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With effect from 1st
January 2004, PAYE & PRSI (to include health levies) must
be calculated and collected by the employer in respect of most
benefits-in-kind and other non-cash benefits provided by the
employer to the employee.
Implications
for Employers
• An immediate increase
in cost to the employer due to the imposition of employers PRSI
of 10.75% on the taxable value of the benefit.
• Prior to 01/01/2004 an
employer was simply obliged to report the provision of such benefits
on a Form P11D (and then only when requested to do so by the
Inspector of Taxes). From 1st January 2004 the onus to account
for and pay over the tax due on non-cash benefits will rest with
the employer.
• Any failure to properly
operate the new system may result in additional tax and interest
costs for the employer. The requirement to calculate the taxable
value of benefits and to account for PAYE/PRSI on these may involve
a much greater level of exposure for the employer in the event
that PAYE/PRSI is either incorrectly applied or not applied at
all.
• Employers will need to
ensure that their payroll and HR systems are updated so as to
capture details of taxable benefits provided to employees and
to correctly calculate the taxable value of the benefit.
Implication
for Employees
• An immediate reduction
in take home pay where such benefits are provided. The employee
will be required to fund the PAYE/ PRSI on the taxable benefit
in the month they receive it. Previously this taxable benefit
may have been declared in the annual income tax return and the
liability paid retrospectively.
• Where the employee’s
salary does not exceed the PRSI ceiling, then the ultimate additional
cost to the employee on receipt of a benefit will be 6% (4% PRSI,
2% levies). Where the employee’s annual salary exceeds the
PRSI ceiling (currently Û42,160) there will not ultimately
be any additional PRSI to pay. However, the health levy of 2%
will now be payable.
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• Previously, the onus was
on the employee to disclose the receipt of a taxable benefit
in an annual tax return and to pay the tax due. However, benefits
may not have always been fully reported, and in some cases not
reported at all. There was a perception that certain occasional
benefits e.g. vouchers, Christmas hampers etc. were not taxable.
In many cases these benefits often only escaped taxation due
to non-reporting by the recipients. All such benefits should
now attract an immediate tax liability, with tax on the benefit
being deducted from the employees’ salary.
Operation
of PAYE/PRSI on Benefits
The new rules operate by deeming
an employer to make a ‘notional payment’ equal to the
taxable benefit-in-kind charge arising on the benefit. The employer
will have to estimate the taxable value of benefits provided
to an employee and deduct the PAYE/PRSI due on the benefit from
other cash remuneration, (i.e. basic salary) due to the employee.
If an employee has insufficient
cash income to meet the PAYE due on the benefits provided, the
liability for payment of the tax falls on the employer, who must
account for and remit the tax payable to the Revenue together
with the regular PAYE/PRSI remittances i.e., by the 14th of the
month following payment.
Where the employer pays the tax
on behalf of the employee in this manner, and the employee does
not make good the tax amount to the employer by 31st March after
the tax year-end, the payment of tax will be treated as a further
taxable benefit provided to the employee in that following tax
year.
Tax Exempt
Benefits
While the employer is now obliged
to operate PAYE/PRSI on taxable benefits provided to staff, there
are still certain benefits which are specifically exempt from
PAYE/PRSI. A sample of these are as follows:
• Accommodation - Living
accommodation provided for an employee on the employer’s
business premises may be exempt if the employee is required by
the terms of his employment to reside in the accommodation in
order to enable him to properly perform the duties of the employment.
• Canteen - The facility
must be available to all employees, otherwise the exemption does
not apply.
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• Travel Pass - Annual or
monthly bus, train or Luas passes provided by an employer to
an employee in respect of scheduled licensed passenger transport
services.
• Childcare Facilities -
Childcare facilities can be provided by employers on a tax-free
basis to employees where the provision of the facilities comply
with certain conditions.
• Sports and Recreational
Facilities - Where sports and recreational facilities are made
available on the employer’s premises for the use of all
employees, then a taxable benefit should not arise.
• Car Parking - Car parking
facilities provided by an employer to employees are not treated
as giving rise to a taxable benefit.
• Mobile phone / ISDN provided
by an Employer - Where an employer provides an employee with
a mobile phone or a home internet / ISDN connection for business
purposes and the employer bears the cost to total usage a taxable
benefit should not arise if private use is merely incidental.
• Course or exam fees -
Refunds of course or exam fees to an employee which have been
paid by the employee, or direct payments of course or exam fees
by the employer, should not be treated as giving rise to a taxable
benefit where the course undertaken is relevant to the business
of the employer.
• Staff Discounts - When
the price paid by the employee is equal to or greater than the
original cost to the employer then the discount should not be
treated as giving rise to a taxable benefit.
• Small Benefits - Where
an employer provides an employee with a benefit where the value
does not exceed EUR100, PAYE/PRSI need not be applied to that
benefit and the employer can arrange to remit the liability directly.
Summary
Since 1st January 2004, there
has been a fundamental change in how tax and PRSI on benefits
provided by employers is calculated and remitted. It is vital
that employees familiarise themselves with these new provisions
and ensure compliance with the new legislation.
Ciarán Medlar, BDO
Simpson Xavier Ciarán Medlar is a Partner in the Tax Planning
department of BDO Simpson Xavier, Tel: 01-470 0280, email: cmedlar@bdosx.ie
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Mr Richard
Bourke, General Manager of Jurys Ballsbridge and The Towers Hotel,
was elected President of the Irish Hotels Federation (IHF) at
its 66th AGM and conference in Killarney. Mr Bourke, who has
over 30 years experience in the hotel and tourism industry, is
the 30th President of the Federation and will retain his Presidency
for the next two years.
