The changes are largely driven by the government’s Climate Action Plan 2021 to lower emissions by 2030.
These changes may increase costs for both employers and employees where the vehicle is in the higher CO2 emissions bracket. Employers should review the vehicles provided to employees in light of these changes.
Background: Employer-Provided Vehicles
An employer provided vehicle encompasses all cars or vans made available to an employee. An employee may be chargeable to tax on the benefit in kind (BIK) arising where, by reason of his or her employment, a vehicle is made available (without a transfer of ownership) to him or her and the vehicle is, in the tax year, available either for that individual’s private use or to his or her family or household.
Benefit-in-kind: Effect on Company Cars from 1 January 2023
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, see further detail below), 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. Please find details below:
i. The amount of business mileage and CO2 emission category
|Lower limit||Upper limit||A||B||C||D||E|
ii. The CO2 emissions category of the car is as per the following table
|Vechicle Category||CO2 Emissions (CO2 g/km)|
|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|
An employee has the use of a car provided by his or her employer on January 1 2023. The OMV of the car is €28,000.
Per the manufacturer, the car produces 85g/km in CO₂ emissions. The actual business kilometres in the year were 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)
BIK Calculation: Cash Equivalent (OMV) €28,000 x 15.75% = €4,410
Using the same example above, where an employee travels 41,000 business kilometres in the year and the OMV of the car is €28,000 under the current rules the BIK calculation would be as follows:
€28,000 X 12% = €3,360
Employers are required to maintain records of the kilometres travelled by each employee. This should be maintained on a weekly / monthly basis in order to calculate the BIK to be reported on a real time basis via the weekly/monthly payroll returns. Revenue have advised that employers should review this regularly (at least quarterly) to ensure the BIK recorded to Revenue is as accurate as possible.
Benefit-in-kind: Effect on Company Vans from 1 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 1 January 2023
The Department of Finance announced in Budget 2022 the phasing out of the 0% BIK on Electric Vehicles over the next 4 years. 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.
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.
An employee has the use of an electric company car on January 1 2023. The OMV of the car is €70,000.
Per the manufacturer, the car produces 50g/km in CO₂ emissions. The actual business kilometres in the year were 24,000 kilometres. 50g/km in CO₂ emissions puts the car in vehicle Category A.
As the cars which will be made available are electric cars, they will generally be ‘Category A’ vehicles i.e. vehicles with CO2 emissions between 0g/km and 59g/km inclusive.
The below examples details the effect of the tapering relief and change in BIK charges for employees over the next 4 years:
|Original Market Value||€70,000||€70,000||€70,000||€70,000|
|Tax Free Threshold of OMV||€35,000||€20,000||€10,000||-|
|BIK Rate to be used||22.5%||22.5%||22.5%||22.5%|
|Cash Equivalent of use of Electric Car||€7,875||€11,250||€13,500||€15,750|