What your company can do for you. By that I mean, what do you pay for, from net salary, that your company could pay? A typical reaction would be. Oh, I never thought about that. But why would you?
We’ll look at some obvious things and a couple of less obvious costs where your company could pick up the tab. The purpose of this is to show you ways where you keep more of your net salary. An important thing when times are tight.
It could be the difference between chips on the Prom in Tramore or Tapas at Casa Lola in Malaga. Our focus will be on
- Medical Insurance
- Club Membership
- Pension
- Small benefit
- Bike to work
- Other non-taxable benefits
Introduction
Romeo Murphy and Juliet Ryan met in Rubys. Back when slow songs were popular, and the nightclub served food. Romeo had his eyes on Juliet for a while and used the line “You and me, babe, how about it?” to ask her to dance. Love blossomed and two years later marriage. And three years after that they opened up a thriving cafe, Juliets, in the local town.
Both work hard. The company, RNJ Ltd, is doing well and they have built up cash reserves in the business of €150,000. Between work, family life and activities they barely have time to breathe. Not alone think about what the company could pay for. They ask us to take a look to see if they can do things better. Of course, they can.
Medical Insurance
The VHI medical insurance payment comes out of their joint account every month. €283.33 a month of €3,400 a year. That’s €3,400 from their net salaries. The gross salary, before taxes to pay for the VHI would be
| Gross Salary | €7,083 |
| Tax Payable 52% | €3,683 |
| Net Salary | €3,400 |
| Monthly Gross | €590.25 |
Romeo is twitching nervously in the chair when he sees the numbers. His salary is €70,000 per annum and he’s shocked to think 10% of it pays the medical insurance. Juliet works 3 days and is on a salary of €27,000. They want to know how it works if the company pays it.
Company pays it
The premium for the Murphy family is as follows.
| Name | Gross | Tax relief | Net |
| Romeo | €1,400 | €200 | €1,200 |
| Juliet | €1,400 | €200 | €1,200 |
| Enzo | €600 | €100 | €500 |
| Libby | €600 | €100 | €500 |
| €4,000 | €600 | €3,400 |
Romeo asks VHI to bill the company for the cost for 2023. VHI collects €3,400 from the company bank account by monthly direct debit of €283.33. As the company pays the premium it is a benefit in kind or BIK. Given that Juliet is on the 20% tax rate it will be a BIK for her. She pays BIK on the gross premium of €4,000.
| Monthly BIK €4,000/12 | €333.33 |
| PAYE/PRSI/USC 28.5% | €95 |
| Annual Tax cost | €1,140 |
| Less Tax relief claimed back | €600 |
| Net Tax cost | €540 |
The company must also pay the Tax relief amount of €600 as part of its corporation tax liability.
But there’s a kickback for Romeo and Juliet. When they file their annual tax return, they can claim the tax relief as a tax credit. So, they get a deduction of €600 against their tax bill. Correct. The net tax now comes down to €540 or €45 per month. They have gone from a monthly cost of €283 to €45. A saving of €238 per month or €2,856 in the year.
Club Membership
The annual golf club membership form comes in November every year. Always the same bloody week that the tax bill and the VHI roll in. The Timing is not good lads. To fund improvement works to the greens, membership has gone to €1,400 for 2023. Romeo is unsure if he should renew. Especially after Doherty’s comment last week about needing a strimmer to find his ball on the 15th.
He wants to know if the company could pay this. Yes, it can. But the golf club should bill RNJ Ltd. This is a perk of Romeo’s employment and is liable to BIK, based on the cost incurred by RNJ Ltd. If Romeo pays it the salary needed is
| Gross Salary | €2,917 |
| Tax cost 52% | €1,517 |
| Net salary | €1,400 |
When the company pays it, the cost is
| BIK | €1,400 |
| Tax cost 52% | €728 |
So, Romeo’s salary reduces by €728 in the month the company pays the membership. A saving of €672. Better than a slap in the face with a wet fish!
Pension
We have spoken before about the pensions journey. This is another way to extract value from your company. A very generous way. Romeo and Juliet ran the cafe as a partnership before transferring into a company at the start of 2022.
Romeo started a personal pension of €750 per month in 2014. He knows he gets tax relief at 40% so the net cost to him is €450 per month. Still, the €750 is a big chunk coming out given the jump in the mortgage and electricity bills. Not to mention Enzo starting college in UL in September. We run the numbers.
| Annual gross salary to fund pension | €11,250 |
| Tax due 52% | €5,850 |
| Net salary | €5,400 |
| Monthly net | €450 |
Sixteen percent of his gross salary goes to fund his pension. The company should pay this. The gold here is that there’s no BIK. Plus, the company gets a tax deduction for the payments. Wow super, why didn’t we do this before Juliet snarls? I did but you said that “it was just that the time was wrong”.
I repeat the sentence. This is one of the best ways of extracting value from your company. There are other ways too!
| Company pays €750 a month | €9,000 |
| Tax relief 12.5% | €1,125 |
| Net cost | €7,875 |
Small Benefit Exemption
The small benefit exemption is always a hot topic coming up to Christmas. You, as an employer, can give up to two small benefits a year that don’t exceed a combined value of €1,000. To qualify for the exemption, you cannot exchange the vouchers for cash. You must use them to buy goods or services.
Juliet wants to know if they can use them to buy Ryanair vouchers. There’s a brilliant campsite on the Costa del Sol that Doherty was raving about in the golf club last week. Romeo checks it out and there’s availability in June next year. They look at flights and they can get Ryanair from Cork to Malaga for €1,800 for the 4 of them.
RNJ Ltd buys two Ryanair vouchers for €900 each for Romeo & Juliet
| Cost to the company | €1,800 |
| Tax relief 12.5% | €225 |
| Net cost | €1,575 |
The exemption is that there’s no tax cost to the employer. As a result, the employer doesn’t pay employer’s PRSI nor does it deduct PAYE/PRSI or USC. The gross salary Romeo would need to fund the flights is €3,750. That’s more than 5% of his salary.
Bike to Work
Romeo asks about the bike to work thing that one of the lads in “The Cake Club” mentioned. The motto of the Cake Club is to cycle a few miles and stop for coffee and cake and then cycle home. RNJ Ltd can buy a “normal” bike for Romeo up to €1,250. The company could spend up to €1,500 on an e-bike. Romeo decides on the normal bike for €1,250.
The tax saving for him is
| Gross salary | €2,604 |
| Tax at 52% | €1,354 |
| Net salary | €1,250 |
It will be handy to have it as he knows he must use it for work, and he will.
Other benefits
Other non-taxable benefits that your employer could pay for you include
- Home telephone and broadband
- Exam fees where relevant to work
- Professional subscriptions where membership is a requirement of the job
- Medical check-ups
- Long service awards
- IT equipment where private use is incidental
The big one is a company car and with the recent changes in the Finance Bill, electric cars could be an option. I didn’t want to discuss that too much. The benefit depends so much on individual and company circumstances. We have discussed this in greater detail before
Value of the changes for Romeo
| Benefit | Saving |
| Medical Insurance | €238 |
| Club Membership | €56 |
| Pension | €450 |
| Small benefit | €150 |
| Bike to work | €104 |
| Total | €998 |
So, a €1,000 per month or €2,080 of gross salary. That’s an annual amount of €24,960 or 36% of Romeo’s gross annual salary.
Juliet said to Romeo “You nearly gave me a heart attack” when she saw the figures. He asks her “What you gonna do about it?”
Summary
What your company can do for you is a lot. As you’ll see a few small changes can make a big saving in your net salary. Of course, the company must be in a good position to pay for the costs. Optimising salaries at the lower tax rates is the first step. Does your company owe you money through your director’s current account? If so, then you can access that money with no tax cost.
“It’s not what you can do for your company but what your company can do for you.” Anonymous
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