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Amendment to Benefit-in-Kind

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In this current time of unease amidst the Cost-of-Living crisis as well as the Energy crisis, any news that results in an easing of financial burdens is welcome for all business owners and employees alike.

It was announced this week that the Government had made an unusual and temporary U-Turn to controversial tax changes which were introduced earlier this year. These changes were intended to encourage the use of Electric Vehicles (EVs), but received massive backlash from the approx. 150,000 motorists utilising company cars in Ireland. These changes saw the Benefit-In-Kind system become more CO2 based in order to facilitate the move towards lower emissions in Ireland. Unfortunately this meant that motorists whose vehicles were within the standard emission brackets were seeing a drastic increase in their income tax liabilities with their benefit-in-kind almost doubling in some cases. This, combined with the exponential price increases across the board were unsustainable for many employees.

Minister for Finance Michael McGrath has stated that the U-Turn on this will be temporary, as the move towards EVs is still very much a push that the government intend to make. The changes will only be applicable until December 31st, 2023. This change is set to be published in the coming days as part of the Finance Bill 2023 which is designed to assist businesses, employees and families alike in managing amidst the current rising energy prices and the cost of living crisis.

This change will involve a temporary relief of €10,000 to be applied to the Original Market Value (OMV) of cars within the A-D Categories to reduce the amount of BIK payable. In order to further facilitate the push towards Renewable Energy sources, this will also apply to EVs. In the case of EVs the reduction will be in addition to the existing €35,000 relief. It is important to note that vehicles in the E category will not be included here as these are vehicles with the highest emissions.

Of the changes, the Department of Finance has said; “In effect, this means that, for the purposes of calculating BIK liability, employers may reduce the OMV by €10,000 […] This treatment will also apply to all vans and electric vehicles. For electric vehicles, the OMV deduction of €10,000 will be in addition to the existing relief of €35,000 that is currently available for EVs, meaning that the total relief for 2023 will be €45,000.”

This U-Turn will be a welcome one as it was reported that some employees had either bought their company car for use as a private vehicle or handed the car back to avoid these increasing costs. The changes will be applied retrospectively to January 1st, 2023. It is not currently known if any measures will be in place in future years to safeguard company car drivers.

Updated BIK Mileage Bands for Cars:

Business Mileage Vehicle Categories
Lower limit (1) Upper limit (2) A (3) B (4) C (5) D (6) E (7)
Kilometres Kilometres Per cent Per cent Per cent Per cent Per cent
– 26,000 22.5 26.25 30 33.75 37.5
26,001 39,000 18 21 24 27 30
39,001 48,000 13.5 15.75 18 20.25 22.5
48,001 – 9 10.5 12 13.5 15

 

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Significant Changes to Benefit in Kind (BIK) on Company Vehicles from 1 Jan 2023

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Significant Changes to Benefit in Kind (BIK)

As part of the government’s climate action plan to lower emissions, there are some changes to the rules for calculating BIK on motor vehicles which are due to come into effect from January 1, 2023. These changes may increase costs for both employers and employees where the vehicles are in the higher CO2 emission bracket

The new rules will apply to all motor vehicles (including electric vehicles) whether the vehicle is acquired in 2023 or made available to employees in earlier years of assessment

Changes to BIK on Company Cars
Currently, the BIK on company cars is based on the OMV (original market value) of the car and the mileage.
From January 1 2023 BIK on company cars will be determined by the business mileage undertaken and the vehicle’s CO2 emissions.

Table 1:

 Vehicle Category (1)  CO2 Emissions (CO2/g/km) (2)
 A  0g/km up to and including 59g/km
 B  More than 59g/km up to and including 99g/km
 C  More than 99g/km up to and including 139g/km
 D  More than 139g/km up to and including 179g/km
 E  More than 179g/km

Table 2:

Business Mileage Vehicle Categories
Lower limit (1) Upper limit

(2)

 A

(3)

 B

(4)

 C

(5)

 D

(6)

 E

(7)
Km Km Per Cent Per Cent Per Cent Per Cent Per Cent
0 26,000 22.5 26.25 30 33.75 37.5
26,001 39,000 18 21 24 27 30
39,001 52,000 13.5 15.75 18 20.25 22.5
52,001 9 10.5 12 13.5 15

Where an employee has the use of a car provided by his/her employer on 01/01/2023, the OMV (original market value) of the car is €35,000. The car produces 130g/km in CO2 emissions (per Manufacturer). The actual business kilometres in the year were €42,000 kilometres, 130g/km in CO2 emissions puts the car in vehicle category C as per Table 1. As the employee drove 42,000 kilometres in the year, the case equivalent is equal to the OMV x 18% (Table 2)

BIK Calculation from January 2023:

€35,000 x 18% = €6,300

Changes to Benefit in Kind (BIK) on Electric Vehicles

The Benefit In Kind (BIK) regime is also changing for electric Vehicles. Under the current rules if the electric vehicle’s OMV (Original market value) does not exceed €50,000, then no BIK arises. Where the electric vehicle costs more than this, the OMV is reduced by €50,000 to calculate the BIK

However from 01/01/2023, this will be changed for an electric vehicle made available for an employee’s private use during the years 2023-2025, the OMV of the vehicle is reduced by €35,000 in 2023, €20,000 in 2024 and €10,000 in 2025. The threshold will gradually reduce to zero by 2023.
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

Example

An employee has the use of an electric company car on January 1, 2023. The OMV of the car is €80,000. The car produced 50g/km in co2 emission. The actual business kilometres in the year were 24,000 kilometres. 50g/km in CO2 emissions puts the car in vehicle Category A as per Table 1 above.

As the cars which will be made available are electric cars, they will generally be Category A vehicles
The below examples detail the effect of the tapering relief and change in BIK changes for employees over the next 4 years

Year 2023 2024 2025 2026
Original Market Value 80,000 80,000 80,0000 80,0000
Tax-Free Threshold of OMV 35,000 20,000 10,000 0
Taxable OMV 45,0000 60,000 70,000 80,000
BIK Rate to be used 22.5% 22.5% 22.5% 22.5%
Cash Equivalent of use of Electric Car €10,125 €13,500 €15,750 €18,000

Changes to Benefit in Kind (BIK) on Company Vans

For the tax year 2023 and onwards, the cash equivalent for vans will increase from 5% to 8% of the original market value (OMV)

Employers who provide cars or vans to their employees will need to review the treatment of these benefits in advance of the first pay dates in 2023. It would also be a good idea for employers to make their staff aware that there will be changes and they will notice this in their payslips. If the company vehicle falls into the higher emission bands, it may be time to consider purchasing smaller cars or electric cars

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Benefits Are Kind

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As Irish people, we are hard wired with that “nothing comes for free” mentality, which is excellent for maintaining that hard working focus and work ethic we are often known for, but can also be a negative attribute as it can sometimes mean that we fail to know what options are available to us and never enquire further. We here at EcovisDCA value our clients and friends so much that, as always, we endeavour to ensure that you are fully informed and up to date on your entitlements. After all, the squeezed middle, is surely squeezed enough so any relief SME owners can get is welcome.

Here in Ireland we have only really begun our journey into becoming more energy efficient, resulting in new initiatives being announced in order to encourage and support companies endeavouring to become more energy efficient. In recent Budgets it was announced that there would be a Benefits in Kind (BIK) exemption on Electric Vehicles, this can also be applied to company cars. A Benefit in Kind refers to any non-cash benefit of monetary value provided by an employer for an employee, often known as ‘benefits’ or ‘perks’. Due to the monetary value nature of these benefits, they are deemed taxable income. As such, deductions must be made by the employers on these benefits. How can a BIK Exemption on Electric Company Cars work for you?

From January 1st 2018 no taxable benefit applies for an employer providing an employee with an electric car or van. The BIK exemption will only apply to cars fuelled solely by electrical means, there will be no change to the status on hybrid cars. This could lead to valuable savings for you and your company in the long term. The addition of company owned car charging points is an optional additional benefit for these employees as these too are exempt and offer the employee free fuel with no taxable deduction on either side.

  • There are however a number of points to consider as with any exemptions there are of course conditions.
  • Per the announcements of Budget 2019, there is now a cap on the original market value of the vehicle that is exempt. Any electric vehicles with an original market value in excess of €50,000 will remain taxable in the normal manner.
  • Should an electric car or van be made available to an employee for private use, no taxable benefit will arise in relation to that use.
  • The exemption remains in place from January 1st 2018 until December 31st
  • Cars and vans must derive their power only from electrical means, hybrid vehicles do not qualify for this exemption.

We hope that this information will be of use to you going forward and as always, we here at EcovisDCA are always on hand should you have any queries or concerns on any business or financial matters.

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~ DCA PARTNERS, DECLAN DOLAN & EAMONN GARVEY