Income Tax - Benefit in Kind (BIK).

Benefit-In-Kind: 2004 Onwards

A few introductory points before we begin:

The basic principle is that non-cash remuneration is now liable for PAYE and PRSI.
The notional pay that is liable for PAYE/PRSI must be the best estimate that can reasonably be made at the time the benefit is provided.
Small benefits: Employers are allowed to give one small benefit to employees without deducting tax. In the budget for 2005, the value of this benefit has been raised to €250 (was €100). Once a benefit exceeds the amount allowed, the full benefit is liable.
In the case of the following BIKs:
- private use of a company car or van
- preferential loan
- accommodation or assets belonging to the employer
...the notional benefit can be assigned to the various pay periods.

Some key BIK's are as follows...:-

Company Cars
Loans from Employer
Creche Facilities
Travel Passes

1. Company Cars

You've got the company car...but what are the tax implications for you? There are several items you will need to take into account in working out what the car means for you. These are:-

The additional tax you will have to pay as BIK
You may no longer have any car loans to pay on any existing car
You may be able to sell your existing car, if you are getting your first company car
You may lose the right to sell your new company car.

Now we will deal with the additional tax charge. Follow the following three steps:-

Step One

Obtain the Original Market Value of the car - this is the amount which the car would reasonably be expected to fetch on the open market. Generally, this is the list price of the vehicle and includes VAT and VRT.

Step Two

Calculate the Cash Equivalent of the benefit using the appropriate percentage related to the amount of business mileage undertaken in the year.

Mileage will have to be estimated at the beginning of the year and then adjusted for at the end of the year.

Basically it's [Original Market Value] x [Business Mileage %]

Calculate the appropriate business mileage by reference to this table:-

Annual Business Mileage NB	% to use
15,000 or less	30%
15,001 - 20,000	24%
20,001 - 25,000	18%
25,001 - 30,000	12%
30,001+	6%

**NB** A minimum of 5,000 private miles must be deducted from total mileage to arrive at business mileage unless documented proof can be provided.

Step Three

Deduct any amounts paid by the employee to the employer in connection with the running of the car.

- Where an employee works less then 20 hours per week and meets certain conditions an alternative method may be used for calculating BIK.

- Vans which the employee can use for private purposes are liable at 5% of the OMV reduced by any contribution made by the employee.

Top

2. Preferential Loans

These are Loans advanced to employee at a favourable rate of interest, below what a bank would lend at.

The revenue interest rate from which the rate charged by the employer is deducted to arrive at the BIK is as follows:

	2007	2006, 2005, 2004
Home Loans	4.5%	3.5%
Other Loans	12%	11%

In other words, taking 2007 as an example: Mary is advanced a home loan by her employer at a favourable rate of interest of 2%. An income therefore arises to Mary; she is liable to tax on the BIK, which is 2.5% (4.5%-2%) x Loan Advanced in the period.

Top

3. Childcare Facilities

Creche facilities provided free of charge to employees.

No longer a BIK charge to the employee from 6 April 1999.

The facility must be either a) made available on the employers premises or b) made available by a number of "participants" who fund the cost of the joint scheme. The employer must be partly involved in funding and managing the facility.

However, following on from the Finance Bill 2001, this last condition is being relaxed. Employers will not now have to be involved in the management of the facility.

4. Travel Passes -

Monthly or Annual travel passes provided free of charge to employees

No longer a BIK charge to the employee from 6 April 1999.

Top