Employers are obligated to collect tax on Benefits in Kind (BIK) through the PAYE system. However, this can be an onerous and problematic responsibility for employers. This brochure outlines the key rules for employers when it comes to BIK.
Employers are required to value the BIK. Best estimates should be used.
For most BIK items, the cost incurred by the employer in providing the BIK is to be taken as the value of the BIK for tax purposes. However, the foregoing general rule does not apply in all cases. There are some exceptions.
Use of employer accommodation
If the employer owns the accommodation, the BIK to be put through payroll is either:
- 8% of the value of the property, or
- The market rent of the property
Where an employer grants a loan to an employee that is not equivalent to other loans granted to non-employees in the course of the employer’s trade, a preferential loan arises. To the extent that the interest rate on a preferential loan is less than the specified rate, a BIK arises. The current specified rates are:
- Home loan – 4%
- Other loans – 13.5%
In general, the BIK in respect of an employer provided car is 30% of the original market value. However, the 30% factor can be reduced to take account of business usage as per the table below.
It is also possible to reduce the car BIK in cases where an employee, who would not otherwise qualify for a business travel reduction, has business travel of at least 8,000km per year and spends at least 70% of working time away from base provided that a detailed usage log is maintained.
|Business travel lower limit
|Business travel upper limit
|Percentage of original market value (3)|
In general, the BIK in respect of a van is 5% of the original market value. However, a van will not be regarded as giving rise to a BIK in situations where the following four conditions are met:
- The use of the van is necessary for the performance of employment duties
- The employee is required, when not using the van for work, to keep it at or in the vicinity of the private residence
- The only private travel is home to work
- The employee spends at least 80% of working time away from base.
Normally, the market value of shares on the date they are provided to an employee is what should be put through payroll. However, in private company situations, arriving at market value might not always be straightforward. It is recommended that a valuation be on file to support the value put through payroll. In some instances, a restriction might be imposed on an employee’s ability to sell the shares. In this situation, the market value can be abated by up to 60% for tax purposes.
Prior to 2011, payment of professional subscriptions by an employer did not give rise to a benefit in kind charge provided those subscriptions were relevant to the business of the employer. This exemption was revoked from 1 January 2011 meaning that such subscriptions are now taxable and within the scope of the PAYE system unless certain specific criteria are met. In practice, Revenue will examine any cases where PAYE has not been operated to ensure that the exemption is available.