Coming in January 2023, a higher level of benefit-in-kind (BIK) tax will be imposed on cars with higher emissions.
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 the year of assessment 2023 and subsequent years.
At present the BIK on company cars is calculated at the rate of 30% of the original market value of the car. The new provision, however, will retain both original market value (OMV) and business mileage as factors, while taking account of the vehicle’s CO2 emissions. The new minimum BIK rate after discounts will increase to 9%, and the maximum rate will be 37.50%
BIK is a tax on benefits that an employee receives that cannot be converted into cash but have a cash value. This rule will apply to all cars (including electric vehicles) and will apply to existing company cars as well as new cars provided to employees on or after 1 January 2023.
The cash equivalent of the use of an employer provided car can be determined using the formula:
Original market value (OMV) x A
To calculate A:
- Determine the applicable vehicle category from Table 2 based on the amount of CO2 g/km the vehicle produces
- Locate your vehicle category in Table 1
- Compare the annual business mileage travelled for the year to establish the appropriate percentage to use for A.
For example, an employee has use of a car provided by his or her employer on 1 January 2023. The OMV of the car is €28,000. Per the manufacturer, the car produces 120g/km in CO₂ emissions. The actual business kilometres in the year were 32,000 kilometres.
120g/km in CO₂ emissions puts the car in vehicle category C in Table 2. As the employee drove 32,000 kilometres in the year, the cash equivalent is equal to the OMV x 24% (mileage between 26,001 and 39,000, see table 1).
Cash Equivalent (OMV x 24%)
€28,000 x 24% = €6,720
Benefit-in-Kind: Electric Vehicles
Under the current rules, if the electric vehicle OMV does not exceed €50,000, then the OMV is reduced by €50,000, effectively to zero.
Over €50,000 in value, the existing rates are used based on the business mileage – from 6pc to 30pc.
The new regime provides for a reduction of €35,000 in 2023, €20,000 in 2024 and €10,000 in 2025. The threshold will gradually reduce to zero by 2026, with a new BIK rate of up to 22.5pc being applied.
This is lower than the top 30pc Bik rate for internal combustion engine vehicles.
Section 6 of Finance Act 2019 also introduced a change to the percentage used in the calculation of the cash equivalent of the use of a van. From 1 January 2023, the percentage used in the calculation of the cash equivalent of the use of a van will increase from 5% to 8%.
Our Tax Team can assist you in relation to the taxation of company cars. For more information, contact:
Jane Jackson, Head of Payroll and Tax Compliance, UHY Farrelly Dawe White Limited email@example.com
+353 42 933 9955