Recent Government policy has been focused on strengthening the environmental rationale behind company car taxation. Until the Finance Act 2019 Ireland’s vehicle benefit-in-kind regime was unusual in that there was no overall CO2 rationale in the regime, despite a CO2 based vehicle BIK regime being legislated for as far back as 2008 (but never having been commenced). Section 6 of the Finance Act 2019 legislated for a fundamental overhaul of the regime which brought in discount and surcharge rates based on a car’s emissions profile, and is due to commence from 1/1/2023.
There have been arguments surrounding the mileage bands in the BIK structure as they can be perceived as incentivising higher mileage to avail of lower rates, leading to higher levels of emissions. The rationale behind the mileage bands is that the greater the business mileage, the more the car is a benefit to the company rather than its employee (on average); and the more the car depreciates in value, the less of a benefit it is to the employee (in years 2 and 3) as the asset from which the benefit is derived is depreciating faster. Mileage bands also ensure that cars more integral to the conduct of business receive preferential tax treatment.
Acknowledging these environmental concerns however, the reform brought in the 2019 Finance Act reduced the mileage bands from five to four, thus weakening any perverse incentives of increasing mileage to reduce tax liability while still seeking to apply the tax in proportion to the quantum of benefit derived from the car. The new structure with CO2-based discounts and surcharges provides a broad structure to incentivise employers to make greener choices when providing employees with company cars; the system will mean that low-emission vehicles and any EVs that are liable for a BIK charge will benefit from a preferential rate ranging from 9 - 22.5%, depending on mileage. Conversely, high emissions vehicles will be subject to higher rates of BIK. This will bring the taxation system around company cars into step with other CO2-based motor taxes as well as the long-established CO2-based vehicle BIK regimes in other member states.
In addition, Ireland currently has a BIK relief for electric vehicles which is due to continue until end 2025. Further details are available on the Revenue website.