Significant changes to the basis of taxing the benefit in kind (BIK) arising from the provision of a company car will come into effect from 1 January 2023. The new provisions, which are already on the statute book and are therefore not dependent on the forthcoming Budget, will change the basis of the charge from one based solely on the original market value (‘OMV’) of the car and business mileage travelled, to one which also takes account of the vehicle’s CO2 emissions. This will result in a higher level of BIK being imposed on cars with higher emissions. The changes will apply to existing company cars as well as new cars provided to employees on or after 1 January 2023. Employers who provide cars to their employees will need to take account of these changes in their payroll systems and also review the calculation of current BIK charges.
At present the BIK on company cars is calculated at the rate of 30% of the original market value of the car. A discounted rate is granted where the employee incurs significant business related travel. Currently there are five mileage bands which provide for a BIK charge ranging from 30% to 6% of OMV depending on the level of business mileage incurred. These will be reduced to four bands.
The new system will retain both OMV and business mileage as factors in calculating the BIK charge, however it will also take account of the vehicle’s CO2 emissions. For many users with cars in the middle of the emissions range, it is likely that the BIK charge under the new system will remain the same as at present. Those with cars in the highest emission range (over 179g/km) will however see an increase in the percentage benefit in kind charge across all mileage bands, with a new maximum rate of cash equivalent/benefit in kind of 37.50%. Furthermore, the minimum BIK rate after discounts for business mileage will increase from 6% to 9%.
Example:
Current Basis
The cash equivalent/BIK is equal to the OMV x 24% (€28,000 x 24%) = €6,720
New Basis effective 1 Jan 2023
180g/km in CO₂ emissions puts the car in vehicle category E under the new system. The applicable BIK rate is 30%.
The Cash Equivalent/BIK is equal to the OMV x 30% (€28,000 x 30%) = €8,400
Electric cars
The legislation also provides for the tapering (reduction) of the current BIK exemption for electric vehicles (EVs). This will see the current exemption reducing as follows;
Company vans
The flat rate BIK charge on company provided vans, currently set at 5% of OMV will increase to 8% from 1 January 2023. The exemption for electric vans will be tapered on the same basis as for electric cars from 2023.
Employers who provide cars or vans to their employees for private use will need to review the treatment of these benefits in advance of 1 January 2023 to determine the impact of the changes and to ensure that the correct notional pay is subject to tax with effect from 2023. In light of current pressure on fuel prices and the need to address climate change, it may also be an appropriate opportunity to consider whether the provision of cars as a benefit in kind continues to be an appropriate part of remuneration policy going forward.
Our employment tax team has wide experience in relation to the taxation of company cars and other employment benefits and is available to assist your business in managing these changes.
Mark Hynes
mhynes@bdo.ie