Employment Benefits

In this week’s Employment Benefits blog, we’ll take a look at another pair of benefits/benefits-in-kind that come with certain rules that may reduce the tax liability upon receipt:

• Pension and PRSA contributions
• Preferential loans

Given the context of our recent blog series, we know that there are specific benefits that an employer may provide that are not subject to tax or can be received tax efficiently. Let's review the specifics in relation to these two types:

 

Occupational Pension Scheme 

An employer may contribute to an approved occupational pension scheme on behalf of an employee, this is not a taxable benefit.   

Personal Retirement Savings Account (PRSA)

An employer may contribute to a PRSA on behalf of an employee, this is a benefit but is only taxable if the aggregate of the employers and employees' PRSA contributions exceed the employee’s age-related limit.   

Benefit – Preferential loans

An employer may give an employee, a former employee or the spouse of an employee a preferential loan, this is a taxable benefit.      It is important to note that; 

• • A preferential loan is where the rate of interest applied to a loan is less than the specified rate as set by the Department of finance. 
  • If the employer is a business that grants loans to the public, it is not a taxable benefit if; 
    • The rate charge to the public is lower than the rate set by the Department of Finance

• The employee is charged at the same rate as the public  

  How to calculate the taxable benefit 

• Specified rates
  • Qualifying home loans 4%
    • This is a loan an employee uses to purchase, repair, improve a residence used by the employee, a former (or separated) spouse or civil partner of the employee or a dependent relative or the employee who does not pay rent to the employee
    • If the employer business involves providing home loans, a lower rate that would normally be charged to customers can be used (arm’s length rate). The loan must be provided to the employee for the purchase of a residence, for a stated term of years and at a fixed rate of interest
  • All other loans 13.5%
• The value of the benefit is the difference between
  • The interest actually paid by the borrower in a year and
  • The specified rate for that year
• The interest charged can be charged on the 
  • Reducing balance
  • Average balance for the year (opening balance plus closing balance divided by two)
  • Period the loan was available in that year
• If the loan is written off the amount written off becomes taxable in that year