As people get back in their cars after the pandemic to carry out face to face business development, many employers are back considering whether to lease or buy cars for staff.
When an employer provides a vehicle to their employee and this vehicle is available for private use, they may be chargeable to tax on the benefit in kind (BIK) arising. The employee will be subject to tax on the cash equivalent value of the vehicle.
There are a number of changes being imposed from 2023 in relation to vehicles provided to employees. The changes are largely driven by the government’s Climate Action Plan 2021 to lower emissions by 2030.
From 2023 onwards, the BIK cash equivalent on the use of an employer provided car will be determined based on both the business mileage undertaken and the vehicle’s CO2 emissions, as outlined 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
|Vehicle 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|
A Car in category B is made available to an employee and they use the car for both personal and business use. The Original Market Value (OMV) of the car is €40,000. The business mileage was 40,000km.
The cash equivalent would be €40,000 x 15.75% = €6,300.
Prior to 2023, an electric vehicle made available to an employee did not incur a BIK charge if the OMV was less than €50,000. For vehicles with an OMV greater than €50,000, the balance of the OMV was multiplied by 30% to get the cash equivalent value.
However, 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 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.
Any portion of OMV remaining, after the reduction is applied, is chargeable to BIK at the prescribed rates as outlined above.
A Car in category A is made available to an employee during 2023 and they use the car for both personal and business use. The OMV of the car is €80,000. The business mileage was 26,000km.
The cash equivalent would be €80,000 – €35,000 x 22.5% = €10,135.
If the employee travels over 52,001 the cash equivalent would be €80,000 – €35,000 x 9% = €4,050.
Therefore, the more business mileage undertaken, the less BIK that will arise.
For the year of assessment 2023 and onwards the cash equivalent for vans will increase from 5% to 8% of the OMV.