# 25% Non Contributory Pension and VHI - BIK implications?



## 90210 (8 Aug 2005)

Could anyone help me out here, my employer is thinking about offering me 1K toward VHI and 25% toward a pension.

My question.....am I liable for benefit in kind tax if for example if the amount of VHI offered was €1000 and Non Contributory Pension €9000 per annum, would I be looking at seeing a % of this go to the government? each year or at the maturity of the pension?.


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## salmon2005 (8 Aug 2005)

*Re: Non Contributory and VHI - Newbee*

Ya you will be caught for BIK on both the Vhi and the prnsion contribution. This is worked on a percentage of the value of both. It is usally paid through your wages every week/month depending on what way you get paid.

Regards
anthony@advicefirst.ie


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## RS2K (8 Aug 2005)

*Re: Non Contributory and VHI - Newbee*



			
				salmon2005 said:
			
		

> Ya you will be caught for BIK on both the Vhi and the prnsion contribution. This is worked on a percentage of the value of both. It is usally paid through your wages every week/month depending on what way you get paid.
> 
> Regards
> anthony@advicefirst.ie



Wrong again.

If the pension contribution is paid into a Revenue Approved pension scheme no bik ensues. F.A. 1972. 

I'll check on the PRSA rules but I expect them to be similar if not identical.


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## salmon2005 (10 Aug 2005)

*Re: Non Contributory and VHI - Newbee*

As there is no indication of a comapny scheme in the post and unless the employer is going to set one up, then the BIK I have stated is RIGHT!! Below is a paragrath taken from the Revenue web site on PRSAs.

3.  Contributions made by an employer to a PRSA on behalf of an employee are treated as a benefit in kind of the employee.  Such contributions are treated for relief purposes as made by the employee

For example, where an employee aged 29 contributes 5% of his or her earnings to a PRSA and the employer contributes a further 10%, the employee is treated as making a total contribution of 15% in aggregate.  The employee is charged on the employer’s contribution as a benefit in kind and must include this in his or her return of income.

Regards less of the pension plan the VHI contribution will be treated as a benefit and will be subject to BIK rules!

Regards
anto


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## RS2K (10 Aug 2005)

*Re: Non Contributory and VHI - Newbee*

Sorry Anthony but you are dead wrong, once again.

1/. Wouldn't it make sense as I mentioned above to set up an occupational scheme?

2/. Even if they didn't, the Employer could indeed make PRSA contributions on behalf of the individual and indeed that would be treated as a BIK.

*BUT, the crucial; thing in these circumstances is this:

From www.revenue.ie also:-* 

Contributions made by an employer to a PRSA on behalf of an employee                are aggregated with their own contributions for the purpose of calculating                the maximum tax-relieved contribution. They are treated for relief                purposes as contributions made by the taxpayer.

Technically the employee is chargeable to benefit in kind on the                contribution made by the employer. However, if the aggregate contributions                (i.e. employee and employer) are within the limits for tax relief                purposes the benefit on kind charge is negated by the tax relief                 due on the employer's contribution.

In a small number of cases where aggregate contributions made by                the employee and employer exceeds the limits for tax relief purposes                in the tax year, the excess may be carried forward and relieved                against future year subject to overall relevant limits in each year.

In a very small number of cases (where the employer pays the full                or substantial part of the contributions to the employee's PRSA                and the aggregate contributions exceed the age based limits) a benefit                in kind charge may arise in the tax year but the amount brought                into charge will be available for relief in future years subject                to the overall relevant limits in each year.


What all this means is in the case of an Employer making a 25% of salary contribution to an Employees PRSA, an offset bik/tax relief siuation occurs. Employee is charged, but get immediate relief as he is treated for income tax purposes as having made the payment in to the PRSA himself.

A problem would arise if the Employee was making a further PRSA contribution elsewhere, as the 30% of income rule might be broken. In that case the excess Employer contribution over the 30% limit (depending on age) would give rise to a bik with no tax relief available in that year, although it could be carried forward.

To summarise:

*Employer gets tax deduction against profits for PRSA contrib.

Employee should end up in a tax neutral position.  Charge and relief are identical. *

Which by some strange coincidence is exactly the same as it would have been had an Employers Revenue Approved Occupational Scheme have been used as I suggested above.

Sorted.


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## salmon2005 (10 Aug 2005)

*Re: Non Contributory and VHI - Newbee*

I think what we are saying are the same however we are coming at it form different angles! However it would depand on

1. If the employer has a Company Pension Plan Scheme.
2. If the 25% is above limit for income tax purposes!

90210 can you let us know what age you are, and if your employer has a Revenue Approved Pension Scheme. That way be can put this subject to bed!

Regards
Anto


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## RS2K (10 Aug 2005)

*Re: Non Contributory and VHI - Newbee*

Yes, but you said in your 1st post:

"Ya you will be caught for BIK on both the Vhi and the prnsion contribution. This is worked on a percentage of the value of both. It is usally paid through your wages every week/month depending on what way you get paid.

 Regards
anthony@advicefirst.ie"

Now what I said was that the pension contrib. would not be assessed as a BIK, if made into an approved pension scheme, and that even if it paid into a PRSA,  the tax effect on the employee might well be zero, depending on some circumstances.

Two very different answers.


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## salmon2005 (10 Aug 2005)

*Re: Non Contributory and VHI - Newbee*

As said in my 2nd answer 'there is no indecation of an approved scheme' and we do not know the age of the person. Until we get clarification on what i have asked re above then we will know! Any way the important thing here is that the poster gets the information s/he is looking for. On clarification of above we can but it to bed!

Regards


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