Finance Act 2003 and Social Welfare (Miscellaneous Provisions) Act 2003
New rules on notional pay (the taxable value of non-cash benefits)
From 1 January 2004, the value of a benefit-in-kind or perquisites (known collectively as benefits) from employers to their employees will be included along with normal cash payments and liable to
PRSI and
PAYE. These benefits, called notional pay, include low-interest loans or private use of a company car, and perquisites such as gift vouchers, club subscriptions or medical insurance. Employers must combine the value of a benefit i.e. the notional pay, with employee's money wages or salary when calculating, deducting and remitting
PRSI and
PAYE. The new rules apply to notional pay for:
- employees whose total income from money pay and notional pay is €1,905.00 or more a year
- directors, regardless of how much they earn,
and - benefits received by members of an employee's family or household.
PRSI is due to be paid by both the employer and the employee. Employers who don't know the exact value of a benefit should deduct
PRSI and
PAYE on the basis of their best estimate of that value.
When to deduct
PRSI and
PAYE on notional pay
PRSI and
PAYE for notional pay is calculated and deducted in the pay period for which the non-cash benefit is received and remitted to the Collector-General as normal. The employer's best estimate of the notional pay for the pay period in which the benefit is provided, must be added to the money wages or salary for that pay period. This applies to perquisites such as medical insurance or club subscriptions paid in a lump sum once a year. However, where employers, for example, provide the use of a company car or a preferential loan, the annual value of the benefit, i.e. the notional pay, can be divided out over the relevant pay periods for which the benefit is available and
PRSI and
PAYE deducted accordingly.
Deducting and remitting
PRSI and
PAYE when an employee's money earnings are insufficient
If an employee's money earnings are insufficient in a certain pay period, to cover the full amount of
PRSI and
PAYE that may be due on all earnings including notional pay,
PRSI should be calculated, deducted and remitted in the first instance.
PAYE is then deducted and any shortfall is remitted by the employer. Arrangements can be made between the employer and employee to claw back the shortfall over the remainder of the year. An employee has until 31 March of the
following tax year to refund the shortfall to the employer. After 31 March, any income tax left unpaid should be treated as notional pay and
PRSI and
PAYE should be applied to it.
Exceptions
- Employers do not need to apply
PRSI and
PAYE to small benefits worth €100.00 or less as long as an employee receives only one such benefit a year. If a non-cash benefit is worth more than €100.00,
PRSI and
PAYE must be applied to the full value of the benefit.
- For minor benefits that are offered on an irregular basis, employers may make arrangements with Revenue to pay
PRSI and
PAYE on behalf of their employees. To do this, employers must factor-in the 'grossed up' value of benefit – this is the notional amount, which if
PRSI and
PAYE were deducted from it, would leave the employee with the net value of the benefit received. The grossed-up value is determined by reference to the relevant
PRSI rate and the employee's marginal rate of tax.
Further Information
A fuller description of these new rules and how to apply them is available in the
'Employers Guide to Operating
PAYE and
PRSI for Certain Benefits'
, published by Revenue and available on their website at
www.revenue.ie. Alternatively, please contact the employer's helpdesk on Lo-call 1890 254565.