Do I pay BIK on Membership Fees

When an employer pays for his/her employee’s professional membership fees, it doesn’t mean there won’t be a cost for the employee. Depending on the circumstances there may be a benefit in kind (BIK). This article will look at the potential consequences for the employee and the criteria necessary to receive the benefit tax-free. I’ll also focus on the payment of annual membership fees to a professional body as opposed to cases like gym memberships. Incidentally, an employer can pay gym membership fees tax free and if you’d like to find out how, please contact me on [email protected]

The key piece of legislation is Section 114 of The Taxes Consolidation Act 1997. It lays down the broad criteria for expenses such as a professional membership fee to be paid by an employer on behalf of an employee without a BIK arising. If a BIK does arise it will result in income tax, PRSI and USC at the marginal rate of tax applying to that employee. A BIK is a non-cash benefit received from an employer that needs to be taxed no differently than salary or a bonus.

The language in Section 114 isn’t the easiest to read. What it means in the context of a professional subscription is that the cost must be incurred wholly, exclusively and necessarily for the carrying out of the employees duties of employment. This is really quite a high bar. To consider another example for a moment, if you incur motor expenses travelling from your employers office to a clients office, the cost of this business journey is refundable to the employee by the employer tax free. If you incur motor expenses driving from home to your place of work, these costs cannot be paid tax free as you have incurred this cost to “put you in a position” to do your work and is not considered work in itself. I would argue that being squashed like a sardine on a Luas is hard work but Revenue say no!!

Quite often, the employee will pay the membership fee themselves and the employer will reimburse their employee for the cost of membership. At other times, an employer will pay the cost themselves. If the membership fee is incurred wholly, exclusively and necessarily then there will be no negative tax consequences for the employee. The key question is how can this test be met?

The circumstances of the employee dictate whether they meet the test rather than the type of subscription under consideration. For example, membership fees of the Law Society can be paid on behalf of one type of solicitor free of tax and in other situations, the solicitor will have a BIK. In some situations, it will be very clear that a membership subscription fully qualifies under Section 114 and in other cases, an employer will need to contact Revenue to make the case that they believe the expense was incurred wholly, exclusively and necessarily for the performance of the employees duties.

Where a designated body, association or society, states that an employee must be a member to carry out a particular profession and the employee is employed in that professional capacity, there is no issue at all, the expense can be paid on behalf of the employee with no BIK or operation of additional payroll taxes. What’s key here is that the employee must be required to be a member and must actually be working in that capacity.

Going back to the example of solicitors, a practicing solicitor, working in that capacity must be a member of the Law Society with an up to date practicing certificate. However, if a solicitor is working in a commercial role, a role that could be performed by someone who isn’t a solicitor, then they do not need a practicing certificate and so if their employer pays this cost on their behalf, it will be treated as a BIK and payroll taxes must be operated.

In other cases, a professional may need to hold a professional qualification to appear and represent a client in front of a formal body. A tax consultant must hold an up to date qualification to appear in front of the Tax Appeals Commission (TAC) (this body replaced the Appeal Commissioners in March 2016). In this case, Revenue will allow the cost of membership of the Irish Taxation Institute (ITI) if it is a condition of the employee’s employment that he must be able to represent clients in front of TAC.

Many accountants will also be members of accounting bodies such as ACA. If we have an employee who is required to represent clients at TAC, by statute, then they only need one of these qualifications and not both. One will be paid free of tax and the other will require a taxable BIK. As you can see, the decision is not made based on automatic membership of a professional body but rather by the requirements of the employee’s duties of employment.

In some cases, there will be a commercial necessity where an employee without a professional membership or certificate would prevent an employer from carrying out its business. This could be where a failure to carry the necessary qualifications would exclude be a breach of the employer’s professional indemnity insurance policy. It could also be the case that the absence of such qualifications prevents certain customers from going into business with the employer.

In more general cases, Revenue will usually allow a deduction if:

(i) The duties of employment require the employee to exercise or practice an occupation which directly relates to the payment of the annual membership fees;

(ii) The employee actually carries on the occupation or profession to which the fee relates; and

(iii) Being a member of the professional body is a necessary requirement of the employment.

There are factors that will be persuasive that the above criteria are being met:

(i) The employees employment contract states that the employee must hold the qualification/membership;

(ii) Staff in similar roles are required to hold the same or equivalent qualifications;

(iii) The employee would have to leave their role if they no longer held the membership;

(iv) Similar roles when publicly advertised contain mention of the qualification.

If I was to boil this whole issue down to one word it would be the word necessary. The qualification must be a “have to have” rather than a “nice to have”. If someone without the qualification or equivalent membership could carry out all the duties of your role without the qualification, then chances are this will mean a BIK for the employee when the employer pays their membership fees. If this is an issue for you or one of your employees, please drop me a line on [email protected] and I’ll be happy to give you my opinion on the facts of your case at no charge.