Professional Accounting Services in Dublin - Tax Saving, Company Secretarial and Business Planning
Company cars and benefit in kind – up to 31st December 2022 – see below for the regime after 1st January 2023
If you have a company car you will pay some benefit in kind – BIK. Tax rules are that you pay PAYE on a cash equivalent calculated using Original Market Value and the mileage you drive for business.
Original Market Value is calculated to be the list price of the car less 10% discount. It bears no relationship to what you actually paid for the car, so for example if you buy a secondhand car, what you actually paid is ignored and Original Market Value is used to calculate benefit in kind.
Then you take a percentage of the OMV and add that to your monthly salary in accordance to the number of kilometres driven by you for work.
Kilometres for work per year Percentage of OMV
0 – 24,000 30%
24,001 – 32,000 24%
32,001 – 40,000 18%
40,001 – 48,000 12%
over 48,001 6%
Private mileage is assumed as 8,000 kilometres unless you have proof that it is lower.
So if you have a company car where the list price was €26,550, deduct 10% giving an Original Market Value of €23,895. Say you don’t do much mileage for the company, and drive less than 24,000 kilometres. You are charged 30% of €23,895 which is €7,168. Divide €7,168 by 12 months and add that to your salary to get the monthly equivalent, so in this example you will get taxed on €597 per month.
An employee can pay towards the cost of the car and get a reduction in the BIK and any cash paid reduces the BIK charged. So in the above example if you paid your employer €200 per month towards the cost of the car you would get that take off the BIK and only pay tax on €397 per month.
There are further examptions for employees with low mileage i.e. below 24,000 kilometres.
If the employee does not travel more than 24,000 kilometres annually, the cash equivalent calculated may be further reduced by 20%.
To get this reduction the employee must also:
- work an average of at least 20 hours per week
- travel at least 8,000 business kilometres annually
- spend at least 70% of their working time away from the workplace
- retain a log book with details of business kilometres and work purposes.
There are also variations when it comes to calculating the BIK during Covid. The car can be treated as if it was not available to the employee in that time as if they were abroad for work.
Where this happens, you can reduce the cash equivalent to reflect the number of days the employee actually had the car for use i.e. there were no lockdowns and the employee was allowed to go about their daily duties – visiting customers, building sites and so on.
Where this happens, you can ‘annualise’ the business kilometres to calculate the cash equivalent of the car. This allows you to see what the cash equivalent would have been if the employee used the car for the full year.
You can then reduce the cash equivalent by the number of days the car was not in use that year.
The big change in this area is applying BIK to electric cars. For electric cars under €50,000, employees won’t pay anything. However, there is another catch. The limit applies before the current €10,000 of grants (€5,000 SEAI grant and €5,000 in VRT rebate) are drawn down, so while a car may cost a buyer €35,000 for example, for the purposes of BIK it is regarded as a €45,00 car. Add more than €5,000 of options to the car and BIK starts to apply.
Benefit-in-kind: Effect on Company Cars from 1 January 2023
the Finance Act 2019 introduced a new way to calculate the cash equivalent for an employee for the use of a car. These changes will take effect from 1st January 2023. The new rules will apply to all cars ( conventional cars and vans and electric vehicles – more below), whether the car is bought in 2023 or was available to employees before that.
From 1st January 2023, the BIK cash equivalent for the use of an employer provided car will be based on both the business mileage driven and the vehicle’s CO2 emissions.
i. The amount of business mileage and CO2 emission category
ii. The CO2 emissions category of the car is here:
An employee has the use of a car from his employer on 1st January 2023. The Original Market Value of the car is €28,000.
According to the manufacturer, the car produces 85g/km in CO₂ emissions. The employee drives business kilometres in the year 2023 41,000 kilometres. 85g/km in CO₂ emissions puts the car in vehicle Category B.
As the employee drove 41,000 kilometres in the year, the cash equivalent is equal to the OMV x 15.75% (mileage between 39,001 and 52,000)
Benefit In Kind Calculation: Cash Equivalent (Original Market Value ) €28,000 x 15.75% = €4,410
Using the same example above, where an employee drives 41,000 business kilometres in the year and the Original Market Value of the car is €28,000, under the rules that apply up to 31st December 2022, the Benefit In Kind calculation would be:
€28,000 X 12% = €3,360
Employers are must keep records of the kilometres driven by each employee. This should be kept on a weekly / monthly basis in order to calculate the BIK to be reported on a real time basis on the weekly/monthly payroll payslips and the periodic PAYE returns. Revenue have advised that employers should review this regularly (at least quarterly) to ensure the BIK reported to Revenue is as accurate as possible.
Benefit-in-kind: Effect on Company Vans from 1st January 2023
For the year of assessment 2023 and onwards the cash equivalent for vans will increase from 5% to 8% of the Original Market Value (OMV).
Benefit-in-kind: Effect on Electric Vehicles from 1st January 2023
The Department of Finance said that in Budget 2022 the 0% BIK on Electric Vehicles will be taperd off over the next 4 years. Finance Act 2021 prolonged the electric Vehicle BIK regime for electric vehicles provided for employee’s in the years from 1st January 2023 to 31st December 2025. The relief from the BIK charge arising during this period applies on a tapered basis.
For an electric vehicle made given an employee’s for private use during the years 2023 – 2025, the cash equivalent will be calculated based on the actual original market value (OMV) of the vehicle reduced by:
- €35,000 in respect of vehicles made available in the 2023 year of assessment;
- €20,000 in respect of vehicles made available in the 2024 year of assessment; and
- €10,000 in respect of vehicles made available in the 2025 year of assessment.
If the reduction makes Original Market Value to Nil, a Benefit In Kind charge will not arise. Any portion of Original Market Value remaining, after the reduction is applied, is chargeable to benefit-in-kind at the rates above.
Section 118 (5H) TCA 1997 provides that from 1st January 2018 any money spent by an employer in giving electric vehicle charging facilities to employees and directors on the employer’s business premises, once all employees and directors can avail of the facility, are exempt from the charge to BIK. In other words if everyone is allowed to charge their vehicles – there is no charge for the private proportion for recharging.
An employee has the use of an electric company car on 1st January 2023. The OMV of the car is €70,000.
According to the manufacturer, the car produces 50g/km in CO₂ emissions. The business kilometres driven in the year was 24,000 kilometres. 50g/km in CO₂ emissions puts the car in vehicle Category A.
Electric cars are generally ‘Category A’ vehicles i.e. vehicles with CO2 emissions between 0g/km and 59g/km inclusive.
The below examples shows the effect of the tapering relief and change in BIK charges for employees over the next 4 years: