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Tax Saving Tips for Employers, Employees & Directors

We are all aware that the Irish Tax System contains very few tax saving opportunities for those in PAYE employment and for their employers. However, there are a number of allowances and reliefs which employers and employees can use to reduce the tax burden on employment. 

These reliefs generally apply to both employees and company directors, although specific professional advice should be obtained in each case to verify this. 

Pension Contributions

Subsistence Allowances    

Motor Expenses

Bus & Train Passes    Childcare Services

Company Cars -  Benefit-in-Kind

Company Vans -  Benefit-in-Kind 

Employee Pension Contributions

Contributions made by an employee to a Revenue-approved pension scheme operated by their employer are deductible from the employee's taxable income. For employees, the amount deductible cannot exceed a set percentage of their total pay. This limit does not apply to company directors.

An employer can avail of full tax relief (against income tax or corporation tax) against the cost of setting up an approved Pension Scheme and also for all contributions made to such a scheme.

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Subsistence Allowances

Employers can pay tax-free Subsistence Allowances to staff, in certain circumstances, if they temporarily work away from their normal location of employment:

For an employee or company director earning a salary of €47,123 or thereabouts per year, the maximum daily  tax-free subsistence allowances are:

This does not cover time spent

It is necessary to comply with guidelines issued by the Revenue Commissioners in order to avail of this relief. These are set out in the Revenue leaflet IT54 - Employees’ Subsistence Allowances

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Motor Expenses

Employers may reimburse their staff tax-free for Motor Expenses incurred in the course of their work.

These motor expenses must have been incurred “wholly, exclusively and necessarily” in performing the duties of the employment. They do not cover the cost of travelling to and from home to work.

This relief does not extend to travel via company cars or vans.

The Revenue Commissioners have specified the following maximum scale of motor expenses to apply with effect from 1 January 2002..

These may be applied without specific Revenue approval, subject to certain conditions.

However, it is essential to strictly follow the guidelines of the Revenue Commissioners in this area. This are set out in their Revenue Leaflet IT51 “Employees Motoring Expenses”

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Bus & Train Passes

Where an employer provides a free bus or train pass  to an employee, the employee is exempt from income tax on the benefit. This only applies to annual or monthly passes for a scheduled and licensed passenger transport service.

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Childcare Services

Where an employer provides a free or subsidised childcare services to employees, is exempt from income tax on the benefit, subject to certain conditions.

The main condition is that the employee must be responsible for both financing and managing the childcare service, either on their own or in conjunction with other employers.

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Company Cars -  Benefit-in-Kind

Where an employee is provided with a car by their employer, they are taxed on the “Benefit-in-Kind” (BIK) value of the car.

This equals 30% of the original market value of the car, subject to the following reliefs:

Where the employee pays the cost of insurance, repairs and servicing, road tax and private fuel costs, this percentage is reduced to 18.5%

There is partial relief is the employee pays some but not all of these costs.

There is some tax relief for all levels of business mileage over 15,000 miles a year. The extent of the relief depends on the exact business mileage for the year.

The following are some examples of the relief available at particular mileage totals

Example

John has the use of a company car, a 1997 Toyota which originally cost € 20,000, but which is now valued at € 8,000.

His business mileage is 35,000 miles each year. His employer pays all costs relating to the car.

His benefit in kind is calculated as follows:

If John pays tax @ the 42% rate, his income tax bill on the BIK  will be € 630

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Company Vans -  Benefit-in-Kind

Where an employee has the private use of a company Van, the “Benefit-in-Kind” (BIK) calculation is as follows:

For example, Joan uses a company van both for personal purposes and for her employer’s business.

The cost of the van is € 15,000

Her total mileage each year in the van is 25,000 miles, of which 5,000 miles is for personal use.

Her Benefit in Kind on the van is 

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