What is Benefit in Kind and Why Must Employer’s Know About It?

Revenue defines benefit-in-kind as “… any non-cash benefit of monetary value that you (employer) provide for your employee. These benefits can also be referred to as notional pay, fringe benefits, or perks. The benefits have monetary value, so they must be treated as taxable income.”

 

The two main examples of benefit in kind are:

1. Benefits-in-kind: Benefits that cannot be turned into cash, but possess cash value, i.e., an employee has the use of something without owning it. Examples include loans at a special rate or the use of a company car.
2. Monetary benefits: Money or other benefits that can be turned into money, such as tickets to events, vouchers, or an employer paying their employee’s bills. 

With regards to BIK conditions, Revenue explains that, if an employee’s total income, including benefits, is more than €1,905 in a year, they must pay tax on their benefits. Income from a previous job is not counted towards the €1,905 limit. If an employee has worked for a number of businesses under one parent company, their combined income from these jobs is measured against the €1,905 limit.

If an employer happens to give a benefit to an employee’s spouse or civil partner, family members, dependants, or guests they must pay tax on it. Lastly, a company director must also pay tax on any BIK, regardless of their total income.

Related article: Understanding Taxation on Christmas Bonuses for Irish Employers

 

We’re often asked for access to a benefit in kind (BIK) calculator in Ireland. Truth is, calculating BIK in Ireland is a straightforward task. 

In most cases, a benefit is added to an employee’s pay and taxed accordingly. The employer will deduct income tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI) on the value of the benefit.

However, the rules around benefits-in-kind do vary. Usually, the value of the benefit is the higher of:

• The cost to the employer.
• The market value of the benefit.

If the employee contributes an amount towards the benefit, the taxable value of the benefit is reduced by that amount. Special rules apply to the following benefits:

• The use of a car
• The use of a van
• The use of other assets
• Preferential loans
• Accommodation

Special rules example: The use of a car

When an employee receives a car from an employer for ‘private use’, they must pay Income Tax, PRSI, and (USC). Travel to and from work is generally considered private use.

Generally, the employee must have received a car from their employer to be liable for this charge. However, they will also be liable if they receive a car because they are employed by a connected party or a third party.

This applies to companies, partnerships, and sole traders.

 

According to Citizens Information, the following benefits are exempt from tax:

• Travel passes 
• Bike and safety equipment under the Cycle to Work Scheme 
• Certain employee share schemes and profit-sharing schemes 
• Canteen facilities
• Some types of accommodation 
• Employer contributions to approved pension schemes 
• Phones and computer equipment for business use (where private use is incidental)

Another note of interest is the Small Benefit Exemption. This is “A single benefit of up to €1,000 may be provided to an employee tax free. If a single benefit exceeds €1,000 in value, the full value of that benefit is subject to tax. Where two benefits are provided, the combined value of those benefits cannot exceed €1,000.”

Related article: Enhanced Reporting Requirements: What Irish Employers Need to Know