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Tax  Tips & Traps... 

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.  On the other hand, the laws governing Benefit in Kind can cause unpleasant tax surprises for workers and their employers.

These issues generally apply to both employees and company directors. Always get specific professional advice on matters of doubt.

Pension Contributions Subsistence Allowances    Motor Expenses Bus & Train Passes   Cycle to Work Scheme   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:

The "Normal Rate" applies to absences up to 14 nights. Reduced Rates apply for longer periods.

This does not cover time spent

A separate set of rates apply to international travel.

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 5 March 2009.  

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”   This leaflet also includes  details of the available rates for travel by Motorcycles and Bicycles.

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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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Cycle to Work Scheme

The provision of a bicycle and associated cycling safety equipment by an employer to an employee is exempt from income tax, and no benefit-in-kind applies in such cases. The bicycle and equipment must be used by the employee mainly travelling to/from work. The scheme is also open to company directors.

There is a limit of 1,000 per employee per 5 year period.

More details on the Revenue website.

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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 charged PAYE/PRSI on the “Benefit-in-Kind” (BIK) value of the car.

The extent of the relief depends on the total number of kilometres of business travel for the year, and (if the car was first provided in 2009) the CO₂ emissions of the car.

Full details of how BIK applies to Cars are available here on the Revenue website.

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Company Vans -  Benefit-in-Kind

Where an employee has the private use of a company Van, there is a  “Benefit-in-Kind” (BIK) charge on this private use. PAYE/PRSI and Income Levy are charged at 5% of the original market value of the van.

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

The original cost of the van is € 15,000

Her Benefit in Kind on the van is € 15,000 @ 5% = € 750

She is charged PAYE/PRSI and Income Levy on an additional "income" of € 750

Full details of how BIK applies to Vans are available here on the Revenue website.

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