Employers are warning that workers finding themselves liable to the newtaxes will push for pay increases to compensate, writes Dominic Coyle

Government moves to impose PRSI and income tax on the use of company vans has been attacked as a tax on efficiency by the Small Firms Association (SFA).

The business lobby said the move to treat company vans as benefit in kind would cause uproar among small business.

"Most employees bring the van home simply to make an early start the following day," said SFA director Mr Pat Delaney.

Employees finding themselves liable to the taxes would push for pay increases to compensate, he added.

The treatment of vans in the new benefit-in-kind rules was one of the few surprises in the guidelines for employers' published on Thursday.

However, the new rules are liable to create difficulties for employers and their staff.

For companies, the biggest issue is that they become responsible for determining the tax due on all cash and non-cash elements of remuneration.

Until now, employers only had to detail benefit in kind when approached by the Revenue and the responsibility for collecting the tax rested with the employee and the Revenue.

Accountants say the switch will impose a substantial additional administrative burden on companies. "Revenue seems to see this as a cash-generating exercise," said KPMG's Mr John Bradley. "They recognised that they weren't too efficient in this area."

PricewaterhouseCoopers' Mr Ken O'Brien says: "This new legislation imposes all the failure risk on the employer as well as the burden of explaining to any employee receiving benefit in kind why they are effectively getting a pay cut from January 1st."

KPMG estimates that benefit in kind accounts for about 10 per cent of overall employee benefits. On this basis, Mr Bradley estimates payroll costs will rise by 1- 1.5 per cent of payroll, on the assumption that employers' PRSI remains at 10.75 per cent.

Staff will also face a PRSI charge of 6 per cent on such benefits plus a health levy of 2 per cent.However, accountants say this will unfairly target lower-paid workers as employee PRSI is paid only up to an earnings ceiling of €40,420.

Employees facing lower take-home pay and the loss of traditional privileges may also push companies for compensation, raising the spectre of additional costs.

With the additional workload involved, many employers may be tempted to revert purely to cash payments. However, Mr Bradley urged caution. "It would be a knee-jerk reaction because you could find that employees suddenly want all the cash elements of their pay made pensionable."

Mr O'Brien says the new regime will prove very unpopular with multinationals, which use non-cash pay as an incentive tool.

Revenue has taken 10 months to get the guidelines together and the legislative regulations bringing them into force are unlikely to be in place until next month. That leaves employers just weeks to implement the new system, which kicks in on January 1st.

However, with Minister for Finance Mr McCreevy pencilling in income of €83 million from the change in his last budget, there is little likelihood of the proposals being deferred.

While the proposals are seen as unwelcome, accountants and business groups say that the final guidelines are better than earlier drafts, which among other things would have taxed mobile phones.