By Richie Lennon
Benefit in Kind, or BIK, is a non-cash benefit you provide because someone works for your business, such as private use of a company car or employer-paid health insurance. Unless an exemption applies, its taxable value goes through payroll and attracts Income Tax, USC and PRSI under the applicable rules. The benefit value is not the employee’s tax bill. Check the treatment before you promise the package.
A company car, health insurance and a voucher can all help you recruit or retain someone. They do not all carry the same tax treatment.
The mistake is agreeing the benefit first and asking payroll what it costs afterwards. The employee may have understood your offer as something they would receive without losing take-home pay. Your business may have budgeted for the purchase without the payroll cost.
We see the same thinking with company cars: putting the purchase through the company feels like a saving, until private-use BIK enters the calculation. Work out what the company pays, what the employee receives and what happens to their payslip before you commit.
What counts as Benefit in Kind?
BIK covers benefits provided by reason of employment, including benefits to directors. Some are taxable, some qualify for exemptions and others have their own valuation rules.
| Benefit | Starting point for the employer |
|---|---|
| Company car available for private use | Apply the car rules, including original market value, emissions and business mileage |
| Company van available for private use | Apply the separate van rules and check any exemption conditions |
| Employer-paid medical insurance | Use the gross premium for the employee’s taxable benefit |
| Gym or club membership | Usually a taxable personal benefit; an employer facility can have different rules |
| Employer pension contribution | Check the scheme and contribution limits; do not assume every contribution is exempt |
| Work phone, computer or training | Check the business purpose and the conditions for exemption |
| Voucher or other small benefit | Check the small-benefit conditions, annual value and number of benefits |
Paying a cash allowance is different from providing an exempt benefit. Calling a payment a wellness allowance, car allowance or remote-working allowance does not determine its tax treatment.
Revenue’s benefit valuation guidance is the starting point for the particular item you want to provide.
How BIK changes a payslip
Payroll adds the taxable benefit to pay when calculating the relevant deductions. It does not mean you pay that benefit again in cash.
Suppose an employee earns €4,000 a month and receives a benefit with a taxable value of €200 a month.
| Item | Monthly amount |
|---|---|
| Cash salary | €4,000 |
| Taxable non-cash benefit | €200 |
| Pay used to calculate the applicable deductions | €4,200 |
The employee still receives a cash salary based on €4,000, less the deductions calculated through payroll. The extra €200 affects the calculation; it is not an extra €200 in their bank account.
This is an illustration. It does not assume a personal tax rate or PRSI class. Your payroll calculation must use the employee’s actual circumstances.
If you promise to cover the employee’s extra tax as well, the additional payment can itself be taxable. Ask for the full grossed-up cost before offering a benefit as a fixed net reward.
Company cars: the purchase price is not the BIK figure
For cars, BIK is generally based on the original market value, or OMV, before first registration, together with the relevant emissions category and annual business kilometres. A second-hand purchase price does not replace OMV.
That is why a director can buy a used car through the company and still face a benefit calculation based on a much higher original value. Ordinary home-to-work travel is private mileage.
Electric cars have a separate emissions category and temporary OMV reductions. Relief reduces the calculation; it does not make every electric company car tax-free. As current Revenue guidance stands, the combined OMV reduction is €30,000 in 2026. For a €45,000 OMV electric car in the 15% low-business-mileage band, that leaves:
| Calculation | Amount |
|---|---|
| OMV | €45,000 |
| Less applicable 2026 reductions | €30,000 |
| Value subject to the percentage | €15,000 |
| Annual taxable benefit at 15% | €2,250 |
The €2,250 is taxable benefit, not €2,250 of tax. The actual payroll deductions depend on the recipient.
Use Revenue’s current car calculation and electric-car exemption and reduction rules for the year the car is provided. Our commercial vehicle tax guide explains why BIK, VAT, VRT and motor tax need separate checks.
Health insurance: use the gross premium
When your business pays medical insurance for an employee, the benefit is based on the gross premium, before tax relief at source. Using only the amount paid to the insurer can understate the benefit.
For example, a €1,000 gross premium may involve €800 paid to the insurer and €200 of tax relief at source. The employee’s taxable benefit is €1,000. The employer must account to Revenue for the relief it obtained. The employee may separately qualify to claim medical insurance relief.
Do not tell the employee that the payroll charge will disappear because the policy comes with tax relief. These are different parts of the calculation. Follow Revenue’s employer-paid medical insurance rules.
Which benefits can be tax-free?
Exemptions have conditions. The conditions are part of the benefit, not paperwork to tidy up later.
Small benefits
From 2025, the small-benefit exemption can cover up to five qualifying non-cash benefits in a year, with an aggregate value of no more than €1,500. Cash and vouchers redeemable for cash do not qualify. Benefits cannot be used to replace salary through a salary-sacrifice arrangement.
Keep a running record of what each person has received. A Christmas voucher needs to be considered alongside earlier benefits, and qualifying benefits must be reported under Enhanced Reporting Requirements. See Revenue’s small-benefit exemption.
Pensions
Employer contributions to an approved occupational pension or PRSA can receive favourable treatment. Scheme rules matter. From 2025, employer PRSA contributions above 100% of the employee’s emoluments from that employer in the calendar year create a taxable benefit; the excess also loses the employer deduction.
Pension funding is valuable, but it needs to be planned against actual remuneration and the scheme. An unlimited-tax-free-contribution promise is wrong. Revenue sets out the PRSA rules in its pension guidance.
Work equipment and training
Equipment supplied for work can qualify for exemption when its business purpose and private-use conditions are met. Job-related training can also be treated differently from a personal course. Check the particular item rather than applying one rule to all home-office purchases.
What should the employer check before offering a benefit?
Start with the package the employee will actually experience. Then check the payroll and cash cost.
1. Describe the benefit precisely, including who can use it and for how long. 2. Confirm its taxable value and any exemption conditions. 3. Calculate the effect on the employee’s take-home pay. 4. Calculate the business cost, including applicable employer PRSI and any tax you have agreed to cover. 5. Give payroll the details before the benefit starts. 6. Keep the records needed to support the calculation and reporting.
A benefit should not first appear in the accounts when the invoice arrives. Cars, insurance renewals and vouchers need an owner in the business who tells payroll what changed.
Around Finance helps owners connect tax planning with payroll and the numbers they use to run the business. If your Irish business turns over €250,000 or more and you want a finance team that catches these decisions before they become payroll corrections, book a Finance Fit Call.
FAQs
Is BIK extra tax or extra income?
It is taxable non-cash income. Payroll uses the benefit value to calculate the relevant tax and PRSI deductions. The value of the benefit and the extra tax paid are different amounts.
Does BIK apply to company directors?
Yes. Directors can receive taxable benefits by reason of their office or employment. Owning the company does not make a personal benefit exempt.
Is a second-hand company car taxed on what the company paid?
Generally no. Company-car BIK uses original market value before first registration, with the applicable emissions, mileage and relief rules. The second-hand price is not a substitute.
Is employer-paid health insurance tax-free?
Generally no. The gross insurance premium is a taxable benefit. An employee may qualify separately for medical insurance relief, and the employer must account for relief at source under Revenue’s rules.
Can we give staff a tax-free cash bonus under the small-benefit exemption?
No. The exemption is for qualifying non-cash benefits. Cash and cash-redeemable vouchers do not qualify.
Can payroll fix the treatment after the benefit starts?
Payroll can correct errors, but the better approach is to confirm the treatment before committing. Late details can leave the employee with an unexpected deduction and your business with amendments to make.
