Significant changes to the basis of taxing the benefit-in-kind (BIK) arising from the provision of a company car came into effect from 1 January 2023.
The new provisions, which are already on the statute book and are therefore not dependent on the forthcoming Budget, will change the basis of the charge from one based solely on the original market value (OMV) of the car and business mileage travelled, to one which also takes account of the vehicle’s CO2 emissions. This will result in a higher level of BIK being imposed on cars with higher emissions.
The changes will apply to existing company cars, as well as new cars provided to employees on or after 1 January 2023. Employers who provide cars to their employees will need to take account of these changes in their payroll systems and also review the calculation of current BIK charges.
The BIK cash equivalent on the use of an employer-provider car will be determined based on both the business mileage undertaken and the vehicle’s CO2 emissions. Please find details below.
Tax Year 2023
The government introduced legislation in April 2023, but effective from 1 January 2023, to reduce the taxable BIK on cars for the entire tax year.
For the tax year 2023 only, the Original Market Value (‘OMV’) of a car, i.e. the value on which the percentage BIK charge is calculated, can be reduced by €10,000. This reduction applies to all company cars, other than those in the highest emissions category (Category E).
For electric vehicles, the OMV reduction of €10,000 will be in addition to the existing relief of €35,000 currently available for electric vehicles. Therefore, the total exemption for electric vehicles in the current year will be €45,000.
The upper limit in the highest mileage band (i.e., the threshold at which the lowest BIK percentage is applied) has also been reduced by 4,000 km, so the band is now entered at 48,001 km.
Lower Limit (km) | Upper Limit (km) | A
% | B
% | C
% | D
% | E
% |
— | 26,000 | 22.5 | 26.25 | 30 | 33.75 | 37.5 |
26,001 | 39,000 | 18 | 21 | 24 | 27 | 30 |
39,001 | 48,000 | 13.5 | 15.75 | 18 | 20.25 | 22.5 |
48,001 | — | 9 | 10.5 | 12 | 13.5 | 15 |
Lower Limit (km) | Upper Limit (km) | A
% | B
% | C
% | D
% | E
% |
— | 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 |
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 |
New Basis compared to old
At present, the BIK on company cars is calculated at the rate of 30% of the original market value of the car. A discounted rate is granted where the employee incurs significant business-related travel.
Currently there are five mileage bands which provide for a BIK charge ranging from 30% to 6% of OMV depending on the level of business mileage incurred. These will be reduced to four bands.
The new system will retain both OMV and business mileage as factors in calculating the BIK charge. However, it will also take account of the vehicle’s CO2 emissions. For many users with cars in the middle of the emissions range, it is likely that the BIK charge under the new system will remain the same as at present. Those with cars in the highest emission range (over 179g/km) will, however, see an increase in the percentage benefit-in-kind charge across all mileage bands, with a new maximum rate of cash equivalent/ benefit-in-kind of 37.50%.
Furthermore, the minimum BIK rate after discounts for business mileage will increase from 6% to 9%.
| Example |
|
| Previous Basis |
| The cash equivalent/ BIK is equal to: OMV x 24% (€28,000 x 24%) = €6,720 |
| Current Basis effective 1 January 2023 |
| 180 g/km in CO2 emissions puts the car in the vehicle category E under the new system. The applicable BIK rate is 30%. The cash equivalent/ BIK is equal to: (OMV - €10,000) x 30% (€18,000 x 30%) = €5,400 |
| New Basis effective 1 January 2024 |
180 g/km in CO2 comissions puts the car in the vehicle category E under the new system. The applicable BIK rate is 30%. The Cash Equivalent/ BIK is equal to: OMV x 30% (€28,000 x 30%) = €8,400 |
Electric cars
The legislation also provides for the tapering (reduction) of the current BIK exemption for electric vehicles (EVs). This will see the current exemption reducing as follows:
Year | BIK Exemption for EVs |
2022: | €50,000 |
2023: | €35,000 |
2024: | €20,000 |
2025: | €10,000 |
2026: | NIL |
Company Vans
The flat rate BIK charge on company-provided vans, currently set at 5% of OMV, will increase to 8% from 1 January 2023. The exemption for electric vans will be tapered on the same basis as for electric cars from 2023.
Summary and actions required
Employers who provide cars or vans to their employees for private use will need to review the treatment of these benefits in advance of 1 January 2023 to determine the impact of the changes and to ensure that the correct notional pay is subject to tax with effect from 2023. In light of the current pressure on fuel prices and the need to address climate change, it may also be an appropriate opportunity to consider whether the provision of cars as a benefit-in-kind continues to be an appropriate part of remuneration policy going forward.
Our Employment Tax team has wide experience in relation to the taxation of company cars and other employment benefits. We are available to assist your business in managing these changes.
For further information, please contact a member of our Employment Tax team, or click the button below:
