Thousands of people with company cars and vans in Ireland are set to be hit with a steep increase in benefit-in-kind tax in the new year.
The changes, coming in January 2023, are largely driven by the government’s Climate Action Plan 2021 to lower emissions by 2030. It means that benefit-in-kind tax is set to rise going to soar by 40%, for those who are given a vehicle by their employer, and according to industry experts there are around 15,000 company cars on Irish roads, on top of soaring diesel and petrol prices.
One sales rep said told Dublin Live: "Benefit-in-kind rates are going to see a big increase in January 2023, on top of the soaring petrol and diesel prices as well as the cost of living crisis, this will be a concern for many people throughout the country, even if they have an electric car it's still going to cost a couple of hundred euros extra per month." We look at what benefit-in-kind is and how you could be affected if you have a company car or van here.
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What is Benefit-In-Kind (BIK)?
A benefit-in-kind (BIK) is any non-cash benefit of monetary value that is provided for an employee, such as a company car or van that allows workers to commute to and from their place of work. These benefits can also be referred to as notional pay, fringe benefits or perks.
Section 6 of Finance Act 2019 introduced a new method to calculate the cash equivalent of the use of a car. These changes will take effect for 2023 and subsequent years.
It should be noted that the new rules in 2023 will apply to all
cars (including electric vehicles), whether the car is acquired in 2023 or was made available to employees in earlier years of assessment. From 2023 onwards, the BIK cash equivalent on the use of an employer provider car will be determined based on both the business mileage undertaken and the vehicle’s CO2 emissions.
Company cars.
At the moment, a car worth €37,000 doing 25,000 business kilometres per annum and emitting 150g CO2 per kilometre would have a benefit-in- kind of €8,880, according to Taxback.com. Under the new regime, the car will come in at band D and the tax amount will rise to around €12,500 which is an increase of€3,620.
Company Vans
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).
Electric Vehicles
The Department of Finance announced in Budget 2022 the phasing out of the 0% benfit-in-kind on Electric Vehicles over the next four years. Electric vehicles are more than 70% cheaper to run than traditional petrol and diesel cars, according to The Department of Transport.
According to a car expert spoken to by Dublin Live, the Finance Act 2021 extended the favourable BIK regime for certain electric vehicles made available to employee’s in the period from 1 January 2023 to 31 December 2025. The relief from the BIK charge arising during this period applies on a tapered basis, so for an electric vehicle made available for an employee’s 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 reduces the OMV to Nil, a BIK charge will not arise. Any portion of OMV remaining, after the reduction is applied, is chargeable to benefit-in-kind at the prescribed rates.
Section 118 (5H) TCA 1997 provides that from 1 January 2018 any expense incurred by an employer in the provision of electric vehicle charging facilities for 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
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