Understanding benefit in kind (BIK) can be tricky, whether you’re an employer offering perks or an employee receiving them. From company cars to meal vouchers, there’s a lot to know about what’s taxable, what’s exempt, and how it affects your payslip.
In this guide, we will break down the most common BIKs, the tax rules you need to follow, and how Irish Tax Rebates can help you get the most out of your benefits. Ready to learn more? Let’s get started!
Here’s what we will cover:
- What is benefit in kind (BIK)?
- What benefits can you offer to your employees?
- What are the tax implications of BIK in Ireland?
- Benefit in kind exemptions
- Benefit in kind exemptions
- How Irish Tax Rebates can help you calculate your BIK
- FAQs
What is benefit in kind (BIK)?
A benefit in kind (BIK) is any non-cash benefit that an employer provides to an employee as part of their job. These perks have a monetary value and are considered taxable income by Revenue. This means tax must be taken from the employee’s pay under the Pay As You Earn (PAYE) system, based on the value of the benefit.
What benefits can you offer to your employees?
Employers in Ireland can offer benefits in kind (BIK) to attract and keep great employees. From company cars and health insurance to gym memberships and pension contributions, these benefits help employees save money and enjoy a better work-life balance. While the perks can vary, they are a great way for employers to show appreciation and support for their staff.
Here are some common non-cash benefits that employees may receive:
– Company cars
From January 2023, new benefit in kind rules apply to company cars in Ireland, changing how tax is calculated on these vehicles.
The BIK charge is based on three key factors:
- The car’s fuel type
- Its CO₂ emissions
- How much it’s used for business travel
Cars with lower emissions are taxed at a lower rate, while higher-emission vehicles face higher BIK charges. Employees who drive more for work may qualify for a reduced rate. Fully electric vehicles still get BIK relief, but this is gradually being phased out. The goal is to get businesses to use low-emission cars and make sure everyone pays the right tax.
– Preferential loans
A preferential loan is a loan given by an employer to an employee at a lower interest rate than the standard market rate. Since the employee benefits from paying less interest, the difference between the loan’s interest rate and the official rate set by Revenue is considered a benefit in kind (BIK) and is taxable.
These loans are often given for things like buying a home, paying for education, or covering personal expenses, making it easier for employees to borrow money. The employer must figure out the taxable amount and take the right amount of tax from the employee’s pay using the PAYE system.
– Free or subsidised accommodation
If an employer gives free or cheaper accommodation, the value of this benefit is counted as taxable income under BIK rules. The taxable amount depends on the market rent of the property, meaning employees may have to pay tax on the difference between what they pay (if anything) and what the accommodation would cost if rented normally.
Employers need to correctly assess the market value of the accommodation and ensure the right amount of tax is deducted through PAYE. This benefit is commonly provided in industries where on-site living is needed, such as hospitality, farming, and caretaking roles.
– Travel passes
If an employer gives employees travel passes (like bus, train, or tram passes), the value of these passes is usually taxed. This means the cost of the pass is added to the employee’s income, and tax is taken through the PAYE system.
– Childcare, gym, and parking benefits
Some employers provide free or subsidised childcare, sports facilities, or car parking as extra perks for employees. These benefits are usually considered taxable under benefit in kind (BIK) rules, meaning their value is added to the employee’s income, and tax is deducted through PAYE.
For example:
- If an employer provides free or cheaper childcare at a workplace crèche, it is counted as a taxable benefit.
- If a company gives employees free access to a gym or sports club, they may have to pay tax on it.
- Free or subsidised parking spaces at or near the workplace may be taxed, depending on how they are provided.
Employers need to calculate the value of these perks correctly and ensure the right tax is applied.
Confused by BIK taxes?
Our experts will guide you through tax calculations, exemptions, and make sure you’re not overpaying.
– Meal vouchers
Employees can receive meal vouchers worth up to €8 per working day without having to pay tax under benefit in kind (BIK) rules. This means that as long as the voucher doesn’t exceed this limit, it won’t be counted as taxable income. Employers often use meal vouchers as a simple way to provide extra perks while keeping tax costs low.
– Other perks
Employers can offer great benefits in kind (BIK), like a work phone and internet connection for business use, which are usually tax-free. Health insurance paid by the employer for employees is generally exempt from BIK, but if the insurance covers a spouse, civil partner, or dependents, it could be considered taxable.
What are the tax implications of BIK in Ireland?
In Ireland, BIK are taxable, meaning they are treated as part of an employee’s income and are subject to tax. Employers must calculate the value of the benefit and ensure it is taxed through the PAYE system. This includes perks like company cars, health insurance, and meal vouchers.
For BIK to be taxed, the benefit must meet the following conditions:
- It must be provided by the employer to the employee.
- The benefit has to be non-cash, meaning it is something other than salary, and the employee must have access to the benefit.
- The benefit should be available for personal use, not just for work-related tasks.
Here are three of the most common benefits:
– Company car
The new rules for company cars in Ireland mean that employees are taxed based on factors such as the car’s CO₂ emissions, fuel type, and the amount of personal use. For example, if an employee is given a low-emission electric car to drive mostly for business, they will pay less tax compared to someone driving a high-emission petrol or diesel car.
– Health insurance
When an employer provides health insurance as a benefit in kind (BIK), employees must pay tax, PRSI, and USC on the value of the benefit. For example, if an employer pays €1,000 for an employee’s health insurance, this amount is considered taxable income. The employee will need to pay tax on that €1,000 through the PAYE system.
– Pension contributions
Employees get income tax relief on the money they contribute to an approved pension plan, meaning they pay less tax on that amount. Even though they get tax relief, employees still need to pay USC and PRSI on their pension contributions. Contributing to a pension can reduce the amount of income you’re taxed on, but it doesn’t mean you won’t pay any taxes at all.
Benefit in kind exemptions
Starting from the 1st of January 2025, employers in Ireland can give employees up to 5 small benefits each year, tax-free. These benefits can include things like vouchers, gifts, or other perks, with a total value of up to €1,500. This exemption helps employers offer additional value to employees without the tax implications usually associated with BIK. These small benefits must not be cash or cash equivalents, like gift cards that can be used to withdraw money and can only be used to purchase goods and services.
– Company vans
Specific company vans can be exempt from BIK taxation. If an employer provides a van for both business and personal use, employees may not be taxed on it. So, if the employee uses the van for their work but occasionally for personal trips, it can still qualify for the exemption.
How Irish Tax Rebates can help you calculate your BIK
Navigating the world of benefits in kind (BIK) can be tricky, especially when it comes to understanding how much tax you’re really paying. That’s where we can help! Our expert team makes it easy to calculate the correct tax on your BIK, ensuring you’re not overpaying. We’ll break down the details, help you understand your exemptions, and even assist with claiming back any overpaid tax. Don’t leave money on the table. Let us help you get the best results with minimal stress. Talk to us!
FAQs about benefit in kind
1. How are benefits in kind taxed in Ireland?
In Ireland, benefits in kind (BIK) are treated as part of an employee’s income and are subject to tax, PRSI, and USC. Employers must calculate the value of the benefit and deduct the appropriate amounts through the PAYE system. The tax rate applied depends on the type of benefit.
2. Do employees have to pay tax on benefits in kind?
Yes, employees must pay tax on any benefits in kind they receive. These benefits are considered part of the employee’s overall income, and the tax is deducted through the PAYE system.
3. Can I claim tax back on benefits in kind?
It is possible to claim back tax on certain benefits in kind if they were taxed incorrectly or if you qualify for exemptions, like for small benefits. For example, if you paid tax on a benefit that should have been exempt or overpaid, you may be eligible for a refund.
