Banks unable to provide debt forgiveness to own employees!

As we all know, nobody in the land was immune from the economic crisis.

So it is no surprise that many employees of the various banks are in financial difficulty with their own loans, and that some require debt forgiveness.

However,  the banks have now been advised that any debt forgiveness to employees would amount to a taxable benefit in kind on the employee, given the provisions of Section 122  of the Tax Consolidation Act.

The current legislation in respect of benefits-in-kind is that PAYE, PRSI and the USC must be operated by employers in respect of the taxable value of most benefits-in-kind and other non-cash benefits provided by them for their employees. The Revenue advice is that employers have to pay PAYE/PRSI and USC in respect of loans written off. The Revenue have advised that the legislation also applies to staff that have left the banks.

Any bank that currently provides debt forgiveness to existing staff must "gross up" the benefit-in-kind and deduct PAYE on it.  We understand that in such cases the banks attempt to recoup the PAYE from the employee over a period of time. Obviously, if the employee has left the bank then it is more difficult for the bank to recoup the additional taxes from the employee,

As a consequence of the legislation the banks are not providing debt forgiveness in many cases to existing staff or former staff.

We understand that the Revenue are in the process of clarifying whether the strict rules of Section 122 apply should apply to PIAs/DSAs. Obviously, the Revenue would be concerned about deliberate tax avoidance steps being taken by tax payers. We believe that a PIA/DSA formulated by a Personal Insolvency Practitioner, who is regulated by the Insolvency Service of Ireland, should provide adequate oversight from the Revenue perspective, and allow the banks to write off loans that are simply not recoverable, without having to suffer a tax penalty.

If the Revenue decide that the strict rules do currently apply to PIAs/DSAs, then a legislative change would be required.  In the meantime, many families are under extreme stress as a result of being unable to arrive at a solution.

By Jim Stafford of Friel Stafford

Article Published: 11/05/2016