Benefit-in-kind charges will affect employers and employees, writes Cliff Taylor, Economics Editor
Tax practitioners are waiting for final guidelines from the Revenue Commissioners on the implementation of PRSI on benefit-in-kind (BIK) payments, but it appears certain the new charge will apply to a whole range of benefits and that it will have to be put through company payroll systems.
In this year's Budget, the Minister for Finance, Mr McCreevy, said PRSI and the health levy would be applied to BIK from next January.
Previously some BIK had been subject to income tax, however the charging of PRSI will increase tax on employers and employees. Mr McCreevy estimated last December that the additional benefit to the Exchequer would amount to €83 million per annum.
While final guidelines on implementation are due shortly from the Revenue Commissioners, it appears that all but a small range of benefits will be subject to the new charge.
Also, the implementation of the tax through corporate payroll systems will impose a significant compliance burden on companies, according to Mr Ian McCall of Deloitte & Touche accountants
Among the payments exempted are pension contributions, company shares. travel passes, canteen meals, childcare facilities, mobile phones and computer equipment used for work, and car parking spaces.
However, most other BIK will be subject to PRSI and the 2 per cent health levy, substantially increasing the cost to both employer and employee of items such as company cars, health insurance benefits, and the provision of sports club memberships.
For employers, the 10.75 per cent PRSI rate will mean an extra cost of €107.50 for every €1,000 of BIK, although this will be offset slightly by the ability to claim relief against corporation tax.
For employees, the combined cost of PRSI at 4 per cent and the 2 per cent health levy means an extra 6 per cent charge, or €60 or every €1,000 of benefit, up to the point they reach the PRSI ceiling, currently €40,240. The 2 per cent health levy is charged on all income.
The new charge will cause many companies to re-examine the way they reward employees, Mr McCall predicted. At the moment, providing benefits rather than cash can be attractive as the PRSI cost is avoided, but now companies must pay the 10.75 per cent employer rate on benefits, as well as taking on the considerable administrative burden.
The decision to get companies to administer the new arrangements through their payroll system was understandable, once the decision was taken to impose full employer and employee PRSI, Mr McCall said.
However, this would impose considerable compliance costs on businesses in setting up and administering the new system each month.
In the UK, in contrast, social security was charged only to employers on BIK and was paid annually.
The Finance Act this year also changed the system for calculating BIK on cars and from next year the percentage reductions previously available in cases where employees paid for their own fuel and repairs will no longer be available.
This will increase the BIK tax on company cars for some employees, while, along with their employers, they will also have to bear the imposition of PRSI on these benefits in the future.
