Holiday club in work

seannash

Apologies if this is the wrong forum.
Some friends and family members have told me that they have a holiday savings club in work.
An amount of money is taken from there wages pre VAT and put into the club, at the end of the year they can withdraw from the club, all without paying VAT.
I cant seem to find any information online about it but it would be something I'd love to implement with work if I could find some info on it.

Zaph

We have a holiday fund where I work. A set amount comes out of your after-tax salary each month for 10 months. You can draw down the full amount at any time during the year and the deduction just carries on each month after that until all 10 installments have been taken from your salary. One important thing to note - this comes out of your after-tax salary, you're not avoiding paying income tax on anything. VAT doesn't enter into it so I'm guessing you mean income tax there.

seannash

Zaph wrote: »

We have a holiday fund where I work. A set amount comes out of your after-tax salary each month for 10 months. You can draw down the full amount at any time during the year and the deduction just carries on each month after that until all 10 installments have been taken from your salary. One important thing to note - this comes out of your after-tax salary, you're not avoiding paying income tax on anything. VAT doesn't enter into it so I'm guessing you mean income tax there.

Apologies yes income tax.
Thats odd, they all specifically said its pre tax. They mentioned its set up as a charity technically

Dodge

They’re either lying to you (most likely) or breaking the law

ShareShare

Thats a pretty infeasible thing to do OP. It would be quite a serious breach if true. I suspect they just misunderstand how that system is working tbh.

Zaph

Mr.S wrote: »

By fund, do you mean that money is invested somewhere?

No, that's just what is called. HR deduct whatever amount you ask them to each month and give it to you as a lump sum when you draw it down. There's no investment and if you put aside say 100 a month, what you'll get when you draw it down is 1,000.

Henry Ford III

If the deduction is made before tax and is paid out free of tax it sounds dodgy to me.

Revenue would be very interested in such an innovative scheme also I'm sure

SteelyDanJalapeno

Wish my company had such a tax dodging savings scheme

seannash

Thanks for the replies,
I just checked with one of the people working for a financial institution who was telling me about it and they confirmed it was before income tax.


Perhaps they are misunderstanding it. I'll have to get more clarification

ELM327

The only way that would be above board would be if shares were involved and there was a mandatory holding period for the shares. I think it's 3 years delay imo.

KaneToad

Mr.S wrote: »

Unless i'm missing something, what's the point then - is it just a way to automatically save money each month?

Why wouldn't someone just do that themselves with their own accounts vs through an employer?

Plenty of people aren't that good with their finances - either through poor financial planning or a lack of numeracy skills. Having money deducted immediately from salary suits this cohort.

These type of schemes are common - Christmas clubs, buying supermarket savings stamps etc... They are all just (poor) unregulated savings schemes that earn no interest for the saver.

Mrs OBumble

KaneToad wrote: »

These type of schemes are common - Christmas clubs, buying supermarket savings stamps etc... They are all just (poor) unregulated savings schemes that earn no interest for the saver.

And expose them to the risk of whoever is running the scheme running away with the money, or going broke or whatever.

blindside88

We have the same scheme through my employer. I can confirm that it is from your net (after tax) income. The only advantage from it really over a standard savings account is if you needed a short term loan. You specify how much you want to save each month and they deduct from salary for 10 months. You can take the full amount at anytime though. So say you start in February at €200 per month. In March you can take the full €2000 if you wish. You simply pay BIK on the interest free loan

seannash

KaneToad wrote: »

Plenty of people aren't that good with their finances - either through poor financial planning or a lack of numeracy skills. Having money deducted immediately from salary suits this cohort.

These type of schemes are common - Christmas clubs, buying supermarket savings stamps etc... They are all just (poor) unregulated savings schemes that earn no interest for the saver.

No I agree that if there is no tax benefit then its not worth it which is why I asked the 3 people who are in them specifically about it.
If I find out any more info I'll update

coylemj

seannash wrote: »

Thanks for the replies,
I just checked with one of the people working for a financial institution who was telling me about it and they confirmed it was before income tax.

You mentioned 'friends and family members' in your first post ... is there more than one company involved?

I'm not aware that you can make pre-tax contributions to a charity, even a sham one set up for tax evasion. You donate to a charity from your net income, they send you a form to supply them with your PPS number and they can claim the tax back.

seannash

coylemj wrote: »

You mentioned 'friends and family members' in your first post ... is there more than one company involved?

I'm not aware that you can make pre-tax contributions to a charity, even a sham one set up for tax evasion. You donate to a charity from your net income, they send you a form to supply them with your PPS number and they can claim the tax back.

Yeah two separate company's.
Two of them are a financial institution and the other is public sector to some degree.
I'm beginning to think they have the wrong end of the stick but I'll try to confirm as best I can

KaneToad

seannash wrote: »

No I agree that if there is no tax benefit then its not worth it which is why I asked the 3 people who are in them specifically about it.
If I find out any more info I'll update

Often the benefit, for those who are poor financial planners, is that someone else "minds" the money for them to stop them from spending it. And, more power to them if it works for them!

Having watched that RTE programme with the financial advisor Eoin something, I was amazed at how basic his advice is... usually along the lines of pay your bills when you get paid & put some of it aside for savings. But loads of people struggle to do this. Spending their money is a hobby/compulsion for many. It's a combination of keeping up with the latest trends/fashions (phones, cars, clothes) or being addicted to the endorphin rush that they get from acquiring something new.

TLDR; some people don't trust themselves with their own money

ELM327

KaneToad wrote: »

Often the benefit, for those who are poor financial planners, is that someone else "minds" the money for them to stop them from spending it. And, more power to them if it works for them!

Having watched that RTE programme with the financial advisor Eoin something, I was amazed at how basic his advice is... usually along the lines of pay your bills when you get paid & put some of it aside for savings. But loads of people struggle to do this. Spending their money is a hobby/compulsion for many. It's a combination of keeping up with the latest trends/fashions (phones, cars, clothes) or being addicted to the endorphin rush that they get from acquiring something new.

TLDR; some people don't trust themselves with their own money

That programme was very insightful.
It's so basic, but so many can't do it.

Jim2007

Henry Ford III wrote: »

If the deduction is made before tax and is paid out free of tax it sounds dodgy to me.

Revenue would be very interested in such an innovative scheme also I'm sure

So obvious it is hard to imagine even a junior on the audit would miss it.

Jim2007

ELM327 wrote: »

That programme was very insightful.
It's so basic, but so many can't do it.

This really is a failing of the education system and it is not limited to Ireland by any means - we don't teach people how to manage their money.

We teach kids all kinds of important stuff in school, but not money management. And yet mistakes in managing your money can have long lasting negative impacts.....

Here in Switzerland it's the same if you take the college route, as my son does - he is just learning it as he goes along. My daughter on the other hand is on an apprenticeship and there it is included as mandatory for trades, they cover all the basic stuff: budgeting, credit cards, mortgages etc....

I asked the local director of education why it is not mandatory for all and his response was "Oh, the smart ones will just figure it out". Well it has not worked out very well if you ask me.

partyguinness

So what happens the 'holiday fund' if the employer goes bust?

In whose account is it 'resting' I wonder?

coylemj

seannash wrote: »

Yeah two separate company's.
Two of them are a financial institution and the other is public sector to some degree.
I'm beginning to think they have the wrong end of the stick but I'll try to confirm as best I can

There are all sorts of reasons why they have the wrong end of the stick but I think it smacks of a concocted story because of the suggestion that the deductions are tax-free because they're going to a charity.

If it was possible to make tax-free donations to charities from the payroll, existing charities like Focus, Peter McVerry, SVP etc. would be all over it. They would be writing to the payroll department in virtually every company in the country in an attempt to get their employees on board.

And they would have information on their websites informing would-be donors that they could potentially double their contribution (for top rate taxpayers) by making it pre-tax from their salary i.e. instead of donating €50 on your credit card, why not sign a salary deduction for €100, it will cost you the same but will double your donation?

partyguinness

Without knowing all the facts it sounds like a PRSI fiddle but surely not.

There must be something in it for the employer.

Toots

When I worked in BOI we had one of those - you signed up and money was deducted from your net pay. Then when you wanted to draw it down, you let payroll know the month before you wanted it and you got it with your next salary. It was basically just a way of saving; I suppose the benefit being that you had to give a month's notice to get at the funds, so there wasn't the temptation to dip into it. It was called the Staff Holiday Fund but you could use it for anything. If it came to the end of the year and you still hadn't taken it, it would be in your December wages - you weren't allowed to roll it over into the next year. There was no tax incentive or anything like that - the money was taken out of your net wages, and there was no interest paid on it, so you wouldn't be liable for DIRT or the like.

Kalimah

Toots wrote: »

When I worked in BOI we had one of those - you signed up and money was deducted from your net pay. Then when you wanted to draw it down, you let payroll know the month before you wanted it and you got it with your next salary. It was basically just a way of saving; I suppose the benefit being that you had to give a month's notice to get at the funds, so there wasn't the temptation to dip into it. It was called the Staff Holiday Fund but you could use it for anything. If it came to the end of the year and you still hadn't taken it, it would be in your December wages - you weren't allowed to roll it over into the next year. There was no tax incentive or anything like that - the money was taken out of your net wages, and there was no interest paid on it, so you wouldn't be liable for DIRT or the like.

Ditto! I remember that well!

Wheety

I have money coming out of my salary into a Credit Union account. It is included in my deductions on my payslip but it is after tax. Ask someone how much their take hom pay went down by after they started. I bet if they're saving €20 a week, their take home went down €20 a week.

Henry Ford III

seannash wrote: »

Thanks for the replies,
I just checked with one of the people working for a financial institution who was telling me about it and they confirmed it was before income tax.


Perhaps they are misunderstanding it. I'll have to get more clarification

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I'd save thousands by taking advantage of this.