Termination payments
Payments exempt from tax
The following payments made in connection with the termination of an
employment, on retirement or on removal, are exempt from tax:
00ex-gratia payments up to the amount of the basic exemption. The basic
exemption is 000,160 with an additional 0065 for each complete year of
service
00statutory redundancy payable under the Redundancy Payments Acts
1967-2003
00immediate or deferred lump sums paid by a pension scheme in lieu of
commuting part or all of a pension. In general this only applies to Revenue
approved schemes
00certain ex-gratia payments made in connection with the death, injury or
disability of an employee
00certain ex-gratia payments where the employee had significant periods of
foreign service.
Other reliefs available
00Increased exemption - subject to Revenue approval, and if no claim for
relief has been made in the previous ten years of assessment, the basic
exemption may be increased by up to 000,000. The 000,000 amount is
reduced on a euro for euro basis by the value of any tax free lump sum
received or receivable (and provided it is not irrevocably waived) under an
approved pension scheme.
00Standard Capital Superannuation Benefit (SCSB) - the SCSB is an
amount equal to: (A X B / 15) - C where:
A = average annual remuneration for the last 3 years' service
B = number of complete years' service
C = value of any tax free lump sum received/receivable under an approved
pension scheme.
The maximum relief is the greater of the SCSB and the basic/increased
exemption.
00Top slicing relief - the tax payable on an ex-gratia payment is limited to the
employee's average tax rate for the previous three tax years. Where the tax
deducted on the termination payment exceeds this amount, a refund should
be claimed after the end of the tax year in which the employment
terminates.
General
Special rules apply where two or more termination payments are made by the
same or associated employers.
The taxable element of the ex-gratia payment is subject to PRSI at Class K1
(ie employer nil, employee 2%).
Benefits-in-kind (BIKs)
The majority of employee benefits are subject to PAYE and PRSI (including the
health contribution). The taxable benefit is treated as "notional pay" from which
PAYE and PRSI are deducted. Some benefits are tax exempt (see below).
BIK for use of company car
The annual notional pay arising from the use of a company car to which PAYE
and PRSI must be applied is calculated at 30% of the original market value of
the car. There is no fixed percentage reduction in the BIK charge where the
employer does not meet all the car running expenses.
Employee taxation
6
7
Employee taxation
A reduction is made on a euro for euro basis for any amount made good by an
employee directly to the employer in respect of the cost of providing or running
the car.
Tapering relief applies where the employee has business mileage in excess of
15,000 miles in a year. This relief operates in the form of a reduction in the
notional pay as calculated above. The taxable percentages for 2006 are as
follows:
Where an employee is required to work abroad for an extended period, the
notional pay is reduced by reference to the number of days spent working
abroad. This is conditional on the employee travelling abroad without a car
and the car not being available for use by family or household members.
There is a 20% relief from notional pay on cars for employees whose annual
business mileage exceeds 5,000 miles and who spend 70% or more of their
time away from their place of work or business and who do not avail of the
tapering mileage relief above. The employee must also work for an average of
at least 20 hours per week and must maintain a logbook of business mileage
and other details which are to be certified by the employer.
BIK on preferential loans
In calculating the BIK charge for 2006 in respect of preferential loans from
employers, the specified rates used are 3.5% (home loans) and 11% (other
loans). The BIK charge is on the difference between the interest on the loan at
the specified rate and the interest actually paid on the loan for the year.
BIK on travel passes, childcare and small benefits
The following benefits are exempt from income tax:
00provision by employer of monthly or annual bus/train pass for employees or
directors; if certain conditions are met it is possible to provide such travel
passes by reducing gross salary
00provision by employer of free or subsidised childcare services for the benefit
of all employees or directors, subject to conditions being met
00provision by employer of a benefit to a value not exceeding 0050 for 2006;
no more than one such benefit may be given to an employee in a tax year.
Certain other benefits are concessionally treated as tax exempt. For details of
the tax treatment of employer contributions to occupational pension schemes,
refer to the section "Pension schemes" on pages 13-14.
Annual business
mileage thresholds
Taxable percentage
%
15,000 or less
30
15,001 to 20,000
24
20,001 to 25,000
18
25,001 to 30,000
12
30,001 or over
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8
Employee taxation
Motor travel rates - civil service
(from 1 July 2005)
Official km in
Engine capacityEngine capacityEngine capacity
a calendar year
up to 1,200cc
1,201cc to 1,500cc1,501cc and over
cent
cent
cent
Up to 6,437km
52.16
60.85
77.21
6,438km and over
26.40
30.31
35.67
Subsistence - civil service subsistence rates
within Ireland (from 1 July 2005)
Night allowances
Day allowances
normal reduced
10 hours
between 5
rate rate
or more
& 10 hours
000
00/span>
00/span>
Class A
138.41
127.60
40.01
16.32
Class B
127.49
109.04
40.01
16.32
Notes
00Class A rates apply to employees whose annual salary exceeds 008,484.
Class B rates apply where yearly salary is below 008,484.
00The normal rate and reduced rate night allowances are payable for set
periods, generally not exceeding 28 nights in total. Special and lower rates
apply thereafter.
00In general, the night allowance applies to each absence of not less than 24
hours necessarily spent away from the normal place of work.
00The day allowance applies in respect of a continuous absence of 5 hours or
more from the employee's normal place of work provided the employee is
not absent at a place within 5km of home or normal place of work. The
relevant day rate depends on the period of absence.
00A day and night allowance cannot be paid in respect of the same period.
Advice should be taken before proceeding with any payments.
Approved share option schemes
Options granted under Revenue approved share option schemes qualify for
favourable tax treatment. Under these schemes, the legislation provides for
exemption from income tax on both grant and exercise of the option, and
provides for capital gains tax on disposal to be charged on the excess of the
net sales proceeds over the price paid for the shares.
The primary requirements for Revenue approval are as follows:
00all grants must be at market value
00all employees with three years' service must be eligible to participate
00generally, options must be granted to all employees and on similar terms
00'new hire' grants will be treated as meeting 'similar terms' criteria in certain
circumstances
detention
rate
00/span>
69.19
63.77
The rates shown above are the full rates. Reduced rates apply in certain
circumstances.
00options may be awarded to 'key employees' on a discretionary basis as long
as they do not exceed 30% of total approved grants in the relevant tax year.
The scheme requires the formal written approval of the Revenue
Commissioners and, to meet the conditions for approval, existing schemes
may need to be amended. The favourable tax treatment is not available where
the option shares are sold within 3 years from date of grant.
Unapproved share option schemes
Where, by reason of an employment, an employee receives an unapproved
share option, a charge to income tax will arise on the exercise of the option,
irrespective of whether the employee retains or sells the shares concerned. The
amount charged to income tax is the excess of the market value of the share
on exercise over the option price. This share option gain is taxable at the
employee's marginal rate of income tax. The tax must be paid by the employee
within 30 days of the date of exercise. The employee must file a Form RTSO1
at the same time.
The Revenue Commissioners are expected to issue a Statement of Practice in
2006 on 'The Tax Treatment of Share Options Granted in Respect of
Employments and Directorships - International Aspects'.
SAYE share option schemes
A company may establish a Revenue approved save-as-you-earn (SAYE) share
option scheme. Options under a SAYE scheme can be granted at a price
discounted by up to 25% of the market value of the share. To fund the exercise
of the option, employees must commit to regular monthly savings, from after
tax income, over a period of 36 or 60 months. Any interest paid on the savings
at maturity will be exempt from tax.
The SAYE scheme must be open to all employees on similar terms. Subject to
certain requirements, options granted under a Revenue approved SAYE
scheme will not be liable to income tax on grant or exercise. However, capital
gains tax may arise on the sale of the shares based on the excess of the net
sales proceeds over the price paid for the shares.
Approved profit sharing schemes
Employees are exempt from income tax on shares received, up to the value of
002,700 annually, from a Revenue approved profit sharing scheme. To avoid an
income tax liability, the shares must be held in trust for a total of 3 years. If the
shares are sold within 3 years, income tax is charged on 100% of the value of
the shares at appropriation, or on the sale proceeds, whichever is the lesser. If
the individual ceases to be an employee of the company due to injury, disability
or redundancy, or reaches State pension age, within the 3 years and the shares
are sold, income tax is charged on 50% of the value of the shares at
appropriation, or the sale proceeds if lower (in the event of sale rather than
transfer). The profit sharing schemes must be available to all employees on
similar terms. A disposal of shares may give rise to a capital gains tax liability.
The taxable gain will be calculated on the difference between the sale
proceeds and the market value of the shares on the date they were
appropriated.
Employee taxation
9
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