BIK for recreational family memberships...

timmer3

So i converted from a sole trader to a LTD last year and am figuring out how the company can help out with family finances by providing benefits via BIK.

we currently have various family memberships which would be a massive help if the company was able to pay for, and then i only pay the BIK. e.g. if the gym membership costs €1000 then i pay my top rate of tax on the benefit and it only costs me approx €400.

i've read the revenue guide in detail at http://www.revenue.ie/en/tax/it/bik.html and my question is about the interpretation of "Sports and Recreational Facilities". do they only allow the specified categories such as sports club membership, or is it allowable for the company to pay for music classes for the kids of an employee - which cost an arm and a leg. i can understand that sports clubs are a more typical benefit for a company to provide to employees, but if the family is not sporty (or even if they were) presumably revenue would not discriminate against a recreational benefit to the employee's family that was musical in nature.

and lastly, do Revenue care what it's for as long as they get the PRSI/PAYE contribution and there is a receipt to vouch for the benefit? e.g. you could argue that a family membership to dublin zoo is recreational.

CIARAN_BOYLE

timmer3 wrote: »

So i converted from a sole trader to a LTD last year and am figuring out how the company can help out with family finances by providing benefits via BIK.

we currently have various family memberships which would be a massive help if the company was able to pay for, and then i only pay the BIK. e.g. if the gym membership costs €1000 then i pay my top rate of tax on the benefit and it only costs me approx €400.

i've read the revenue guide in detail at http://www.revenue.ie/en/tax/it/bik.html and my question is about the interpretation of "Sports and Recreational Facilities". do they only allow the specified categories such as sports club membership, or is it allowable for the company to pay for music classes for the kids of an employee - which cost an arm and a leg. i can understand that sports clubs are a more typical benefit for a company to provide to employees, but if the family is not sporty (or even if they were) presumably revenue would not discriminate against a recreational benefit to the employee's family that was musical in nature.

and lastly, do Revenue care what it's for as long as they get the PRSI/PAYE contribution and there is a receipt to vouch for the benefit? e.g. you could argue that a family membership to dublin zoo is recreational.

Theres no difference between paying €1,000 to a gym and €500 in tax or increasing your salary by €1,500 of which you get €1,000 and €1,000 goes on tax.

So basically it doesn't matter if you get a BIK or a salary increase. Easier though on an admin basis to just increase your salary.

timmer3

CIARAN_BOYLE wrote: »

Theres no difference between paying €1,000 to a gym and €500 in tax or increasing your salary by €1,500 of which you get €1,000 and €1,000 goes on tax.

So basically it doesn't matter if you get a BIK or a salary increase. Easier though on an admin basis to just increase your salary.

hi Ciaran, thanks for the reply. for this example, if i need to pay the gym out of my salary i would need to increase my salary by €2000 because of the 50% tax rate. is that what you meant? in the increased salary option it looks like the company is being hit with twice the tax amount compared to the BIK option where i only pay half the value of the benefit in tax.

it would still be very beneficial to me for the company to pay all the memberships up front at the start of the year, because it's a huge spike that i couldn't pay out of monthly income, and then let the payroll spread the BIK tax throughout the year. this would be similar to monthly personal payments but without the interest and the hassle of direct debits hitting my account every month.

CIARAN_BOYLE

timmer3 wrote: »

hi Ciaran, thanks for the reply. for this example, if i need to pay the gym out of my salary i would need to increase my salary by €2000 because of the 50% tax rate. is that what you meant? in the increased salary option it looks like the company is being hit with twice the tax amount compared to the BIK option where i only pay half the value of the benefit in tax.

it would still be very beneficial to me for the company to pay all the memberships up front at the start of the year, because it's a huge spike that i couldn't pay out of monthly income, and then let the payroll spread the BIK tax throughout the year. this would be similar to monthly personal payments but without the interest and the hassle of direct debits hitting my account every month.

I've posted below two rough figures. As you can see, as long as Gross and BIK combined are the same theres the same net. Therefore there is no real difference from a tax point of view between giving yourself a pay rise and paying yourself BIK.

If you want to keep the same disposable income as before yes you will have to increase your salary by more than the cost of a gym membership however you would also have to increase your salary and put in a BIK or your net will be effected.

Gross 50000 55000
BIK 5000 0
TAX 20000 20000
Net 30000 35000

timmer3

that's very clear. Thank you

newacc2015

Your employees are entitled to a €500 tax free voucher per year. You might consider getting a €500 voucher for the gym tax free instead

viztopia

some of the replies here seem a little confsuing. I would have assumed that if you were on the high rate of tax (assume 50% for this example) then to get an extra €500 into your hands to pay personal membership then you would have to regross the €500 net to €1,000 thus meaning that you have to pay €500 in tax/prsi and ucs. However if you were to pay bik on €500 then this would only be 50% of the €500 which would be €250?

CIARAN_BOYLE

viztopia wrote: »

some of the replies here seem a little confsuing. I would have assumed that if you were on the high rate of tax (assume 50% for this example) then to get an extra €500 into your hands to pay personal membership then you would have to regross the €500 net to €1,000 thus meaning that you have to pay €500 in tax/prsi and ucs. However if you were to pay bik on €500 then this would only be 50% of the €500 which would be €250?

but then you are decreasing your take home pay by 250. why not increase your gross pay by 500 and pay in cash.