From 1 January 2023, new rates of benefit-in-kind (BIK) were applied to the provision of an employer provided car, which take into account the CO2 emissions of the car. As a consequence, lower rates of tax will generally apply to cars that are more environmentally friendly.
Employer provided car
The amount taxable as a BIK remains determined by the cars original market value (OMV) and the annual business kilometres driven, but new CO2 emissions bands are being used to determine whether a standard, discounted, or surcharged rate applies. Thus, under the BIK charging regime, the carbon footprint and fuel emissions of the car play a key role in determining the BIK charge.
From 1 January 2023, the cash equivalent of the use of an employer-provided car is determined using the formula:
Original market value (OMV) x A
To calculate A:
Determine the applicable vehicle category from Table B based on the amount of CO2 g/km the vehicle produces.
Locate the vehicle category in Table A.
Compare the annual business mileage travelled for the year to establish the appropriate percentage to use for A.
TABLE A
|
|
Business Mileage
|
|
|
|
|
Vehicle Categories
|
|
Lower limit
(1)
|
Upper limit
(2)
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A
(3)
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B
(4)
|
C
(5)
|
D
(6)
|
E
(7)
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|
Kilometres
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Kilometres
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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
|
52,000
|
13.5
|
15.75
|
18
|
20.25
|
22.5
|
|
52,001
|
--
|
9
|
10.5
|
12
|
13.5
|
15
|
TABLE B
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Vehicle Category
(1)
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CO2 Emissions (CO2 g/km)
(2)
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A
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0g/km up to and including 59g/km
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B
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More than 59g/km up to and including 99g/km
|
|
C
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More than 99g/km up to and including 139g/km
|
|
D
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More than 139g/km up to and including 179g/km
|
|
E
|
More than 179g/km
|
Preferential rate of BIK for Electric Vehicles (EVs)
Electric cars that fall into ‘Category A’ vehicles, i.e., vehicles with CO2 emissions between 0g/km and 59g/km inclusive benefit from a preferential rate of BIK, ranging from 9% - 22.5% depending on business mileage. An electric car is a car that derives its motive power exclusively from an electric motor.
Due to the impact that the new emissions based BIK system has on certain petrol and diesel cars, Finance Act 2023 provided as a temporary measure a €10,000 reduction to be applied to the OMV of cars in Category A, B, C and D for 2023 in order to reduce the amount of benefit-in-kind (BIK) payable. This was not applicable to cars in Category E. This treatment also applied to all vans and electric vehicles (cars and vans). This meant that for the purposes of calculating the BIK liability on an employer-provided car, employers could reduce the OMV by €10,000.
Finance Act (No. 2) 2023 extended the €10,000 reduction to be applied to the OMV of cars in Category A, B, C and D to apply for 2024.
In addition the Finance (No.2) 2023 extended the existing BIK tapering regime that was available for EVs to 2027. This means that for an electric car/van made available for an employee’s private use during the years 2024 to 2027, the cash equivalent will be calculated based on the actual OMV of the vehicle reduced by:
• €35,000 in respect of vehicles made available in the 2024 and 2025 year of assessment;
• €20,000 in respect of vehicles made available in the 2026 year of assessment; and
• €10,000 in respect of vehicles made available in the 2027 year of assessment.
Therefore, when the €10,000 reduction above is added to the €35,000 reduction, the total reduction in OMV for EV’s for 2024 is €45,000.
The reductions apply irrespective of the actual OMV of the vehicle or when the vehicle was first provided to the employee. 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 BIK at the prescribed rates.
The precise arrangements surrounding what types of vehicles are provided by employers for those employees in the performance of their duties is a matter between the employee and their employer. Lower rates of BIK are applied to certain employer provided vehicles to incentivise the uptake of lower emissions vehicles, in particular EVs. On the specific question of plug-in hybrids, these vehicles would generally benefit from a lower BIK rate, based on their CO2 emissions.
Further information on the taxation of employer-provided vehicles is included in Tax and Duty Manual Part 05- 01-01b, which is available at the following links:
• www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-05/05-01-01b.pdf
• www.revenue.ie/en/employing-people/benefit-in-kind-for-employers/private-use-company-cars/index.aspx
