Revenue Note for Guidance

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Revenue Note for Guidance

811B Tax treatment of loans from employee benefit schemes

Summary

This section is aimed at countering schemes wherein employers, instead of paying salary or bonus, place funds in trusts or other arrangements (generally offshore) and where, under such schemes, trustees of that trust provide cash, benefits or assets usually in the form of long-term loans, to directors and employees. The loans are generally rolled over ‘ad infinitum’ and are never actually repaid.

Payments (including a loan or the loan of an asset) to an employee, former employee or prospective employee or director out of a trust that is provided, or funded, by a person (including a company) who is that employee’s employer (or subsequently becomes that employee’s employer) are deemed to be income within the charge to Income Tax and Universal Social Charge.

As a balancing aspect, if a loan, which has been taxed by virtue of this measure, is wholly or partially repaid, the Income Tax and Universal Social Charge attributable to the amount repaid will be refunded. The offset or repayment of Income Tax and Universal Social Charge due to the individual is the difference between the original amount paid and the amount of Income Tax and Universal Social Charge that would have been payable had the normal benefit-in-kind rules applied.

As regards loans, loans of assets or benefits provided before 13 February 2013 where such amounts have not been repaid, the measure imposes a charge to Income Tax and Universal Social Charge for each year of assessment that the loan remains outstanding or the employee continues to have use of the asset. The annual amount chargeable is an amount calculated as if the benefit-in-kind provisions apply.

This section shall not apply as regards schemes that are approved by the Revenue Commissioners such as Approved Profit Sharing Schemes, Employee Share Ownership Trusts or Occupational Pension Schemes.

Details

Definitions

(1) ‘benefit scheme’, is defined as a trust, scheme or other arrangement and includes any settlement, disposition, covenant, agreement, transfer of money or transfer of other property or of any right to money or of any right to other property;

‘employee’ includes an office holder and any person who is an employee within the definition of ‘employee’ in section 983 of the Taxes Consolidation Act 1997 (i.e. an employee for the purposes of the PAYE system);

‘employer’ includes any person connected with an employer and any person who is an employer within the definition of ‘employer’ in section 983 of the Taxes Consolidation Act 1997 (i.e. an employer for the purposes of the PAYE system) or connected with such an employer;

‘loan’ means any loan, advance or any form of credit;

‘specified rate’ means the rate specified in paragraph (iii) of the definition of ‘the specified rate’ in section 122 of the Taxes Consolidation Act 1997 which details benefitin-kind provisions.

Clarifications

  • (2)(a) the meaning of connected person is as defined in section 10 of the Taxes Consolidation Act 1997.
  • (2)(b) the loan of, or the provision of the use of, an asset is deemed to be a loan equal to the value of the asset at the time such an asset is provided, and
  • (2)(c) this section does not apply to a loan, the use of an asset or the provision of any benefit in respect of which the “normal” benefit-in-kind charging provisions of sections 118, 118A, 121, 121A or 122 apply.

The charge

(3) This subsection imposes a charge to tax under Case IV of Schedule D (where a charge does not currently exist) on an employee or former employee of an amount equal to the value of a loan, or the loan of or the provision of the use of an asset or the provision of a benefit to that employee or former employee, or to a person connected with that employee or former employee, from a benefit scheme that is directly or indirectly funded by that individual’s employer or former employer or by a person connected with such an employer or former employer. This charge to tax only applies to individuals who hold or held offices or employments the income from which is within the charge to income tax in the State.

(4) The charge to tax under Case IV of Schedule D is also imposed on an individual, though not an employee or director at the time of receipt of the loan, or the loan of, or the provision of the use of an asset or the provision of a benefit, who subsequently becomes a director or employee. The charge to tax will apply for the tax year in which the individual becomes an employee and is restricted to individuals who take up offices or employments where the income is within the charge to income tax in the State.

Payments, benefits or assets received prior to an individual becoming an office holder or employee are excluded but only where such payments, benefits or assets are within the charge to tax in a state with which this State has a Double Taxation Treaty.

Date of application of the provision

(5) The charge to tax under Case IV of Schedule D in subsections (3) and (4) is confined to events occurring on or after 13 February 2013.

Loans wholly or partially repaid

(6)(a) Where a loan which has been taxed by virtue of this measure, is wholly or partially repaid, the Income Tax and Universal Social Charge attributable to the amount repaid will be refunded. An offset or repayment of tax may be made, on receipt of a claim in writing from the taxpayer of the difference between;

(a) the original tax paid by virtue of subsection (3) or (4); and

(b) the tax that would have been payable had the normal benefit-in-kind provisions applied.

The relevance of restricting the repayment or offset by the amount of the tax that would have been payable had the normal benefit-in-kind provisions applied is that the tax would in any event, have been payable by the individual if he or she had not entered into the tax avoidance scheme in the first place.

(6)(b) The relief in subsection (6)(a) will not be granted if a loan is simply paid off by, or replaced by, another loan directly or indirectly from the employer or former employer or from a benefit scheme funded directly or indirectly by the employer or former employer.

(6)(c) Any claim for the offset or repayment provided for in this section shall be made in writing within 4 years from the end of the year of assessment in which the loan, or part of the loan, is repaid or the use of the benefit or asset ceases.

Charge in respect of transactions before 13 February 2013

(7)(a) Where before 13 February 2013 an individual, who holds or held an office or employment the income from which is within the charge to tax in the State, obtained a loan or the loan of, or the provision of the use of, an asset from a benefit scheme and continues to have that loan/use after 13 February 2013, a charge to tax is imposed (for a year of assessment that the money is outstanding or the individual has the loan of or the provision of the use of the asset) of an amount equal to;

  • (7)(b) the interest that would be payable on the loan had the notional benefit-in-kind rate of interest (13.5% for the 2013 tax year) applied, or
  • (7)(c) the amount chargeable had the normal BIK charging provisions contained in sections 118, 118A, 119,121, 121A or 122 applied in respect of the loan of or the provision of use of the asset.

Schemes approved by Revenue

(8) This section shall not apply as regards schemes that are approved by the Revenue Commissioners such as Approved Profit Sharing Schemes, Employee Share Ownership Trusts or Occupational Pension Schemes.

Relevant Date: Finance Act 2019