Benefit in kind

What it means

A benefit in kind is something provided to an employee other than money: a company car for private use, accommodation, transport, the company’s own product free or discounted, private spending paid for.

The Income Tax Act generally treats it as taxable employment income with everything that follows: it increases the base for tax and for contributions even though not a euro more reached the employee’s account.

Items an employee receives in order to do the job are not a benefit in kind: a laptop, work clothing, tools or a work phone used for work. They serve the employer, not private needs. They become income only once the employee also uses them privately or keeps them, and that is exactly where employee benefits part company with work equipment.

How it works in practice

The commonest case is a car also used privately, where a percentage of the purchase price is added to the employee’s income under the statutory rules. Otherwise valuation is normally at the usual price unless the law says otherwise.

Some benefits are exempt or have their own regime - meals within the statutory scope, work-related training, travel allowances within the cap. The threshold is assessed for each benefit separately.

A benefit in kind is taxed in the month it is provided, together with pay. For every payroll run we therefore ask the client for a list of benefits by employee, work out their value and put it through the payslip. Each item then shows on the payroll record, which serves as evidence in an audit.

What to watch out for

An unreported benefit in kind is among the commonest inspection findings: tax, contributions and a penalty are assessed, usually across several periods at once. On the company side the same spending is often non-deductible too, so the error bites twice.

For an employee on a low wage, tax and contributions on the value of a car or another benefit can take a noticeable share of the payslip, because they come out of cash although the benefit was not cash. If the employee first learns this from the payslip, a dispute over net pay follows; the effect should be explained before the benefit is provided.