Temporary Change to Benefit-in-Kind on Company Vehicles

From 1 January 2023, the Benefit-in-Kind regime for company cars moved to a CO2-based system. Under this system, the amount taxable as BIK is determined by the car’s Original Market Value (OMV), the annual business kilometres driven and CO2 emissions-based bands. However, because this change will result in a significant number of employees with vehicles in the typical emissions range incurring large increases in their income tax liabilities, a temporary relief is being introduced for 2023. This relief will temporarily reduce the amount of BIK payable on certain categories of company vehicles. 

What you need to know

There are three key questions to consider:

•    Are you providing company cars or vans for your employees?

•    What are the main elements of the new CO2-based system?

•    What is the temporary change being introduced for 2023?

Are you providing company cars or vans for your employees?

If you provide company vehicles for your employees or directors, the first thing to establish is whether the vehicle’s specification qualifies as ‘commercial’. The general rule is that if there are seats behind the driver's seat, then the vehicle is treated as a car for BIK purposes. In our experience, very often, vehicles advertised as commercial do not qualify as ‘commercial’ under Revenue’s definition and, consequently, are subject to BIK at passenger motor vehicle rates. 

According to the Revenue website, a van is a vehicle which is made solely or mainly for the transport of goods, has a roofed area behind the driver’s seat, and has no side windows or seating fitted in the roofed area. Revenue says that if a vehicle does not meet all these criteria, it may be a car for tax purposes. 

What are the main elements of the new CO2-based system?

As mentioned, from 1 January 2023, the amount taxable as BIK is determined by the car’s Original Market Value (OMV), the annual business kilometres driven and CO2 emissions-based bands. This is summarised in Table 1.

What is the temporary change being introduced for 2023?

In light of the current cost of living crisis, and because the new CO2- based system will result in higher income tax for employees with vehicles in the typical emissions range, a temporary relief is being introduced which will reduce the notional pay of these employees by between €900 and €3375. When enacted, this measure will retrospectively apply from 1 January 2023 and will remain in place until 31 December 2023. Set out below is a brief summary of how it will affect company cars, company vans and electric vehicles.

• Company cars: The Original Market Value (OMV) of cars in Category A-D, will be reduced by €10,000, which will consequently reduce the BIK charge. This reduction is not available for cars in Category E. The upper limit in the highest mileage band is temporarily reduced by 4,000km (from 52,001kms to 48,001kms)

• Company vans: The temporary change also applies to company vans. The cash equivalent for vans will be calculated as 8% of the OMV, with a €10,000 reduction in the OMV. 

• Electric vehicles: The temporary change means an increase of €10,000 on the existing €35,000 BIK relief on electric cars. This means that the cash equivalent of the provision of an electric vehicle will be calculated based on the actual OMV of the vehicle reduced by €45,000. For subsequent years, a reduction of €20,000 from the OMV applies in 2024, reducing to €10,000 in 2025 (See example in Table 2).

Table 2:Electric vehicle acquired on 1 January 2023 with an OMV of €70,000, performing annual business mileage of 24,000 KM.

Next steps

While the temporary relief being introduced in Finance Bill 2023 is welcome, the new BIK regime for company cars represents a significant change. If you are unsure how you and your employees will be affected, or if you need help managing the change, contact your local ifac office for assistance.