Finance Act 2003 - Income Tax Benefit-in-Kind

Section 4 reduces, for the year of assessment 2003 and subsequent years of assessment, the level of the specified interest rate used for determining the benefit-in-kind charge on certain preferential loans made to employees by their employers. The new rates will be 4.5 per cent (reduced from 5 per cent) in the case of mortgage loans and 11 per cent (reduced from 12 per cent) in the case of non-mortgage loans.

Section 6 together with the Social Welfare Act provides with effect from 1 January 2004 for the direct application of PAYE and PRSI (including the training and health contribution levies) to the many current taxable benefits-in-kind. Under the new arrangements employers will deduct the appropriate PAYE income tax and PRSI from cash remuneration being paid to the employee at the same time as the benefit-in-kind is being provided. Where the cash remuneration is insufficient, the employer will be responsible for any shortfall in the relevant amount of tax. Where this shortfall is not made good by the employee to the employer by the end of the tax year, the tax borne by the employer will be regarded as a taxable benefit of the employee in the following tax year and subject to PAYE and PRSI in the same way as the original benefit.

In order to facilitate the introduction of the new system the existing system of valuing benefits is being changed and simplified as follows:

(1) Under the current system the value of the private use of a company car is determined by reference to a percentage of the Original Market Value (OMV) of the car which depends on whether only the car is supplied or whether the employer also bears running costs and also takes account of the business mileage of the employee. This has the potential for a multiplicity of percentage rates. For the future, this complicated system is being simplified as follows:

(2) The cash equivalent of the private use of an employer’s van is being set at 5% of the original market value of the van.

(3) The annual value of the use of an asset, other than premises, is being set at 5% of its market value when first provided by the employer.

Prior to the commencement of the new system the Revenue Commissioners will be making administrative regulations in relation to the timing of deductions and the accounting for such deductions.