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EisnerAmper Ireland | Benefit in Kind (BIK) – Employer Overview | Payroll Services Insights Ireland

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24.6.2019

Benefit in Kind (BIK) – Employer Overview

BIK Benefit In Kind Employer Overview Image | Payroll Services Insights | Financial Services | EisnerAmper Ireland

What Is BIK?

As a general rule, any benefit or perquisite, other than cash, which an employer provides for an employee would be considered a BIK once it has monetary value.  It is the responsibility of the employer to calculate the value of the BIK and deduct the appropriate employment taxes via the PAYE system.  Benefits given to an employee’s spouse or family members would also be considered BIK.

Taxation Of BIK

Tax must be deducted on the actual value of the benefits provided, unless the actual value is not known.  In this case, tax must be deducted on the estimated value of the benefit.

The value of the benefit must be added to the employee’s pay as a notional pay element in the pay period in which the benefit was provided.  PAYE, PRSI and USC are then deducted from the total value of the employee’s pay plus the BIK.  This should then be reported to Revenue in a payroll submission either on or before the date the employee receives their net salary payment.

How Do You Calculate BIK?

Some BIKs have specific rules which must be followed in order to calculate the taxable value.

– Example 1: How To Calculate BIK On A Company Car

The taxable value (known as the cash equivalent) is based on a percentage of the Original Market Value (OMV) of the car, less any discount received when the car was purchased*.  The percentage is dependent upon the number of business kilometres driven by the employee each year, as shown in the following table:

Kilometres Driven(% of OMV)
24,000 and below30%
24,001 to 32,00024%
32,001 to 40,00018%
40,001 to 48,00012%
48,001 and over6%

(Source: revenue.ie)

Journeys to and from an employee’s normal place of work are not considered business travel.

Employees who work, on average, at least 20 hours per week, whose business kilometres are between 8,000 and 20,000 km per year and who spend at least 70% of their time away from their normal place of work can avail of a 20% reduction on their cash equivalent value.

– Example 2: How To Calculate BIK On Health Insurance

If you purchase health insurance on behalf of an employee this would be considered a taxable BIK.  Although the amount paid by the employer to the insurer is the net cost of the policy, the value of the BIK for the employee is based on the gross cost. The employee gets tax relief by submitting a claim for a Medical Insurance Relief tax credit via their Revenue account at the end of the tax year.

BIK Benefit in Kind Employer Overview Article Image | Financial Services | EisnerAmper Ireland

Recent BIK Updates

Before PAYE modernisation, corrections to estimated BIK values could be made at any point in the tax year up to the filing of the annual P35 return.  Since 1 January 2019, when the actual value of a benefit becomes known after BIK has been calculated on an estimated amount, the correction must be made in the next available pay period.

BIK vs Non-Taxable Benefits

Although in general all benefits are taxable, there are some exceptions to this rule.  The following non-exhaustive list showcases some of the items which can be provided tax-free, provided certain conditions are met:

  • Expenses – Expenses must be incurred wholly, exclusively, and necessarily in the performance of the employee’s duties and must be vouched with receipts.
  • Long Service Awards – The award must be a ‘Tangible Article’, i.e. not cash. The cost to the employer must be less than €50 per year of service and the period of service must be over 20 years. The employee must not have received a similar award within the previous 5 years.
  • Relocation Expenses – Only expenses which are a direct result of the change of residence can be repaid tax-free. More information on Relocation Expenses can be found here.
  • Travel Passes – The travel pass must be issued by a public or private operator who holds a valid licence.
  • Bicycles & Equipment – The cost cannot exceed €1,000 and goods must be purchased from a registered supplier.
  • Phones & Computers – Mobile phones, landlines, internet connections and computer equipment can be provided when primarily for business use.

The information above is for guidance purposes only.  Tax advice should always be sought before providing benefits and reimbursements to employees without deducting employment taxes.

How EisnerAmper Ireland Can Help

The taxation of employee benefits can be challenging, particularly for non-resident employers and new businesses, although with continuously evolving legislation all employers should review their practices regularly.

At EisnerAmper Ireland, our dedicated team of payroll professionals and tax advisors are on hand to offer accurate guidance and advice on the taxation of benefits, as well as providing support and payroll processing services to both new startups and established businesses.

Learn more about our Outsourced Payroll Services here.

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*Discounts of more than 10% must be approved by Revenue.

Authors

The content above is provided for general information purposes only and is not intended to provide, nor does it constitute, professional advice on any particular matter. If you would like more information or would like to discuss any of the topics raised above, please contact the author(s).

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