From 1 January 2004, the value of a benefit-in-kind and perquisites (known collectively as benefits) from employers to their employees should be included along with normal cash payments and are liable to PRSI and PAYE. These benefits 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 or more a year,
- directors, regardless of how much they earn,
- benefits received by members of an employee's family or household.
PRSI should 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 in tax is remitted by the employer. Arrangements can be made between the employer and employee to claw back the shortfall in tax 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. Where an employee receives no cash income from which to deduct the employee's share of a contribution, the employer is liable for the full PRSI contribution.
- Employers do not need to apply PRSI and PAYE to small benefits worth €250 or less as long as an employee receives only one such benefit a year. If a non-cash benefit is worth more than €250, 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.
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 LoCall 1890 25 45 65 (from within the Republic of Ireland only).