – paragraph 2.3 and the relevant paragraphs of Chapter 10).
- Where an employer provides an employee with a benefit not exceeding €250 then PAYE and PRSI need not be applied. 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.
- Professional subscriptions paid by/reimbursed to an employee by the employer to a professional body will not be subject to BIK provisions provided the membership of the professional body is relevant to the business of the employer.
- The provision of mobile phones/laptops/high speed internet connections by an employer to an employee for business use will not be taxable where private use is merely incidental to the business use of the asset.
- Sports and recreational facilities provided on an employer’s premises will not be the subject of BIK provided such facilities are available to all staff.
- Car parks and crèche facilities will not be taxable.
- Medical check ups will not be taxable.
- Travel Passes given to employees for use on a licensed passenger transport service will not be taxable.
- Where an employer provides staff Christmas parties, special occasion meals or other inclusive events, such as a sports day for staff, a taxable will not be treated as arising where the expenses are reasonable.
- Refunds of Course or Exam Fees will not be treated as giving rise to a taxable benefit where the course undertaken is relevant to the business of the employer