Blog

Updated Benefit in Kind rules have implications for your costs

Benefit in Kind tax changes

Section 6 of the Finance Act 2019 introduced a new method of calculating the cash equivalent of the use of a car by a company employee. These updated Benefit in Kind (BIK) rules take effect for 2023 and subsequent years.

The new rules in 2023 will apply to all cars (including electric vehicles) whether the car is acquired in 2023 or was made available to employees in earlier years of assessment.

From 2023 onwards, the BIK cash equivalent on the use of an employer-provided car will be determined on both the business mileage undertaken and the vehicle’s CO2 emissions. 

Examples

i. The amount of business mileage and CO2 emission category

 

Lower Limit

Upper Limit

A

B

C

D

E

Kilometres

Kilometres

%

%

%

%

%

00

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

00

9

10.5

12

13.5

15

 

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

 

Example

An employee has the use of a car provided by his or her employer on January 1 2023. The OMV of the car is €28,000.

Per the manufacturer, the car produces 85g/km in CO₂ emissions. The actual business kilometres in the year were 41,000 kilometres. 85g/km in CO₂ emissions puts the car in vehicle Category B.

As the employee drove 41,000 kilometres in the year, the cash equivalent is equal to the OMV x 15.75% (mileage between 39,001 and 52,000)

BIK Calculation: Cash Equivalent (OMV) €28,000 x 15.75% = €4,410

Using the same example above, where an employee travels 41,000 business kilometres in the year and the OMV of the car is €28,000 under the current rules the BIK calculation would be as

follows:

 

€28,000 X 12% = €3,360

Employers records

Employers are required to maintain records of the kilometres traveled by each employee and this should be maintained on a weekly/monthly basis to calculate the BIK. It needs to be reported on a real-time basis via the weekly/monthly payroll returns. Revenue has advised that employers should review this regularly (at least quarterly) to ensure the BIK recorded to Revenue is as accurate as possible. 

 

Benefit in kind: Effect on Company Vans 

 

For the year of assessment 2023 and onwards the cash equivalent for vans will increase from 5% to 8% of the Original Market Value (OMV).

 

Benefit in kind: Effect on Electric Vehicles 

The Department of Finance announced in Budget 2022 the phasing out of the 0% BIK on Electric Vehicles over the next 4 years.  Finance Act 2021 extended the favourable BIK regime for certain electric vehicles made available to employees in the period from 1 January 2023 to 31 December 2025.  The relief from the BIK charge arising during this period applies on a tapered basis.

Calculation of BIK on electric cars

The cash equivalent will be calculated for an electric vehicle made available for an employee’s private use during the years 2023 – 2025 and will be based on the actual original market value (OMV) of the vehicle.

  • €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.

When does a nil BIK charge arise?

If the reduction reduces the original market value to Nil, a BIK charge will not arise. Any portion of OMV remaining, after the reduction is applied, is chargeable to benefit-in-kind at the prescribed rates.

Any expense incurred by an employer in the provision of electric vehicle charging facilities are exempt from BIK provided that the charging facilities are on the employer’s premises. It also has to be available for use by all employees and directors. Click here for more detail.

 

Example

 

An employee has the use of an electric company car on 1 st January 2023. The OMV of the car is €70,000.

 

Per the manufacturer, the car produces 50g/km in CO₂ emissions. The actual business kilometres in the year were 24,000 kilometres. 50g/km in CO₂ emissions puts the car in vehicle Category A.

Electric cars will be ‘Category A’ vehicles because their CO2 emissions will be between 0g/km and 59g/km inclusive.

The next four years

The below examples details the effect of the tapering relief and change in BIK charges for employees over the next 4 years:

 

Year

2023

2024

2025

2026

Original Market Value

€70,000

€70,000

€70,000

€70,000

Tax Free

Threshold of OMV

€35,00

€20,000

€10,000

0

Taxable OMV

€35,000

€50,000

€60,000

€70,000

 

 

 

 

 

BIK Rate to be used

22.5%

22.5%

22.5%

22.5%

 

 

 

 

 

Cash Equivalent of use of Electric Car

€7,875

€11,250

€13,500

€15,750

 

Finally, there are no changes to travel and subsistence rates.

Book A Free Consultation

Are you looking for professional help? aperio is a Cork-based outsourced accounting and consulting company that can take care of all your company needs. We specialise in company formation, bookkeeping and management accounting, financial compliance as well as financial project work such as grant applications. Book a FREE Consultation today.

Init popup
aperio-popup aperio-popup