Car scheme at work

My gf has just been offered the following 'deal' by her employer.

• She gets a car on a lease deal for 4 years.
• The lease payments are taken from her salary (gross) on a monthly basis.
• The lease payments include insurance, road tax and maintenance.
• After 4 years, the car is handed back to the finance company

Could someone tell me how taxation is operated on this 'scheme'? She does not use a car for work.

Do you simply take 30% of the OMV and operate PAYE and PRSI on that figure each year? Can she deduct the lease payments from her gross salary, I can't see how these are allowable as a deduction against tax, given that she will not be using the car for business purposes.

Has anyone seen a similar scheme in operation elsewhere? Whether it's a good deal or not really depands on the tax treatment of the lease payments, and neither of us are sure that these are allowable as a deduction against gross income.

As far as I'm concerned, BIK at 44% (PAYE + Health levy) will be levied on 30% of the OMV on an annual basis, with no deduction alllowed for the lease payments.

I did hear of a similar scheme with a UK-based contractor on a major civil engineering project over here - not sure of the taxation impacts.

I think my gf's own tax people (in the Irish office) are unsure about the taxation impacts of the scheme. She works for a large UK plc, and this scheme is run by head office, and they offer no tax advice, other than "it's your own responsibility to contact Revenue". Fair enough I guess, she's better off doing that than taking the word of someone who isn't sure on the issue.

How does the deduction operate? Will she still be paid her normal gross salary and then have a monthly deduction shown on her payslip or are they simply negotiating a lower monthly gross pay in exchange for receiving a company car? If its a deduction I'm not sure of the implications, but if her base salary is simply lower then her tax liability on the lower base salary will obviously be lower but she will have an additional liability for BIK on the car.

As far as I know, it's a deduction from gross salary on a monthly basis. She will not be doing any business mileage, so no deduction for business mileage. I told her to contact Revenue directly, they should be able to give her a straight answer, no??

CCOVICH said:

As far as I know, it's a deduction from gross salary on a monthly basis.

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JUst noticed the 'gross' bit now - wouldn't this be grossly (pun intended) illegal?

That's what I would have thought, hence the questions. Like I said it's a UK company and the scheme doesn't seem to have approval from their RoI tax department.

Hold on!

Some deductions made from pay - such as a loan payment - will have no affect on tax situation as the tax is based on the pay, not what you do with it. Certain payments like pension can be deducted from gross pay and are therefore special.

If this lease payment is deducted, this may in fact be like a loan deduction.

It is not always a good idea to drag Revenue into something where the facts are not established.

1. Is the lease payment reducing the gross pay for tax purposes? (I doubt it).
2. If you dont know: take out pay slip and do calculations.

WizardDr said:

Hold on!

Some deductions made from pay - such as a loan payment - will have no affect on tax situation as the tax is based on the pay, not what you do with it. Certain payments like pension can be deducted from gross pay and are therefore special.

If this lease payment is deducted, this may in fact be like a loan deduction.

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Fair enough, that makes sense alright.

WizardDr said:

It is not always a good idea to drag Revenue into something where the facts are not established.

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Surely it's better to do it at the outset rather than down the line?

WizardDr said:

1. Is the lease payment reducing the gross pay for tax purposes? (I doubt it).

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Yes, I've come to that conclusion as well. I also can't see how there is BIK considering that there will be payments made on the lease (i.e. how can they charge 30% of OMV p.a.?). There may very well be BIK implications on the lease, i.e. the rate implicit in the lease may be lower than that allowed by Revenue (11%).

WizardDr said:

2. If you dont know: take out pay slip and do calculations.

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Given that she hasn't signed up for this deal, it's not possible to do this. And I wouldn't be quick to tell her to do so without being fully aware of all tax issues, as this could negate some of the savings made under the lease.