Benefit in Kind (BIK) is a tax on non-cash perks provided by an employer, such as company cars or private health insurance. Revenue treats the value of these benefits as "notional pay," meaning they are subject to income tax, PRSI, and USC through the company's payroll system.
Benefit in Kind, often abbreviated as BIK, refers to any non-cash benefit or "perk" that you or your employees receive from your company. In the eyes of the Revenue Commissioners, these benefits have a monetary value and are treated as a form of "notional pay," meaning they are subject to tax just like regular salary payments.
For founders and business owners, Benefit in Kind is a crucial tax concept because it prevents the untaxed transfer of value from a business to an individual. Whether it is a company car, private health insurance, or an interest-free loan, the value of the benefit must be calculated and taxed through the payroll system. This ensures that employees receiving perks are taxed fairly compared to those who receive only a cash salary.
Understanding how to calculate and report Benefit in Kind is essential for maintaining tax compliance. If your company provides a benefit without accounting for the associated tax, you could be liable for back taxes, interest, and penalties during a Revenue audit. For most Irish companies, BIK is managed alongside regular PAYE, PRSI, and USC deductions.
The value of a Benefit in Kind is generally based on the cost to the employer of providing the benefit. However, specific rules apply to different types of perks. For example, the value of private medical insurance is the amount the company pays to the insurer, whereas the value of a company car is based on a percentage of its original market value combined with the annual mileage driven.
The "cash equivalent" of the benefit is added to the employee's gross pay for tax calculation purposes. It is important to note that the employee does not receive this extra cash; instead, their net take-home pay is reduced because the tax on the benefit is deducted from their actual cash salary.
Professional advice is often needed for complex benefits, such as employer-provided accommodation or share-based incentives. In these cases, the valuation rules can be more intricate, and incorrect calculations can lead to significant tax discrepancies in your financial statements.
Most non-cash incentives provided to employees are subject to Benefit in Kind tax. Common examples include company cars, gym memberships, private health insurance, and vouchers above a certain value. Even "soft" benefits like professional subscriptions or club memberships can trigger a BIK charge if they provide a personal benefit to the individual.
Employer-provided loans at low or zero interest rates are also considered a Benefit in Kind. Revenue sets "preferential interest rates," and the difference between the rate you charge and the Revenue rate is treated as taxable income for the employee. This is a common consideration for startups looking to support early employees with relocation or personal needs.
Yes, certain benefits are specifically exempt from Benefit in Kind tax in Ireland to encourage specific behaviours or support small businesses. The most popular is the Small Benefit Exemption, which allows employers to give up to two tax-free vouchers or gifts per year, provided the total value does not exceed €1,000.
Other common exemptions include the "Cycle to Work" scheme, monthly or annual travel passes (TaxSaver), and certain types of professional training that are directly relevant to the employee's role. Basic canteen facilities and on-site parking are also generally exempt from BIK charges, making them cost-effective ways to improve the employee experience.
The Benefit in Kind on company cars is one of the most significant tax items for many directors. As of 2023, the calculation is based on both the original market value (OMV) of the car and the vehicle's CO2 emission category. This is designed to incentivise the use of electric vehicles (EVs).
Electric vehicles currently benefit from significant BIK relief. For 2023 through 2025, there is a substantial reduction in the OMV used for the calculation, which can often result in a 0% BIK charge for lower-value electric cars. For traditional petrol or diesel cars, the BIK can be as high as 37.5% of the OMV annually, depending on the mileage.
The Small Benefit Exemption is a valuable tool for Irish employers to reward staff without a heavy tax burden. Under current rules, you can provide an employee with up to two small benefits (like digital vouchers or gift cards) each year tax-free. The total combined value of these benefits cannot exceed €1,000 per employee.
To qualify, the benefit must not be paid in cash and must not be part of a salary sacrifice arrangement. This means you cannot reduce an employee's salary to give them a voucher instead. Most founders use this for year-end bonuses or mid-year performance rewards to maximise the "real world" value the employee receives.
Benefit in Kind must be reported in real-time through the PAYE system. Every time you run payroll, you must include the "notional pay" value of the benefits provided. The payroll software will then calculate the correct amount of Income Tax, PRSI, and USC to deduct from the employee's cash wages.
Accurate record-keeping is vital. You should maintain a list of all benefits provided, who received them, and how the value was calculated. This documentation is a key area of focus during due diligence if you ever decide to raise equity financing or sell your company, as buyers will want to ensure there is no "hidden" tax liability from mismanaged perks.
